The European patent market – where should investors look next?

A growing number of patent owners in the European Union probably have the potential to monetise their patents – but do they know the best way to go about this?

Today, most large EU companies within the high-tech sector – including Nokia, Ericsson and Philips – are already actively monetising their patent portfolios. However, when it comes to small and medium-sized enterprises (SME), it becomes more difficult to track patent transactions. This could be because transactions fall under the radar or are too small to attract attention. However, it could also be because EU SMEs are not considering the opportunity to monetise their patents, but merely using them as an exclusive right against their peers. According to EU figures, 99.8% of all enterprises in the non-financial business sector in 2014 were SMEs – it would be logical to assume that many of these SMEs also own patents which could be monetised. This article tests this assumption in order to better understand what opportunities SMEs may have to monetise their patents and why they do not appear to have been active in the patent marketplace so far.

R&D in the European Union

The European Union’s strategy is to increase support for R&D in order to increase the employment rate and boost the economy. To this end, it is trying to bring EU R&D expenditure into line with that of the United States and Japan in relation to gross domestic product (GDP), with a target of 3% of total GDP being invested in R&D by 2020. Figure 1 shows the proportion of R&D expenditure for each EU member state in relation to GDP and indicates that, on average, EU member states are failing to meet this target. However, there are some exceptions, most notably the Nordic member states – Finland, Sweden and Denmark – even though the population of these states accounts for only 4.08% of the total population of the European Union. The top 10 countries for R&D expenditure in relation to GDP also include Austria, the Netherlands and the Czech Republic.

Figure 1. R&D expenditure for EU member states in relation to GDP (as percentage) in 2014

Source: Eurostat

Working on the assumption that patents owned by SMEs can be monetised, it would be useful to understand how much SMEs spend on R&D in comparison to large enterprises. Figure 2 illustrates business enterprise expenditure on R&D (BERD) and indicates that SMEs in EU Nordic countries may not spend as much on R&D as large enterprises – although they do invest considerably more compared to other EU member states. While SMEs in countries such as Estonia, Latvia and Spain spend considerably more on R&D than large enterprises, these countries spend a lot less on R&D in general.

Figure 2. Business enterprise expenditure on R&D of EU member states in relation to SMEs and large enterprises in 2014

Source: Eurostat

Figure 3. Benchmarks of domestic patent filings between the United States, the European Union and Japan

Source: WIPO

Another way of measuring countries’ R&D activities is to study their domestic patent filings. Figure 3 shows the total number of domestic patent applications by patent office and origin in the United States, Japan and the European Union (total from all 28 member states). Despite the high expenditure on R&D in Japan compared to the United States, Japan has a lower number of patent filings. As the European Union does not perform as well as either the United States or Japan, it is interesting to examine which EU member states actually contribute most to the total number of patent filings.

EU countries’ patent performance

Nordic EU states may spend a significant amount on R&D, but it is also crucial to understand how well they actually perform when it comes to patent filings. Figure 4 shows each EU member state’s domestic patent filings in 2014. The filings are dominated by Germany, which files more than three times as many patent applications than the United Kingdom – the second-largest domestic patent filer in the European Union. It is unsurprising that Germany dominates, given that it has the largest population in the European Union (almost 16%). France, the second-largest country, accounts for nearly 13% of the EU population, but appears to be lagging behind – particularly given that the European Union is focusing on increasing its R&D activities. The Nordic member states filed almost 5,000 patent applications altogether, suggesting that a patent investor would be wise to take a closer look at patenting activities in countries such as Sweden, Finland and Denmark.

Figure 4. EU member states’ domestic patent filings 2014

Source: WIPO

Despite the United Kingdom’s EU referendum result, it has been and still is an EU member state at the time of writing – which is why it has been included in this research.

It is also useful to examine the effectiveness of these countries by considering their population in relation to amount of patent filings, particularly with respect to SMEs. Figure 5 shows a bubble diagram of the 10 highest-performing EU countries based on the number of patent filings per citizen. Each bubble represents the number of patent filings per citizen multiplied by 1,000 to reach a scale of between zero and one, which is then mapped to the respective BERD SME (%) value. Some of the smallest EU states, such as Luxembourg, are far more effective at generating new patent filings when compared to larger states. Although Germany may not have as many SMEs investing in R&D compared to the other nine countries listed in Figure 5, the figure illustrates that it is still highly efficient when it comes to the number of patent filings per citizen.

Figure 5. Patent filings per citizen in 2013 sorted after BERD SME

Sources: OECD, WIPO and European Union

Comparing R&D expenditure rates, the number of patent filings and patent filings per citizen reveals that even EU member states with small populations can be highly efficient when it comes to filing patents. The most efficient countries (by patent filings per citizen times 1,000

EU SME patent performance

The next step is to understand the technology focus of the SMEs and their associated contributions. We used the Fraunhofer technology classification, which contains 35 different technologies (FhG35) and is widely recognised by organisations such as the World Intellectual Property Organisation. The FhG35 was developed to classify patent applications more systematically and is based on the codes of the International Patent Classification. The data used to estimate the technology contribution is based on a study published by Eurostat in 2014, identifying all SMEs in Europe which contributed patent filings between 2005 and 2011. Figure 6 shows a high intensity within biotechnology-related fields and medical technologies. Due to the strong presence of major telecommunications companies such as Nokia and Ericsson, it might be surprising to see that, in general, information and communications-related technologies account for only a modest contribution. This is possibly due to the industry being typically based on a high level of investment and large production volumes, which makes it more difficult for SMEs to compete. It may thus make more sense for investors to focus on technologies where SMEs have a filing contribution of 10% or more and to see how well those technologies overlap with large companies’ business interests.

Figure 6. Proportion of patent applications per technology field filed by SMEs in the European Union

Source: Eurostat

Even where there is a high percentage of patent filings among SMEs in a technology field, there is no indication of how well they perform in relation to large enterprises. As our assumption is that large enterprises in the European Union are fairly active when it comes to monetising their patents, it would be reasonable to say that the technologies they represent are of significant value to the patent market.

For this reason, it is also vital to understand how SME patent filings relate to overall patent filings among EU countries. According to the European Patent Office (EPO), almost 1.5 million patent applications were filed between 2006 and 2015. Figure 7 shows the total number of filings over the top 12 technologies and clearly indicates that there is an overlap between SME patent filings in medical technology in relation to the total number of filings. It also indicates that some of the top SME technology patent filings – such as analysis of biotech materials – are not among these 12 technologies. Thus, there could be a significant potential for SMEs active in these technologies to add value through patent monetisation.

Figure 7. Total number of filings per technology with highest filing rates 2006-2015

Sources: EPO and Eurostat

Table 1Top 12 technologies in filings 2006-2015 compared to EU SMEs rank based on number of filings

Top 12 technologies in patent filings 2006-2015

SME rank

Biotechnology

1

Pharmaceuticals

2

Medical technology

3

Measurement

4

Electrical machinery, apparatus, energy

5

Computer technology

6

Organic fine chemistry

7

Transport

8

Audiovisual technology

9

Engines, pumps, turbines

10

Telecommunications

11

Digital communication

12

The overlap between the top 12 technologies and EU SME patent filings for these technologies is shown in Table 1, where one indicates a high percentage of total SME patent filings. Except for medical technology, there is a high overlap between biotechnology, pharmaceuticals and measurements. In addition, there are other areas of interest – such as electrical machinery, computer technology, organic fine chemistry and audiovisual technologies – which have a medium overlap in relation to SME ranking. Even areas with lower overlap should be considered significant, since they still represent the 12 highest-ranked technologies out of 35. Technologies such as digital communication and telecommunications represent a significant market value where SMEs are also major patent contributors.

EU member states’ technology coverage

The top 12 technology areas per country provide a useful indication of the countries’ potential strength in different areas. Due to the high number of patent filings in some countries, we have divided the regional filings per EU member states and technology covering 2006 to 2015 (including the United States, Japan, Korea and China as a comparison) into three different levels: up to 50,000, 8,000 and 2,000 filings per technology. These are shown as topographic landscapes in Figures 8, 9 and 10, which provide a high-level overview of the number of filings per technology, as well as a deeper insight of individual EU countries’ performance. Countries with fewer than 1,500 filings covering all technologies filed between 2006 and 2015 have been excluded, since the data is too low to demonstrate any significant technology contribution. The same 12 technologies – as shown in Figure 7 and Table 1 – have been used, as they represent the most relevant technologies in terms of number of filings. The countries representing the largest number of filings per technology are led by the United States, Germany and Japan, which filed up to 50,000 applications per technology between 2006 and 2015 (Figure 8). The United States has a comfortable lead in sectors such as medical technology, computer technology and pharmaceuticals, while Germany is second for medical technology. Germany is also heading the pack, along with Japan, in transport and electrical machinery, apparatus and energy; while Japan edges ahead when it comes to filings in audiovisual technologies.

Figure 8. Applications for European patents by country and technology up to 50,000 filings 2006-2015

Source: WIPO

Figure 9 shows the countries representing the second-largest number of European patent filings per technology, which filed up to 8,000 applications per technology between 2006 and 2015. The graph represents seven current EU member states (Sweden, the Netherlands, Italy, the United Kingdom, Finland and Denmark). The number of filings between these countries is distributed more evenly between the different technologies than those shown in Figure 8. It is interesting to see unique leadership of telecommunications in Sweden, which reflects the presence of Ericsson in the country. Most of these countries also indicate a clear overlap with the most efficient countries with respect to patent filings per citizen, as shown in Figure 5. Thus, it would be reasonable to say that these countries have SMEs with portfolios of interest to larger enterprises and investors.

Figure 9. Applications for European patents by country and technology up to 8,000 filings 2006-2015

Source: WIPO

Finally, Figure 10 shows the countries representing the third-largest number of filings per technology, which filed up to 2,000 applications per technology between 2006 and 2015. The countries that stand out here are Austria, Belgium and Spain, due to their strong presence in electrical machinery, organic fine chemistry, pharmaceuticals and biotechnology in comparison to other EU member states with similar numbers of filings.

Conclusions for EU patent filing performances

Three main findings can be drawn from these data points:

  • the EU member states which are most efficient based on patent filings per citizen and where SMEs invest significantly in R&D in relation to the country’s GDP – as illustrated by Figure 5;
  • the most relevant technologies according to the number of domestic filings in the European Union, from both SMEs and larger companies – as illustrated by Figure 7; and
  • EU member states which contribute significantly to the number of patent filings in Europe for the most relevant technologies – as illustrated by Figures 8, 9 and 10.

Figure 10. Applications for European patents by country and technology up to 2,000 filings 2006-2015

Source: WIPO

 

Assuming that SME filings are equally distributed between all EU member states, it is possible to rank the most relevant countries in terms of SMEs with a high likelihood of monetising patents (Figure 11). The spider diagram examines the 10-highest performing countries according to patent filings per citizen and BERD SME, as shown in Figure 5. The ranking for each country is relative to the other nine countries and is based on a linear scale in relation to:

  • R&D expenditure percentage of GDP – indicating the country’s capabilities when it comes to investing in R&D and patents;
  • patent filings per citizen – indicating the country’s efficiency when it comes to filing patents; and
  • domestic European patent applications per technology – indicating the country’s technology strength in patent filings.

This will provide a balanced weighting between countries where SMEs are potentially high performing.

Based on an average weighted ranking for each of the countries above, the top five countries are Germany, Finland, Sweden, Denmark and France.

The conclusion is that these five countries are home to SMEs which own patents that are of potential value for larger companies or investors. While this takes no account of any social or cultural behaviour with regard to willingness to monetise patents, a fair number of transactions have been executed by large companies in these countries, so there is no reason to believe that transactions would be impaired by cultural or social behaviour. Thus, it is also highly likely that SMEs in these countries will follow the trend when they learn about opportunities to generate further cash flow using their patents.

    Figure 11. Weighted country rankings based on R&D expenditure of GDP, patent filings per citizen and number of technologies covered

    SMEs and patent monetisation

    Revenue generation from patents has become a major profit centre for companies. This is particularly relevant for SMEs, as these tend to give priority to generating revenue. According to the EPO, about 50% of SMEs apply for patents in order to license them and generate additional revenue, as opposed to large entities which primarily file for patents in order to obtain freedom to operate.

    Monetisation is usually accomplished through licensing. However, there is little assessment on how SMEs profit from these transactions, since:

    • licensing deals are protected by strong confidentiality provisions;
    • any information that is publicly available is primarily published by large entities; and
    • data is scarce.

    However, there is one way to measure this activity and – to a certain extent – its success: patent enforcement. While data is also limited, particularly in Europe, there are public documents that can be analysed to formulate an understanding of the market.

    The US patent market is far more developed than the EU one, mostly because the US financial sector discovered this opportunity much earlier, meaning that the path to developing or acquiring patents in order to establish licensing campaigns is a well-established one. However, the US patent market is currently in turmoil and patent owners are (or should be) thinking about alternatives, such as new business models and the European market.

    Since the US market has been active for longer, more data is available. Data from several databases and publicly available statistics suggest that the European Union appears to be lagging with respect to monetisation. Although these facts suggest inefficiencies in the EU market, they also suggest that there are good opportunities for large enterprises, investors and SMEs.

    Litigation in Europe

    Strategically, it makes sense for patent owners to seek monetisation opportunities in the European Union since it is – depending on the source used – the largest or at least second-largest economy worldwide. However, monetising patents can be extremely challenging. The lack of information and the few infringement cases suggest that this is an evolving market.

    Figure 12 compares the situation in the United States and the European Union. In 2014, Europe saw just over 1,000 cases of patent litigation while the United States saw almost 6,000. Although Europe has seen an increase in the past few years, this is still less than 20% of the number of cases filed in the United States.

    Figure 12. Number of patent infringement cases filed 2000-2014

    Source: PwC Litigation Study 2015

    Why is there so little patent litigation in the European Union? Although the EPO is a harmonising influence, this ends when it comes to monetisation (ie, enforcement). After a European patent is granted, national courts deal with both infringement and invalidity cases. Thus, patent holders seeking to enforce must do so at the national level, on a per-country basis. The system for enforcing patents in the European Union is currently fragmented, making monetisation in the region a complex process.

    EU authorities have long acknowledged that the system is disjointed, so the notion of the Unitary Patent Court (UPC) has been hailed as a great breakthrough. Having a single patent court covering over 25 countries and hearing infringement and validity cases would transform patent litigation in the European Union.

    The UPC has been developing slowly. The agreement was signed by 25 EU member states in 2013, but it requires ratification by at least 13 states, including Germany, France and the United Kingdom. France and nine other states have ratified the agreement to date. However, the impact of the United Kingdom’s EU referendum result is unclear. Legislators and organisational committees had hoped that the UPC would soon become a reality and that it could have been operational by early 2017. But it seems very likely now that there will be a delay to this schedule. The UPC will not only make it easier for patent holders to monetise their patents, but also increase the value of intellectual property.

    Although the EU market is still in the early stages, more patent infringement cases are being filed. In 2013 almost twice the number of cases were filed compared to 2012 (Figure 13).

    Figure 13. Patent litigation cases in the European Union 2000-2014

    Source: national patent case law

    While the European Union is a big market, more than two-thirds of patent cases are filed in Germany. According to a 2008 JUVE magazine survey about patent infringement cases in EU member states, Germany was in the lead, with over 70% of cases filed there – followed by France, the United Kingdom and then the Netherlands (Figure 14).

    Figure 14. Jurisdictions where patent litigation cases were filed in 2008

    Source: JUVE

    There are many reasons why rights holders prefer German courts. The German market is the largest EU economy and thus a common entry point to the European Union – meaning that an injunction issued by a German court can be strategically effective. This is probably one of the reasons that the Netherlands is the fourth prefered jurisdiction; due to its significant shipping industry, an injunction can be highly effective despite the country’s small size. Other reasons why litigants choose Germany include the following:

    • It is cost efficient;
    • The speed of proceedings is fast, as a ruling can be expected within eight to 14 months, on average; and
    • The cost of German enforcement proceedings is on average much lower than that of enforcement in the United States.

    Further, these characteristics generally mean the cost of patent infringement cases is more predictable and plaintiffs can make a fairly accurate estimate of the cost of proceedings.

    The top 15 technology areas in which patent infringement cases have been filed comprise roughly 70% of litigations (Figure 15). Based on these results, for the past decade the European Union has been the ground for cases primarily dealing with healthcare (including pharmaceuticals and medical technology), telecoms, construction, automotive and consumer goods.

    Figure 15. Litigation cases filed in the European Union by technology area 2006-2015

    Source: national patent case law

    What can SMEs learn from this?

    SMEs hold significant intellectual property, which can likely be successfully monetised. They are also investing in some technology areas which are currently extremely active in litigation, such as pharmaceuticals and medical technology. This represents an opportunity for SMES to immediately explore monetisation opportunities.

    There are other technology areas in which SMEs hold a great number of patents, but where litigation is low, such as analysis of biological material and biotechnology. This is also an interesting opportunity, as the monetisation space might be less competitive – although it might also prove challenging given that SMEs would have to break new ground. Nevertheless, such technology areas are worth exploring further.

    Figure 16 sets outs the number of patent filings owned by SMEs and the total number of patent litigation cases in Europe by technology area. The peaks in medical technology and biotechnology are clear and, as mentioned previously, represent two interesting fields for SMEs.

    Figure 16. SME EPO patent filings (number of patents) versus patent litigation in the European Union 2006-2015

    Source: Eurostat and national patent case law

    It is also useful to analyse the litigation activity in technology areas where SMEs hold a high percentage of the total of EPO filings (Figure 17). This may indicate markets where SMEs are strong in respect to other patent holders. It includes pharmaceuticals, civil engineering, medical technology and – a new one that did not arise in previous analysis – furniture and games. Areas where SMEs hold a high percentage of the total of EPO filings but where litigation is low include biotechnology, which arose in previous analyses, as well as information technology, management methods, food chemistry and microstructures or nanotechnology.

    Figure 17. SME percentage of EPO patent filings versus patent litigation in Europe 2006-2015

    Source: Eurostat and national patent case law

    Medical device case study

    Although little is known about patent monetisation in Europe or the utilisation of SMEs’ patents, it is reasonably safe to assume that if an industry is (or recently was) active in the United States, it has the potential to flourish in the European Union, despite the difference in regulations and procedures. In addition, if enforcements are profitable for large entities, they can also be advantageous for SMEs. Based on these assumptions, we can examine the field of medical devices, where intellectual property is critical and, hence, licensing is more commonplace. Further, as stated previously, medical technology is a field where a significant number of SMEs are active. We can use this as a case study to review the activities of the top European medical device companies in the United States and Europe.

    Although the IP market is in a state of flux, the medical device industry in the United States remains profitable:

    • The US medical device market generates around $110 billion per year and is expected to grow to $133 billion by 2016 – it represents approximately 40% of the global market (source: SelectUSA).
    • There are more than 6,500 medical device companies in the United States, most of them SMEs (source: SelectUSA).
    • Patent grants spiked in 2010 and continued to increase until 2015, with a slight decline: 2010 – 12,339, 2011 – 13,699, 2012 – 16,538, 2013 – 19,035, 2014 – 19,992, 2015 – 17,596 (source: USPTO).
    • Although the number of cases being filed has fallen, the medical device industry has the third-highest median damages awards, with an average of $19.4 million – against an average of $5.4 million across all other sectors – and has among the highest success rates, standing at almost 40% (source: PwC Patent Litigation Study 2015)
    • Examining the specifics of US patent litigation cases since 2010, there have been over 1,000 cases in the medical technology space – the number peaked in 2013 (231 new cases). This year, through to May, has proven highly litigious, with an average of 16 cases per month, versus 15 in 2014 and 2015 (source: RPX)

    While data about monetisation activity in the European Union is patchy, the above assumptions were used in conjunction with a review of the top 10 European medical technology companies’ activities in the United States.

    The top 10 companies (by revenue) are:

    • Siemens ($17 billion – healthcare sector only), Germany;
    • Fresenius Medical Care ($15.2 billion), Germany;
    • Philips ($11.8 billion – healthcare sector only), Netherlands;
    • Essilor ($7.2 billion), France;
    • Smith & Nephew ($4.4 billion), United Kingdom;
    • Getinge ($3.8 billion), Sweden;
    • Paul Hartmann ($2.5 billion), Germany;
    • Coloplast ($2.2 billion), Denmark;
    • Sonova Holdings ($2.2 billion), Switzerland; and
    • Dragerwerk ($2 billion) Germany

    Some of the findings from the analysis of these companies and their activity in the United States include that all of these entities, except Paul Hartmann, are actively litigating their patents in the United States, with around 120 cases filed since 2000. Roughly $130 million has been awarded in damages, although the dollar value for settlements is likely to be much higher, as almost 80% of cases were settled outside the courtroom. While there is no real trend as to which entity is more litigious per year, it is quite clear that Fresenius and Smith & Nephew are the most active in monetising their patents, since nearly 70% of the cases were filed by these two companies.

    Figure 18. Percentile distribution of litigation cases filed in the United States among the chosen medical device companies 2000-2016

    Source: RPX

    Figure 19. Distribution of litigation cases filed in the United States by the chosen medical device companies 2000-2016

    Source: RPX

    Figure 18 and Figure 19 provide more details on litigation activity by these entities in the United States. Figure 18 shows the percentage by entity of the total cases filed since 2000. Almost 80% of cases are filed by three entities: Fresenius with 40%, Smith & Nephew with 26% and Philips with 10%. The other entities have smaller and similar shares ranging from 3% to 6%. The only medical technology company listed here which shows no involvement in patent enforcement is Paul Hartmann.

    Figure 19 illustrates the distribution of patent infringement cases filed per year since 2000 for each of the analysed medical technology companies. As might have been anticipated, Fresenius and Smith & Nephew filed cases on a yearly basis. Other companies with smaller numbers of cases – such as Essilor, Philips and Siemens – have followed a similar pattern over time. This suggests that litigation is most likely part of a regular business operation for these companies in the United States.

    The situation appears different in the European Union, where patent infringement litigation is much lower. Based on an analysis of the 10 European medical technology companies’ activities in the European Union, only 15 patent litigation cases were identified and only seven out of the 10 companies had undertaken any enforcement activity since 2000.

    Figure 20 sets out the percentile distribution of patent infringement cases filed in Europe since 2000 by these medical technology companies. It is a very different chart from that for the United States. Companies which are active in the United States – such as Fresenius and Smith & Nephew – do not appear to be dominating the litigation activity in Europe. However, other entities, such as Coloplast and Sonova Holdings, appear to be more active.

    Figure 20. Percentile distribution of litigation cases filed in Europe among the chosen medical device companies 2000-2016

    Source: national patent case law

    Part of the reason for this is that not all of the data is easily accessible and some cases may have been missed out. Yet even if there were five times more cases than those identified, there would still be fewer patent litigation cases in the European Union. The differences between the regions that were discussed previously may have some influence. However, it is more likely due to an EU market which has yet to be fully explored and developed.

    Litigation primarily took place in Germany, specifically in the Dusseldorf District Court, with 61% of cases filed there (see Figure 21). Although the available data is too limited to show a real trend, it is consistent with the general fact that litigation in Europe predominantly takes place in Germany.

    Figure 21. Jurisdictions where cases were filed by the chosen medical device companies in the litigation cases filed 2000-2016

    Source: national patent case law

    Figure 22. Number of patent litigation cases filed 2000-2016

    A few of these companies have the same number of patent litigation case filings in the United States and Europe. Figure 22 compares the number of filings for these medical technology companies between January 2000 and May 2016 in Europe and the United States. While it would be logical to think that these entities could have international or multi-jurisdictional monetisation campaigns (ie, the same patent(s) against the same defendants in different jurisdictions), this does not appear to be the case.

    Table 2Coloplast and Sonova Holdings in the United States and Europe

    Plaintiff

    US defendants

    European defendants

    Coloplast

    • Generic Medical Devices, Inc
    • CR Bard, Inc
    • Mpathy Medical Devices, Inc
    • Teresa Stanek Rea
    • Amoena Corporation

    Hollister

    Sonova Holdings

    • Vivatone Hearing Systems LLC
    • Auditory Licensing Co LLC
    • Advanced Neuromodulation Systems Inc

    INTRASON

    Specifically, it is worth further examining Colopast and Sonova Holdings, which have roughly the same number of filings in the United States and Europe. In both instances, the patents and defendants are different.

    While these companies are European and their patent portfolios contain a large number of European patents, the United States has historically been their preferred jurisdiction for enforcement. There could be many reasons for this and the decision on where to file may well be made on a case-by-case basis. However, it could also be that there are fewer litigation cases in Europe and thus fewer disputes and more friendly negotiations. Aside from these assumptions, it is fairly clear that the market for monetising patents in Europe is still considerably less developed compared to the United States and that the potential return on investment – especially for early adopters – could be significant.

    Non-practising entities in Europe

    The presence of non-practising entities (NPEs) can be an indicator of the fruitfulness of a given region. After all, why would a company exclusively dedicated to monetising patents be active in a region unless it were not profitable?

    While NPE activity in the European Union is low compared to the United States, these entities are fast becoming important players in the monetisation space. In Germany in 2008 – the latest year for which data was available – about 50% of total of patent infringement cases were filed by NPEs, as illustrated by Figure 23.

    Figure 23. NPE patent litigation cases filed in Germany 2000-2008

    Source: Patent Assertion Entities in Europe by Brian Love, Christian Helmers, Fabian Gaessler and Max Ernicke

    As the EU IP monetisation market grows, more NPE activity in the region is expected. This might be driven by different variables such as the changing US market, the UPC opening for business, more US-based NPEs entering the EU market, an increase in EU-based NPEs or just natural market evolution. In any case, Europe is becoming an important region in which to monetise patents.

    Action plan

    For EU SMEs:

    • SMEs have a great opportunity to divest, license and proactively market their portfolios through brokerage or partners. As rights holders face challenges when it comes to enforcing their patents in the United States, they are looking for new opportunities and the European Union is considered to be an emerging patent market.
    • Patents are usually a significant cost centre for an SME, especially when there is a need to improve cash flow – this can make it difficult for SMEs to enforce their rights by themselves. Even if an SME does not have the financial capabilities to enforce its patents, there are other ways of extracting value (eg, divestures, partnership and loans).
    • Patents are a major asset for SMEs and should be treated as such through careful management in order to make the patents useful and valuable, through either defensive or offensive measures.

    For larger companies:

    • As EU SMEs are extremely active in certain technologies, it is important for large companies to understand their potential exposure to EU SME patent filings and to take appropriate measures to mitigate such risk. Patent-holding EU SMEs which appear unthreatening can always divest their patents to, or partner with, an NPE and become a threat.
    • Based on recent litigation activity, NPE activity appears to be on the rise in the European Union. In order to minimise the cost against future damages which might occur, it is essential to establish a proper strategy which involves licensing, acquisitions or design-arounds focused on an EU SME’s patents.
    • All patent holders have the same rights with regard to enforcing their patents. Even where companies’ financial capabilities are unequal, there may be other parties – such as NPEs – which might step in.

    For investors:

    • EU SMEs have significant patent filings, representing an untapped opportunity for monetisation. The available portfolios cover many technologies and multiple jurisdictions, such as the United States, Japan and China. Special attention should be paid to SMEs in Germany, Finland, Sweden, Denmark and France, as these represent holders of high-performance patents in areas such as medical technology and pharma.
    • Even if damages awards in the European Union are historically lower than those in the United States, the litigation costs are significantly lower and European filings are typically high quality, which helps to balance the risks and rewards.
    • The UPC will most likely facilitate a more efficient and substantial market for a return on investment, despite its uncertainties.
    • The European Union is not suffering from some of the recent developments in the United States (eg, the America Invents Act, Alice and other recent US case law and patent bills against NPEs) which are preventing or limiting patent monetisation.
    • The European Union has competent courts in major jurisdictions, such as Germany, with higher predictability at a lower cost.

    Anders Arvidsson, Keith Woomer and Lucia Alvarado are partners at Parallel North IP, Tygelsjö, Sweden

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