Non-practicing Entities Research Articles

Are non-practising entities opportunistic? Evidence from litigation of standard essential patents

Are non-practising entities opportunistic? Evidence from litigation of standard essential patents

Abnormal Returns to Artificial Intelligence Patent Infringement Litigations

ABSTRACT Artificial intelligence (AI) has become an important driver of economic growth and innovation. With rapid advances in AI, firms have a strategic opportunity to re-envision the cognitive reapportionment of tasks between humans, AI, and non-AI technologies. In doing so, firms can transform and dramatically elevate value creation through their business models, processes, and market offerings. We focus on a key risk, patent infringement litigation (PIL), that can adversely impact a firm’s value creation with AI. We posit and demonstrate that firms facing AI-PILs would have more negative short term abnormal returns compared to firms facing non-AI PILs. We further suggest that the abnormal returns are moderated by the types of plaintiffs and AI patents in which the abnormal returns are more negative when the plaintiffs are non-practicing entities (versus practicing entities) and when the AI patents at suit concern expertise-driven (versus data-driven) AI. Exploring the moderators jointly, we find evidence that for data-driven AI patents, the negative abnormal returns are stronger when the plaintiffs are practicing entities, but for expertise-driven AI patents, the negative abnormal returns are stronger when the plaintiffs are non-practicing entities.

Non-practicing entities in Europe: an empirical analysis of patent acquisitions at the European Patent Office

Abstract This paper delves into the proliferation of non-practicing entities (NPEs), a hot topic in academia and public policy, especially in the United States. The common belief is that Europe is less exposed to NPEs due to a robust patent system, higher enforcement costs, and smaller damage awards. Yet, using a new database of NPE patent applications at the European Patent Office (EPO), the study uncovers that NPEs activity in Europe is arising: they own nearly 20,000 EPO patents, primarily in Electrical Engineering. Moreover, we contribute the literature investigating the heterogeneity of the NPE business model and its relationship with the characteristics and use of the patents they target. Our econometric analysis provides threefold original evidence. First, NPEs with higher propensity for litigation (i.e., “Litigation” NPEs) acquire patents with higher infringement risk but similar technological quality than practicing entities. Second, patent aggregators (i.e., “Portfolio” NPEs) and technology companies (i.e., “Technology” NPEs) acquire higher-quality patents compared to those acquired by practicing entities. Third, patent acquisitions by “Litigation” NPEs and “Portfolio” NPEs reduce the subsequent use of protected technologies.

Non-Practicing Entities’ Business Models: A Systematic Literature Review with Bibliometric Analysis and Case Studies

Non-Practicing Entities’ Business Models: A Systematic Literature Review with Bibliometric Analysis and Case Studies

Welcome to Waco! The impact of judge shopping on litigation

Abstract We analyze the effect of judge shopping in patent litigation following the appointment of a former patent litigator as the sole district judge assigned to the Waco Division of the US District Court for the Western District of Texas (WDTX). We find that patent enforcers’ ability to select, with certainty, a judge widely regarded as patentee-friendly increased the number of cases filed, especially by non-practicing entities. We show that the increase in litigation was driven by both an influx of cases that would not have been filed but for the judge’s appointment and a geographic reallocation of cases that would have been filed regardless. Overall, judge shopping in the WDTX induced over a 33-month period an increase of around 460 patent cases that otherwise would not have been filed. (JEL: K41, O34).

Media coverage and patent trolls: A study on US high-tech firms

This paper investigates the impact of media coverage on a nonpracticing entity (NPE) patent litigation concerning the defendant firms. Using a sample of high-tech and patent-intensive firms from the US market between 2000 and 2020, we find that NPEs tend to target highly visible firms. This result is more pronounced when the firms are large and experience positive sentiment in the market. We ensure the causality of this relationship using the anti-troll law, which is targeted to curb the threat of NPE trolls, as a natural experiment and distance from the nearest news branch as an instrumental variable. We find that after suing the target firms, the return of the plaintiff, or the NPE firm, increases. Our results provide new insight into the effect of media coverage on firms’ litigation environment.

Are Non-Practicing Entities Opportunistic? Evidence from Litigation of Standard Essential Patents

Are Non-Practicing Entities Opportunistic? Evidence from Litigation of Standard Essential Patents

Chilling effects of patent trolls

We find that non-practicing entities (NPEs) exhibit a unique legal strategy of sequential rounds: (1) subject to the same patent, NPE plaintiffs file approximately seven follow-on lawsuits after the initial lawsuit; and (2) when a firm is sued by NPEs, the likelihood of its technology peers being sued increases by 14 % in the subsequent year. Defendants' technology peers experience significant market value losses around the lawsuit filing date. Moreover, defendants' technology peers respond to NPE litigation risk by increasing R&D investments to develop workaround technologies. However, the increase in R&D incrementally generates fewer patent citations or patents with lower values. Thus, our results highlight broader wealth effects and corresponding real effects of NPE-initiated litigation on defendants' technology peers. These results provide sharp contrasts to the insignificant wealth and real impacts on defendants' technology peers if litigations are initiated by practicing entities (PEs). The new evidence informs the current regulatory and policy debates pertaining to NPEs.

Escaping the Patent Trolls: Impact of Non-Practicing Entity Litigation on Firm Innovation Strategies

Escaping the Patent Trolls: Impact of Non-Practicing Entity Litigation on Firm Innovation Strategies

The Effect of Patent Litigation Insurance: Theory and Evidence from NPEs

Abstract We analyze the extent to which private defensive litigation insurance deters patent assertion by non-practicing entities (NPEs). We study the effect that a patent-specific defensive insurance product, offered by a leading litigation insurer, had on the litigation behavior of insured patents’ owners, all of which are NPEs. We first model the impact of defensive litigation insurance on the behavior of patent enforcers and accused infringers. We show that the availability of defensive litigation insurance can have an effect on how often patent enforcers will assert their patents. We confirm this result empirically showing that the insurance policy had a large, negative effect on the likelihood that a patent included in the policy was subsequently asserted relative to other patents held by the same NPEs and relative to patents held by other NPEs with portfolios that were entirely excluded from the insurance product. Our findings suggest that market-based mechanisms can deter so-called “patent trolling.” (JEL: G22, K41, O34)

Non-practicing entities and transparency of patent ownership in Europe: the case of UK dormant companies

While various studies in the fields of law and economics have analysed the business models of patent aggregators and large non-practicing entities (NPEs) in the US, small NPEs operating in Europe typically escape academic and media attention. Here, to address this imbalance, we specifically identify and characterize the patent portfolios of NPEs registered as dormant companies in the UK and investigate whether they are created for the purpose of acquiring valuable IP assets or launching litigation campaigns. Our econometric analysis – based on more than two hundred NPEs registered as dormant companies in 2019 – supports the second hypothesis. Finally, as an illustrative example of how small NPEs use UK dormant companies to acquire and litigate patents in Europe, we describe the business model of Dragon Green Development Balboa SA, an entity incorporated in the Republic of Panama that controls thirteen UK dormant companies and which is involved in fourteen patent litigation cases in Germany.

Patent Enforcement and Innovation

This paper investigates the effect of patent protection on cumulative innovation. While one of the main functions of the patent system is to foster innovation, patents might block sequential innovation. Consequently, the actual impact of patent rights on innovation is still under debate. To investigate this relationship, I analyze the impact of patent infringement litigation on cumulative innovation. The results for a sample of U.S. patents imply that patent citations increase after a case is filed in a court. While citations increase during the litigation period, the relative effect size decreases in the years following the closure of the case. Further results imply that this effect is particularly driven by patents subject to litigation with a high degree of novelty and patents with a narrow breadth. Analyzing the impact of non-practicing entities shows that the change in citations is lower for patents owned by this type of patent holders. Moreover, citations of litigated patents stem particularly from patents that are close in terms of technological proximity and general similarity.

Injury, Inequality, and Remedies: Developments in Injunctive Relief and Damages in Intellectual Property Cases

While intellectual property (IP) may be more important than ever to contemporary businesses, its doctrines are becoming more sophisticated and its remedies are often difficult to obtain, especially for smaller companies and individuals. This Essay investigates the strategies utilized by IP owners to overcome challenging precedents issued in the wake of eBay v. MercExchange and Apple Inc. v. Samsung Electronics, Co., Ltd. It illustrates the complexities of these strategies via an analysis of recent developments in the law governing injunctions, royalties, lost profits, and related matters. Injunctive relief is rare even in the copyright and patent areas. In eBay Inc. v. MercExchange, L.L.C., the United States Supreme Court held that the traditional four-factor test for permanent injunctive relief applies to disputes arising under the Patent Act. The economic and policy-based considerations that drive remedial decisions tend to favor the larger, repeat players in each industry. This trend surfaces in at least three areas of remedial doctrine. First, “implementer” or “practicing” patent owners along with many copyright and trademark owners may enjoy a presumption in favor of injunctive relief absent extraordinary circumstances, or at least do not suffer from the virtual per se rule that non-practicing entities have no right to exclude. By virtue of conceptual shortcuts that help drive equitable relief decisions, they might find it easier to establish irreparable injury and no adequate remedy at law, even when they may be entitled to a windfall in statutory or treble damages. Second, the balance of hardships and public interest factors do not appear to aid small or medium-sized enterprises striving to level the playing field with well-funded, litigious infringers, as one might expect from “equity.” Lastly, firms with lucrative existing intellectual-property licensing or exploitation arrangements are better situated to show the incremental contribution of the infringed right to the respective revenue or anticipated profits of the parties.

Patent infringement analysis using a text mining technique based on SAO structure

As can be seen in the emergence of non-practicing entities, patent infringement lawsuits are very significant events for companies, both financially and technologically. Thus, the importance of patent infringement analysis has been emphasized to support a decision-making process of potential stakeholders. Since identifying patent infringement needs to consider various factors, the most appropriate method is to review the expert analysis in each case. However, as the size of valuable data continues to grow in recent years, the need for automated quantitative analysis that enables to perform such processes without experts has increased. Thus, this research aims to develop an automated approach for patent infringement using Subject-Action-Object structure-based text mining technique and SAO2Vec, which focus on the functions of technology in patent documents and product documents. The proposed framework consists of three modules. In the first module, the types of companies in which patent infringement can occur are defined, and then lists of companies selected by various databases are identified. In the second module, vectors of the SAO structures are derived from the patent documents of the selected company using the Doc2Vec-based SAO2Vec. In the last module, the results of the first and second modules are used to calculate the patent infringement indicators. To validate the suggested approach, we applied it to the case of Nintendo, which had recently become an issue in patent infringement lawsuits. We found that the proposed indicators were a statistically good indicator to judge the patent infringement, identifying the pairs of patents that have a high possibility of patent infringement.

Patent trolls in China: Some empirical data

Prior research found that the Chinese patent system is more pro-patentee than once believed. Patent owners performed much better in both infringement lawsuits and post-grant validity reviews in China than in many other countries, such as the United States and Germany. Also, after a finding of infringement, Chinese courts were quite lenient with regard to permanent injunctions. All these pro-patentee tendencies, together with the rapid growth of China's software industry, cast doubt on the prevalence of troll activities in China. This article analyzes 3435 patent infringement lawsuits decided by local people's courts in China in 2015 and 2016 and provides some valuable insights into two important questions: how often do patent trolls litigate in China, and do they adopt different litigation tactics from practicing entities? Based on empirical data, this article finds that, interestingly, both the number and the size of patent trolls in China are relatively small. Although nearly half (1534, or 44.7%) of all patent infringement lawsuits were initiated by non-practicing entities (NPEs), individual inventors, instead of professional businesses, accounted for an overwhelming majority of all NPE cases (1528, or 99.6%). Patent assertion entities (PAEs), by contrast, only initiated four out of 3435 cases (0.1%) in the two-year period under review. If only patents in the computer industry are taken into consideration, then PAEs initiated zero computer-related lawsuits. Nonetheless, this article does observe some trollish litigation tactics worthy of attention and further research. There were 47 repeat litigants – litigants who initiated 10 or more cases; some performed “commercial enforcement,” asserting patents against multiple small retailers instead of against one large manufacturer; and patent owners, on average, waited for a rather long time before enforcing their patents in China. All these behaviors may introduce bias to the incentives to innovate and put pressure on the overall functioning of the Chinese patent system.

A Structured Approach to Locate the Technological Position by Technology Knowledge Redundancy ─Patent Citation Network Perspective

This study approaches the relative position of a company in technological network based on patent citation of the cloud computing industry. It integrates the PCA with the patent family to obtain a complete data set for later analysis. After that, the Technology Knowledge Redundancy in the PCN has TKS/TKR indicators for analysis. Moreover, the changes in the technological positions before and after patent transfer revealed three patent acquisition strategies namely: strengthening foothold by enhancing barriers, a cash cow for non- practicing entities (NPE), and a shortcut for peripheral and new entrants. After patent transfer, more companies obtained high and low positions in the technological network and gained abundant and decreased resources. This fact reveals that the unchanged dichotomy in technological transfer. In order to obtain high positions in the technology industry and gain cooperation opportunities, marginal or new entrants of the technological field would need to acquire patents with high TKS/TKR.

Position Paper on the Envisaged Reform of the German Patent Act

This position paper of the Max Planck Institute for Innovation and Competition provides comments on the amendments proposed by the German Ministry of Justice and Consumer Protection in its discussion draft of January 2020 on the modernization and simplification of the German Patent Act. While the Institute generally welcomes the initiative, the paper offers some suggestions aimed at increasing precision in the areas of first, the concept and the implementation of the proportionality test for granting injunctive relief, and, second, the need for enhanced protection of trade secrets in patent disputes. With regard to the proportionality assessment, the Institute suggests that, rather than reducing it to an application of the principle of good faith, the concept of proportionality should be interpreted and applied in light of the ratio legis of patent protection with a view to preventing dysfunctional effects potentially resulting from the exercise of the exclusive right and the associated claim to an injunction. Scenarios involving complex products, non-practicing entities and standard-essential patents are used to illustrate the approach. As regards the weighing and balancing of interests when assessing proportionality, the position paper argues that it is neither desirable nor appropriate to prioritize the interests of the patentee over those of the infringer as a matter of principle. In addition, it is not only the interests of parties to the dispute, but also those of third parties, in particular the public interest, that should be taken into account. With regard to the protection of trade secrets in patent disputes, the position paper refers to certain procedural insufficiencies of the Trade Secrets Act to adequately protect the defendant’s secrecy interests. It also points out a potential loophole in relation to the ‘Dusseldorf proceedings’ that may facilitate ‘fishing expeditions’.

Attributing Value to Patents and Trademarks in Complex Production Chains

This article analyzes the value of a product’s surplus attributable to intellectual property (IP, such as patents or trademarks) relative to the product’s overall value. In a complex production process, learning by doing allows a leading firm to gain some surplus without IP, and as the number of steps approaches infinity, the surplus attributable to IP approaches zero. The value of the same IP held for licensing purposes, rather than to protect a production monopoly, shows no such convergence to zero. The model is used to explain the empirically observed differences between the use patterns of IP in industries based on discrete products, where patents are typically used to maintain monopolies, versus industries based on complex products, where patents are primarily licensing tools. The result is also applied to the questions of evaluating arm’s length transfers, which are often used to move revenue to tax-discounted IP boxes, and for discussion of non-practicing entities.

The Effect of Patent Litigation Insurance: Theory and Evidence from NPEs

We analyze the extent to which private defensive litigation insurance deters assertion by non-practicing entities (NPEs). We study the effect that a patent-specific defensive insurance product, offered by a leading litigation insurer, had on the litigation behavior of insured patents' owners, all of which are NPEs. We first model the impact of defensive litigation insurance on the behavior of enforcers and accused infringers. We show that the availability of defensive litigation insurance can have an effect on how often enforcers will assert their patents. We confirm this result empirically showing that the insurance policy had a large, negative effect on the likelihood that a included in the policy was subsequently asserted relative to other patents held by the same NPEs and relative to patents held by other NPEs with portfolios that were entirely excluded from the insurance product. Our findings suggest that market-based mechanisms can deter so-called patent trolling.

The Myths and Facts of Patent Troll and Excessive Payment: Have Non-Practicing Entities (NPEs) Been Overcompensated? - A Commentary

The much-cited article ‘the Myths and Facts of Patent Troll and Excessive Payment: Have Non-Practicing Entities (NPEs) Been Overcompensated ’ by Jack J. Lu is fundamentally flawed and based on data which cannot be retrieved. The key error results from poorly defined samples, selected to substantiate the statement that hold-up does not exist and that Non-Practicing Entities are not overcompensated. Even if the article had succeeded in adequately selecting the samples subject to the analysis, the document would still fall short of determining what constitutes a comparable licensing agreement. Also, the findings cannot be verified as the article does not disclose the underlying data that leads to the conclusion that NPEs are not overpaid. Hence, the paper falls short of meeting three fundamental requirements of empirical research. There is no adequate selection of the two samples that are compared (the NPE sample and a vaguely defined sample of ‘other companies’), there is also no adequate selection of comparable rates and last but not least, the data cannot be retrieved. Other than that, the research paper suffers from the application of concepts which are not defined and lacks adequate references to the academic literature. These aspects taken together mean that it is not possible to draw any sorts of conclusions on the grounds of the analysis presented and render the article obsolete.