Last year saw 5,769 new patent suits filed in federal district courts, representing a 15% increase over the previous year, with non-practicing entities (NPEs) filing two out of every three of these suits. Not surprisingly, over the same period of time, 1,797 new petitions were filed at the Patent Trial and Appeal Board (PTAB) with NPEs on the receiving end of 58.4% of petitions filed at PTAB, where inter partesreviews represented 91.9% of all petitions filed. Unified Patents, Inc. included these statistics in a report released January 41 and Kevin Jakel, Unified Patents’ CEO, was quoted in LAW360 as stating, “We can conclude that patent assertion appears to provide a lucrative return for investors, patent owners and contingency lawyers given the continued level of activity.”2

In general, a NPE is an entity that holds a patent for a product or process but has no intention of developing it. A patent troll is a type of NPE that amasses large numbers of patents with the intention of launching patent infringement suits against companies and individuals that they maintain have illegally used some element of something for which they hold the patent. In the U.S., the Federal Trade Commission (FTC) uses the term patent assertion entities (PAEs) to distinguish patent trolls from non-practicing entities that have different motives, such as universities and other research organizations and individual inventors lacking the resources to further develop something they have designed or created.

Patent trolls neither use nor market the inventions covered by their patents, but instead make money by threatening or filing patent infringement lawsuits. An average NPE litigation will cost $1.75 million from filing to completion (including litigation and settlement costs). When confronted with treats by NPEs, defendants have to consider the uncertainty and unpredictability of the outcome of jury trials, especially when patent trolls threaten or file suits in plaintiff-friendly forums such as the Eastern District of Texas. Accordingly, there is incentive for defendants to avoid litigation by agreeing to pay a licensing fee that is akin to extortion. From 2010 to 2013, the median damage awards to patent trolls was $8.5 million. Since 2010, patent trolls have made three times as much money in court as real companies have.

Often a defendant in a patent infringement suit will counter claim patent invalidity and/or counter infringement of the defendant’s own patent(s). However, in the case of a NPE, the NPE plaintiff does not produce products or provide services so there is no risk of infringement by a NPE. Last year’s increase in petitions for inter partesreviews before the PTAB represents validity challenges to patents which, in the case of NPE patent holders, defendants can file to stay litigation pending the outcome of such reviews.

Federal legislation continues to wrestle with how to effectively thwart patent trolling while allowing legitimate patent owners to enforce their rights. Twenty-seven states now have enacted anti-patent troll legislation, which is aimed at punishing bad faith patent infringement assertions. The target of such litigation is based on patent trolls attempting to overreach with broad, unsupported or vague claims intended to fleece defendants. Member-based organizations like Unified Patents and patent risk management companies like RPX Corp. offer protection strategies against patent trolls. But for the time being, patent assertion will remain lucrative for NPEs.  

References

1. http://unifiedpatents.com/2015-year-end-report/.

2. Law360, New York (January 5, 2016, 12:24 a.m.).