Why Europe could be all set to become an attractive playground for NPEs and even trolls - UPDATED 07 Jul 13
Anyone out there who thought that NPEs were just a phenomenon facilitated by the US litigation system should take a look at what has happened in Europe over the last seven days.
First, Reuters reported on Wednesday that IPCom, a German NPE that this blog has been following for quite a while, secured “a low-to-medium triple-digit million euro” pay-off from Deutsche Telekom following the settlement of a dispute between the two concerning communications technology patents; then the following day we revealed that France Brevets, an NPE backed by the French government and the state-owned bank Caisse des Dépôts et Consignations, had initiated legal action in Düsseldorf against an unnamed American company over alleged infringement of patents covering smart home technologies.
If the Reuters report is correct, and no-one has since denied it, the IPCom pay-off equates to hundreds of millions of dollars – that would be sizeable in any jurisdiction, including the US. France Brevets, meanwhile, is talking the kind of language we often hear from US-based NPEs: “Procrastination is a very common strategy in licensing … It is important to demonstrate how serious we are about protecting the rights we defend,” Jean-Charles Hourcade, its managing director, has said. Clearly, NPEs get results in Europe and are losing any inhibitions they may have had about advertising their activities.
IPCom, France Brevets and Sisvel, another NPE that operates in Europe, all have close connections with operating companies. IPCom purchased its portfolio of mobile communications patents form Bosch; France Brevets was established specifically to help French patent owners; while Sisvel has a long-term relationship with the likes of Philips and Orange, and more recently has established one with Nokia. What we are talking about here, then, are business models that to all intents and purposes are varieties of the privateer play – operating company hooks up with third party enforcement entity to monetise patent rights.
What we are not talking about in Europe are NPEs which use the threat of expensive litigation to secure relatively low level licensing deals. Instead, what gives European NPEs leverage is the quality of the patents they own and the remedies available should those patents prevail. The market they focus on is usually Germany, which is attractive because of its size and economic power, as well as its speedy, relatively low cost litigation system that tends to favour the patentee and is almost always going to give a successful plaintiff the opportunity to get an injunction.
American NPEs looking at Europe have to work out whether the patents they possess are going to give them that kind of leverage. Are they of high enough quality and, of course, do they cover European jurisdictions – most importantly Germany? Right now, the answer for most of them is probably not – they have been very focused on the US market. But there is no reason why that could not change for those that are willing to make the investment.
The model that is not going to work in Europe - at least for now – is low-level trolling. Threatening to sue someone in a European jurisdiction in the hope of extracting a licensing rent from them because they want to avoid having to fight a case that will be expensive in terms of time and money to put together is not really a viable option; first, because in relative terms it is not that expensive to go to court in Europe and second because in most jurisdiction some type of loser pays provision is in operation. In short, if you are a defendant in Europe who believes you have a good case, you have every incentive to see it through.
The thing that may change this equation is the proposed unitary patent and the unified patent court (UPC) through which it will be enforced. As IAM has discussed previously, current plans could allow for a level of forum selection and cause enough uncertainty to make trolling an attractive option. Warnings have been issued about this for quite a while now; but so far it seems as if those doing the negotiating have not listened. If that state of affairs continues, trolls may well start to get interested: if they can pick up low cost patents and then devise strategies that will make defendants jump through costly legal hoops they are undoubtedly going to see that as an opportunity, especially if at the same time life is getting much tougher in the US.
Of course, what the UPC will also do is make things much more attractive for higher grade NPEs too. An injunction covering a market of 500 million, including the population of three G8 countries as well as many other very prosperous ones, is a far bigger stick than one covering 80 million people living in one G8 country. Thus, however the UPC is structured, growing NPE activity in Europe over the coming years – especially of the privateering kind - should be expected.
UPDATE - We have received the following message from Ruud Peters, the chief IP officer of Philips, concerning the company's relationship with Sisvel:
Philips indeed has a long term relationship with Sisvel, but as the administrator of a patent pool for MP3 essential patents, which was set up by Philips, Orange, TDF and IRT. We have no other relationship with Sisvel than through this patent pool. This MP3 patent pool is not what we consider a privateer play, because that would mean that every patent pool is a privateer play, which of course is not the case.
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