obvIPat - Obviously Patentable

The blog for inventors, in-house counsel, & entrepreneurs.

Posts Tagged ‘NPE’

Patent Trolls: The View From Above the Bridge and the View From Below the Bridge

by Orlando Lopez

Non-practicing entities (NPEs), also know as “patent assertion entities” (PAEs) or “patent trolls,” have received much attention recently with two bills in Congress, statements by the President, a Vermont law to curb trolls, and even an NPR program on the evil effects of patent trolls.

I understand why. My first view of patent trolls came from my colleague Renato de Luna.  Renato was the IP counsel at a high-tech company and spent a fair amount of his time defending against lawsuits from NPEs. One of the NPEs contacted the company’s board of directors and the customers. One patent in question was for a microprocessor, and almost all high-tech products use microprocessors. This particular patent had survived re-examination at the USPTO (the United States Patent and Trademark Office). Fending off the patent trolls consumed energy and resources that could have been used in a productive manner. At that point, I had no love lost for patent trolls. That is the view from above the bridge.

However, recently I got a glimpse of the view from below the bridge. Several of my clients and co-licensees of my clients, startup companies that had built patent portfolios but did not experience commercial success, decided to monetize their large intangible asset, their patent portfolio. As I had found out in the licensing experience early in my patent law career, “carrot licensing” (where you entice a potential licensee to take a license), is significantly harder and less likely to succeed than “stick licensing” (where you find them infringing and bring them to the table to license). In stick licensing, you have to be willing and ready to sue for infringement. But patent infringement is an expensive game – $2 million to play. Startups, even successful ones, do not have the entry ante. That is where NPEs come in. In the situations I experienced, the NPEs did their due diligence – they looked at the patents critically to determine that there was likelihood of success in a suit. I am sure that those sued, even if the tactics are not onerous, are not happy about it – the suit takes resources away from other efforts. Nevertheless, the NPEs provided an avenue for inventors to assert their patent rights to exclude others from making or using the invention.

Why is it important to provide avenues for entrepreneurs to assert their patents? The 2008 Berkeley Patent Study found that one reason that entrepreneurs gave for not patenting was the expense of asserting patents. However, patents provide a barrier-to-entry for competitors, and barriers-to-entry are one of the factors that investors consider. An increased likelihood of investments translates into an increased likelihood of forming a startup company. When we consider that more than half of all jobs are created by small businesses, an increased likelihood of forming a startup company translates into job creation.

Startup companies cannot afford lobbying, and most entrepreneurs (unless they are repeat entrepreneurs) are not large donors to presidential campaigns. However, it should be ensured that when trolls are reigned in, we do not throw the baby out with the bath water.

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Small Entities and Defending Against or Enforcing Patents — Taking A Page Out of the UK’s Playbook

by Orlando Lopez

Defending against a patent infringement suit or enforcing a patent in an infringement suit is typically very expensive — on the average, a $2-$3 million expense.  This high expense places either defending against a patent infringement suit or enforcing a patent outside of the reach of small entities.  A recent article in the New York Times details the story of Michael Phillips and his company Vlingo, and how a patent infringement suit in which Mr. Phillips eventually was found not to infringe resulted in his selling Vlingo. The $3 million expense and the amount of time spent defending against a suit placed a tremendous burden on Vlingo and Mr. Phillips.

A similar problem occurs when a small company or a single inventor wants to enforce a patent.  A single inventor or a small entity who desires to enforce a patent against an alleged infringer has to be able to afford the $3 million expense. (It is possible to reduce the expense with an extremely efficient litigator, but I only know a couple of those).  According to the Berkeley 2008 Patent Survey, the cost of enforcing a patent is one of the reasons entrepreneurs give for not patenting; however, the same Berkeley 2008 Patent Survey also states that patenting is useful in attracting investors and in obtaining a better bargaining position (for example, through cross-licensing).  Single inventors and small entities sometimes overcome the cost of enforcing a patent by seeking the help of a Non-Practicing Entity (NPEs — the entities formerly known as “patent trolls”). But, since NPEs usually assert the patents against established companies (following the law school teaching of “sue solvent people”), there is significant opposition to NPEs and at least one bill, the SHIELD Act, has been introduced in Congress to restrict the operation of NPEs.

Responding to concerns about the high cost of intellectual property litigation in the United Kingdom, particularly for small and medium sized enterprises, the rules for the Patents County Court were changed in October 2010 so that:

  • The parties set out their respective cases fully, but concisely at the outset.
  • No further evidence, written argument or specific disclosure is permitted without the permission of the judge.  This is a matter considered at the case management conference.
  • Any other applications will, if possible, be dealt with on paper or by telephone.
  • The trial is limited to one or two days at most.
  • The rules on transfer have been modified to take into account the new procedures.
  • Since it is a United Kingdom court, the “British rule” applies and the loser pays costs, including attorneys fees, but in the Patents County Court the recoverable costs are capped at £50,000 for the final determination of liability and at £25,000 for enquiries as to damages or accounts of profits.

At present, there is no limit as to the damages that can be awarded at the Patents County Court, but there is a move to restrict the damages to £500,000 (a little bit less than $1 million US).

Although the procedures used in the United Kingdom for the Patents County Court would have to be adjusted to fall under the Federal Rules of Civil Procedure, we should take a page from the British playbook and start considering a similar Federal Court.  Such a move would make pursuing and enforcing patents more palatable for single inventors and small entities, and would take away some of the reasons for NPEs (small entities would not be enticed to “embrace their inner troll”).  In the case of Vlingo, Michael Phillips would have been able to save at least $2 million and at least two years of work if we had the equivalent of a Patents County Court in the US.

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