The reported explosion of NPE litigation in the US does not tell the full story 11 Oct 12
A study which reveals that NPE-related patent litigation in the US has exploded over recent years has received a great deal of coverage today, mostly along the lines of “patent trolls are taking over the world”. But The America Invents Act 500: Effects of Patent Monetization Entities on US Litigation is a serious piece of work. Written by Professor Robin Feldman, Sara Jeruss and Joshua Walker, it is based on research that was commissioned by the Government Accountability Office (GAO), which was mandated under the America Invents Act to look at the effects which NPEs may or may not be having on patent litigation in the US and to convey its findings to Congress. The GAO was supposed to report back by 16th September, but didn’t. Instead, the latest rumour I have heard is that now its work may not be published until November or even December. Given that, it is slightly strange that the AIA 500 study has been released; not that it is that big a deal.
Anyway, the headline finding of the study is that “lawsuits filed by patent monetizers have increased from 22% of the cases filed five years ago to almost 40% of the cases filed in the most recent year”. The article details how the authors arrived at those numbers, what they classify as what are called patent monetisation entities (and why they prefer that term to NPEs , PAEs or trolls), who filed most suits, where litigation took place and what the outcomes of cases were.
"We hope that the data will not only help answer Congress’ initial questions concerning the impact of non-practicing entities on patent litigation, but also will spur legislators to look for ways to address the impact that patent monetisation entities are having on the United States patent litigation system, as well as the economy on the whole,” the authors conclude.
If the 500 cases that were randomly selected are representative of all cases filed in the US over the last five years, then it is very difficult to argue that NPEs are not having a big effect on the US patent litigation system. However, the economics is a lot more debatable, as we have discussed before on this blog. More than that, though, before Congress wades in and starts to address any impacts, it has to make sure it has taken the time to understand the detail behind the headlines.
For example, one thing that we know has happened over recent years – but which the study does not address – is that operating companies and NPEs have started to work much more closely together. Acacia, named in the article as one of the top 5 lawsuit filers, has done a great deal of work with operating companies, many of Intellectual Ventures' shareholders are operating companies, while only last year Nokia and Microsoft agreed a deal with MOSAID; many more deals go under the radar, no doubt. Then there are the NPEs that have been specifically set up by or with the help of operating companies – think Rockstar and Round Rock, for example. Again, we do not know how many other NPEs have similar roots; neither do we know the number of operating companies that have just sold portfolios to NPEs, although we know that it happens all the time.
When an NPE asserts patents on behalf of an operating company or ones that it has licensed or acquired from an operating company, it is the NPE that will be recorded as the plaintiff. But the operating company has directly benefited – monetarily, but also in terms of man hours saved, exposures lessened, relationships preserved and so on. It could well the case that in many instances if an NPE had not been litigating, an operating company would have been doing it anyway; it’s just that the NPE is the better option. Now, is that a good or a bad thing? Does that cause economic harm or does it promote economic good? I do not know the answer, but I am pretty sure that the issue should be looked at before anyone does any legislating.
In short, NPEs are a complicated issue. That fact has to be recognised by their critics, legal commentators, economists, operating companies, NPEs and, most important of all, by legislators. Given the importance of IP to the American economy, change should not be based on selective figures and anecdote; that way lies unintended consequences, unanticipated problems and unthought-of economic costs. When it comes to NPEs America must look before it leaps. Anything else is far too risky.
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