This is the latest in the series titled "NPE Showcase," where we discuss high-volume non-practicing entities (or as some call them, "patent trolls"). This installment will focus on a company named Web 2.0 Technologies, LLC.
Web 2.0 Technologies is similar to other NPEs, asserting two patents against well-known companies for technology that has been around since the turn of the millennium. The "infringing products" include software that gathers and stores personal information and preferences, then grants certain users access rights to that information. Their cases last only a few months, suggesting a cost-of-defense settlement that is the hallmark of nuisance-based patent troll litigation.
What is unclear is how Web 2.0 Technologies receives its funding. The entity is apparently inventor-controlled, meaning the original inventors of the patents received the necessary funding to assert the patents against others. Sometimes, NPEs are self-funded and the litigation is financed by the owners of the NPE itself. But this is a difficult task. The cost of legal enforcement, experts, and other administrative expenses can be quite large. NPEs only realize revenue when settling a case or receiving a damages award years after creation. It's no secret that early-stage NPEs require funding for the purchase and enforcement of patents.
But where does that financing come from? It depends on the NPE. Nuisance-based NPEs (i.e., patent trolls) are often financed by third party investment firms who can stomach the long game that includes dozens of lawsuits, each resulting in a low return on investment. These entities may find it more difficult to receive funding as a result.
High-stakes NPEs are more likely to be funded if they can show their case has merit. Typically, litigation finance firms are only willing to fund high-stakes lawsuits with a potential 10x return on investment. These cases are carefully vetted, with lawyers and damages experts analyzing the risk associated with infringement, invalidity, and damages. Everyone involved knows – the case will likely proceed to trial against high-priced lawyers and the best prior art that can be found. Every stone will be unturned because both the risk and reward are high. These are not "patent trolls" by any meaning of the term, but rather, companies that expect their patents to be challenged.
Given this dichotomy, it's always important to ask – who is funding the NPE litigation? The cost of settlement is often tied to the firm backing the NPE despite their inability to agree or disagree to settlement terms.
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