PATENT LITIGATION BY NON-PRACTICING ENTITIES | OVERVIEW | WEEK #8

Hey guys!

This week's blog is going to cover patent litigation by non-practicing entities (a.k.a. NPEs or "Patent Trolls"). The aim of this particular post is to provide an overview of NPEs, which will serve as a bridge to the examples I will be covering in my next two blog posts. I feel that this is the best way to really thoroughly analyze NPEs, which have become an increasingly contentious topic.

What is an NPE?

• An NPE can be loosely defined as any entity that earns or plans to earn the majority of its revenue from the licensing or enforcement of its patents.
• Other factors to consider include:
• An NPE is an entity that holds a patent for a product or process but has no intentions of developing or manufacturing it.
  
• An NPE could be a party that purchases a patent from one firm, and then sues another firm for infringing on the patent.
• At the end of the day, the definition of “patent troll” is highly amorphous, and the types of business models, patent enforcement, and licensing practices that are considered to constitute “trolling,” as opposed to more socially acceptable forms of monetizing patent rights, vary widely in public opinion.

Legal Implications of NPEs

• Because they do not sell products or services (other than the licensing of their patents), NPEs typically do not infringe on the patent rights contained in others’ patent portfolios.
• As a result, they are essentially invulnerable to the threat of counter-assertion, which is otherwise one of the most important defensive – and stabilizing – measures in patent disputes.
• The patent troll's business model revolves around two main criteria:
• A lengthy and expensive litigation process that deters the defendant from pursuing counter-actions, and
• A broad or vague patent that can be used to snare many defendants for licensing rights.

Different Types of NPEs

• Some inventors choose not to pursue the development, manufacturing, and sales of their inventions. 
• They may lack the resources to do so, or the interest, passion, and commitment that such an effort requires. 
• Instead, they may seek to license their inventions to others who can use them to deliver better products and services.
• Some companies invest in research, development and commercialization for a number of years, but fail to achieve adequate sales to sustain their business. 
• Facing this, they begin to seek a return on their investment through the licensing of their intellectual property.
• Some entities buy patents with the express purpose of licensing them aggressively.

Regardless, it is widely argued that so-called “patent trolls” are corrupting the U.S. patent system and endangering technology innovation and commercialization at large. Case in point, an influential study estimated the “direct costs” of patent troll litigation in the U.S. in 2011 at $29 billion.

I think the image below is a very entertaining and illustrative synopsis of my analysis!

Sources: https://www.patentfreedom.com/about-npes/background/, https://www.law.northwestern.edu/research-faculty/searlecenter/workingpapers/documents/Mazzeo_NPE_study_mhz_012112.pdf, http://www.theatlantic.com/business/archive/2014/12/what-the-courts-did-to-curb-patent-trollingfor-now/383138/