Joff Wild

An organisation called IP2I (Intellectual Property 2 Innovate) put out a press release on 4th April with the shock headline “Digital innovation downturn as patent trolls invade Europe”. The organisation – whose members include Google, SAP, Intel and Daimler – claimed in the release that:

The EU is facing a new explosion of patent infringement lawsuits from so-called patent trolls that are abusing Europe’s legal system(s) for financial gain. The large majority of such cases are filed in Germany and France. In Germany they now make up a staggering 20 percent of all patent lawsuits.

It went on:

IP2Innovate asked the European Commission to take concrete steps to prevent further abuses by patent trolls of the EU legal system.  The abusive practices of patent trolls, also known as patent assertion entities, cause great uncertainty for business, add unnecessary costs, scare investors, stifle innovation, slow development and the introduction of new products, and even force businesses to shut down.

The Commission, IP2I reports, turned down its request to take action, prompting executive director Patrick Oliver to state: “The risk will only increase with the implementation of the Unified Patent Court which will make Europe an even more attractive venue for patent abuses. The European Commission must get tough with US patent trolls.”

So, where do we begin with this? Perhaps with a central claim in the release that patent trolls are filing "a staggering 20 percent of all patent lawsuits” in Germany.  Where does that number come from? The press release does not say. It just asks us to take the figure on trust.

Having done an internet search, though, I came across nothing anywhere that backs up this 20% claim. The closest that I can find is Patent Assertion Entities in Europe, by Brian Love, Christian Helmers, Fabian Gaessler and Max Ernicke. This reported that between 2000 and 2008, around 19% of patent suits in Germany involved NPEs (defined as “any entity that does not sell a technology product”) and that 9% involved patent assertion entities. However, more than half of suits involving PAEs were actually revocation or non-infringement actions filed against the patent owner; in other words, these were suits filed against PAEs, not by them. Also important to note here is that the study very specifically differentiates between NPEs and PAEs, and finds that more of the former were involved in suits than the latter.    

Alternatively, there is a report by Darts-ip that we covered on the IAM blog last month, which states that that between 2011 and 2016, NPEs (again not “trolls”) filed 153 cases in German courts. However, for the IP2I's 20% claim to be correct based on this study it would mean that in those five years a total of just over 750 patent suits would have had to have been filed in Germany. I do not have the number off-hand, but I do know that Germany is home to more patent disputes than any other country in Europe and that it is highly likely that many thousands of cases involving patents were filed in its courts between 2011 and 2016. Indeed, 750 is probably actually much closer to a figure for one year's worth of activity. Obviously, 153 as a percentage of, say, 3,000 suits over a five year period is nowhere near 20%.

But even more important is that beyond equating trolls with patent assertion entities, IP2I provides no definitions of what it is that it is actually referring to. And, as last year's FTC report on patent assertion entities made absolutely clear, definitions are not nitpicking, they are vitally important. So, while it is true that some do directly equate PAEs with trolls, it is equally the case that many others do not. They include IAM, for example.

For us, what differentiates a troll from any other kind of NPE is its use of low quality patents to extract settlement payments that are less than the cost of fighting a case through the courts. They once thrived in the US because of the absence of loser pays rules, the high cost of litigating and the generally low quality of issued patents in areas such as IT and software. Recent changes mean that the days of wine and roses for US trolls are now coming to an end. A PAE, in contrast, is an entity that tends to invest in higher quality patents, often works with operating companies and is prepared to spend a lot of money to argue a case on the courtroom floor. As Love, Helmers et al note in Patent Assertion Entities in Europe, NPEs form an even wider group than that.

My experience is that those who do equate trolls with PAEs are seeking to create a debate that focuses not on patent quality, eligibility or infringement, but on the business model of the patent owner. They want people (more specifically legislators, policy-makers and courts) to make moral judgements about those asserting rights, not on those who might be infringing them. This is what the FTC also concluded last year: "In the Commission’s view, a label like “patent troll” is unhelpful because it invites pre-judgment about the societal impact of patent assertion activity without an understanding of the underlying business model that fuels such activity.” 

But despite the FTC's words, those who do equate PAEs with trolls have been immensely successful in the US, to the extent that patent values have plummeted, innovation has been disincentivised and dominant positions inside certain industries have been entrenched. With courts in many big European jurisdictions offering injunctions to successful plaintiffs of whatever kind, and the Unified Patent Court possibly just months away, it is perfectly understandable why they would now want to do what they have done in the US over here, too.

The challenge, though, is that on the face of it Europe is not troll friendly: patent litigation is much quicker and cheaper than in the US, patent quality is higher, the courts tend to be specialist, there are no juries, and – crucially – there are loser pays provisions. The room for leverage that trolls once had in the US just does not exist; while injunctions only come into play if a defendant has lost a case before a specialist court - in other words, it has been found to infringe by a highly experienced, technically competent judge. Thus, if I were a public relations expert seeking to create a narrative around trolls “invading Europe”, I would know that I needed to have some “staggering” figures to hand about their activities in order to counter arguments they cannot thrive in the European system. 

On the face of it, then, we have a press release from an industry lobbying group that makes unsubstantiated, confusing claims about patent litigation in Europe in an attempt to put pressure on the Commission to take action against entities that are not defined. That is not a great look. However, it could well be that I have missed something here. There may be credible research that provides up-to-date numbers showing that actual patent trolls, as opposed to PAEs and NPEs, really do file 20% of all patent cases in Germany these days, as well as being responsible for 10% of cases in France. If so, I will happily publish the data for readers to see. I suspect this must be what has happened because it is hard to believe that anyone would deliberately seek to misinform about such an important issue – and especially an organisation representing so many well-known, highly-respected companies.

So, I look forward to providing you all with the relevant facts. This should put to rest any fears you may have that the sometimes dishonest and specious claims made by those seeking further patent reform in the US are now migrating to this side of the Atlantic.