Patent Assertion Entities Research Articles

Patent validity and the timing of settlements

We study the timing of settlement in patent disputes, accounting for an alleged infringer’s search for evidence to challenge patent validity. Early settlements are more likely reached when the disputed patent has a low quality, and late settlements take place when the alleged infringer finds strong evidence that challenges patent validity. Thus, there is a tendency to settle disputes over patents that would have likely been invalidated in court. Fee shifting induces more early settlements, and when parties did not settle early, a higher expenditure on invalidating the patent. Our model sheds light on disputes involving patent assertion entities.

The Effect of Opportunistic Litigation on Firms’ Collaborative Behavior

Although there is evidence showing the negative impact of opportunistic litigation from patent assertion entities (PAE’s) on sued companies, little is still known about how these companies react to...

Understanding Patent “Privateering”: A Quantitative Assessment

Since 2011, several papers and articles have speculated about the motivations, activities, and possible anti‐competitive effects of hybrid patent assertion entities (PAEs) or, more pejoratively, “patent privateers.” Most prior work has assumed that privateers are essentially extorting money from firms by making weak infringement claims employing weak patents. Under a more classical law and economics approach, we would expect patent privateers to acquire valuable patents to reduce litigation risk and justify patent enforcement. However, to date, there has been no quantitative analysis on this form of patent holder to support or disprove either of these theoretical viewpoints. This article takes a first step toward filling that gap in the analysis by conducting an empirical assessment of patent lawsuits filed between 2010 and 2013. Although several studies have provided useful analysis on who litigates patents and which patents are more likely to be litigated, we add new variables and insights to the analysis. First, our dataset identifies the business models of the parties involved, including hybrid PAEs. Second, we include data on patent reassignments, which allows us to identify when a hybrid PAE takes (partial) possession of a patent. Third, for making comparisons between litigated and unlitigated patents, our dataset includes a set of unlitigated patents that match our litigated patent dataset on several key variables. In this work, we explore three interesting questions: (1) What patent characteristics predict a patent's acquisition by a hybrid PAE? (2) Do hybrid PAEs acquire patents that are more likely to be litigated? and (3) Does reassignment to a hybrid PAE affect the time when a patent is first asserted in litigation? We find that hybrid PAEs tend to acquire patents in the information technology, surgery, and medical instrument fields more often than patents in other technology areas. Hybrid PAEs also obtain relatively higher‐quality patents than average, but objective quality metrics generally are on par when compared to patents litigated by firms with other business models. Our analysis also suggests that hybrid PAEs prefer patents with a broader scope of protection. Reassigning a patent to a hybrid PAE is generally associated with higher odds that the patents will be litigated. Finally, patents held by hybrid PAEs at some point in their lifespan experience their first litigation later than those never held by a hybrid PAE. In short, our analysis suggests that patent privateers appear to be focused on improving the possibility of successful patent monetization by focusing on acquiring higher‐quality patents with a broader scope of protection, as value and scope are perceived by economists. This research is consistent with the law and economics theory that hybrid PAEs acquire valuable patents and not the extortion theory that they acquire weak patents.

Predicting Administrative Patent Challenges

In this Article, we empirically study the use of administrative validity challenges by defendants in patent infringement suits. By requesting an administrative challenge, defendants can effectively bifurcate a patent infringement suit: staying district court proceedings while they challenge the validity of the patent at the patent office. Because of potential advantages in cost, speed, and legal standards, administrative challenge procedures like inter partes review appear facially attractive to defendants, and have been heralded by scholars as a way to reduce litigation costs and improve the patent system. Despite all of the potential benefits, we find that defendants requested an administrative challenge–inter partes reexamination or inter partes review–in only about ten percent of the sixty thousand infringement cases brought between 2008 and 2015. Some of the low challenge rate can be explained by statutory ineligibility and changes in the standard for the joinder of multiple defendants. But most of the low challenge rate appears driven by speedy resolutions of the underlying dispute: over fifty percent of the cases where defendants did not use a challenge settled or otherwise terminated within one year. Our results have three important implications. First, we discover trends that can inform the design and evaluation of administrative challenge procedures. We find substantial evidence that the 2011 America Invents Act reform increased the use of administrative challenges by defendants. Still, the reform had heterogenous, possibly unintended effects. Small entity patents, for example, are much less likely to be challenged after the AIA than before. We also identify areas ripe for future reform. Despite a growing policy concern over patent assertion entities (PAEs), for example, patents asserted by PAEs are currently less likely to face an administrative challenge than other similar patents. Second, we empirically test several predictions in a growing theoretical literature on the interaction between Article III courts and administrative venues. We confirm an important earlier result: a defendant’s decision to request an administrative challenge appears highly sensitive to the district in which they are sued. Pushing further, we also discover sensitivity to the particular judge assigned, which is driven at least in part by each judge’s docket management. Third, we caution that a growing empirical literature on the outcomes of inter partes review may be clouded by selection bias. We find some evidence that the cases where defendants use administrative challenges involve patents of particularly broad scope and high value compared to the broader pool of litigated patents. Our selection models provide a framework for future authors to consider and account for these selection effects.

Of Trolls, Orphans, and Abandoned Marks: What’s Wrong With Not Using Intellectual Property?

The question whether intellectual property (“IP”) rights should require use is a pressing one today. Neither patent nor copyright law formally requires that the IP owner actually use the patented invention or copyrighted work. Yet use would seem necessary for a work to reap the social benefits that justify granting exclusive rights. Trademark law does require use, but it sometimes protects marks even when mark owners have ceased using them. This messy state of affairs has come under considerable pressure in recent years. Critics condemn patent assertion entities, commonly known as patent trolls, for asserting patents that they do not commercialize or use themselves, and some of these critics advocate a general use requirement to handle the problem. In copyright, the problem of orphan works has become particularly salient with the rise of digital technology and user-generated content, and the optimal solution involves tricky questions bearing on use. Trademark law also exhibits confusion about use and nonuse in the area of trademark abandonment. In particular, courts have been unable to develop a coherent approach to abandonment by nonuse when the abandoned mark retains substantial residual goodwill. This Article breaks new ground by focusing on use from the perspective of the utilitarian and nonutilitarian theories that justify IP rights and by using this perspective to develop a general framework for analyzing questions of use and nonuse across patent, copyright, and trademark law. When the issues are examined at the normative level, it becomes clear that a general rule conditioning IP rights on use across-the-board is not desirable. Any use requirement should be tailored to the nature of the specific problems that nonuse creates. In keeping with this insight, the Article examines the patent troll, orphan work, and residual goodwill problems and proposes sensible solutions tailored to each.

Are patent assertion entities a threat to Europe?

... Patent Assertion Entities (PAEs) are companies active in the acquisition and licensing of patents.1 However, they are frequently criticized and negatively referred to as ‘patent trolls’, harmful predators that engage in speculative and abusive patent litigation against manufacturing companies, demanding excessive licensing fees that do not reflect the proper value of the technology. PAEs supposedly exploit some characteristics of litigation, such as the high costs, the threat of injunctive relief, high damage awards, and the fact that they are immune from counter-suits because they do not produce patented products, to force companies into a settlement or licensing agreements for patents of questionable value.2 PAEs have been claimed to impose a ‘tax on innovation’,3 harming manufacturing companies and increasing prices for consumers. PAEs are largely active in the USA: according to some estimates during the period of 2012–2017 the majority of all US patent suits originated from PAEs.4 Although Europe has not witnessed comparable PAE activity, one recent study reported a 19 per cent annual growth rate of allegedly abusive PAE litigation in Europe,5 while one group warned against the harmful effects of PAEs on Europe’s innovativeness.6

Monetization Strategies of University Patents Through Paes: An Analysis of US Patent Transfers

The pressure to extract rents from academic research results has led many universities to file more patents and to rely on a growing range of monetization strategies including selling patents to Patent Assertion Entities (PAEs). We build a database of university patents granted by the USPTO and, for each of them, we collect information about the change of ownership. A first analysis of these data shows that about 12% of university patents have been transferred at least once (including reassignments to universities, hospitals, public research centres and governmental institutions) and only a minor part has been acquired by PAEs (the 0.3% of university patents). However, we also find that most transfers of university patents to PAEs occurred in the last ten years (3.4% of transfers). These acquisitions are largely concentrated in two large PAEs that acquired about 80% of all PAEs-acquired university patents: Intellectual Ventures and Intellectual Discovery. An econometric analysis on the characteristics of university patents transferred to PAEs shows that patents transferred to PAEs are of high quality, suggesting that PAEs cherry pick good patents for monetization purposes. PAEs acquire also older university patents than those transferred to producing companies. This fact suggests that these transfers are not linked to technology transfer.

On the Economics of Injunctions in Patent Cases

Courts in many countries continue to follow the traditional practice of awarding the prevailing patent owner a permanent injunction, absent exceptional circumstances. First-generation law-and-economics scholarship, building on Calabresi and Melamed’s work on property and liability rules, largely supported this practice, based upon the perceived advantages of injunctions (as opposed to damages awards) in inducing bargaining and reducing valuation errors. More recent scholarship, however, has questioned the wisdom of automatic injunctions, particularly in cases in which the conditions conducive to patent holdup are present — among them, cases involving standard essential patents, patents incorporated into complex, multipatent devices, and actions brought by patent assertion entities. Building upon this more recent work, I argue that the social benefits and costs of injunctions vary depending on the circumstances. To assist policymakers in rendering decisions in the real world, I propose two simplifying assumptions that would enable courts to compare the expected cost of holdup with the expected cost of valuation error. A simple set of recommendations follows, namely that courts generally should (1) grant injunctions when the probability of holdup is low, and (2) deny them when the probability of holdup is great and the expected harm from valuation error low to moderate. For indeterminate cases — for example, when the probability of holdup and the expected harm from valuation error are both high — courts can mitigate both risks to some degree by granting injunctions subject to stays pending design-around.

Government-Sponsored Patent Monetizing Entities

Government-sponsored patent assertion entities have materialized all over the world. This article looks at the market failure associated with the patent system. These entities have an opportunity to address these market inefficiencies. But, these entities can damage the innovation more by decreasing competition and increasing protectionism. This article looks at three such entities and argues that the US could use such an entity.

IP Privateering in the Markets for Desktop and Mobile Operating Systems

Utilizing a privateering competitive strategy, firms sponsor the assertion of IP claims by third parties (patent assertion entities and others), with the ultimate objective the raising of rival competitors’ costs. This paper tells the privateering story with respect to both desktop and mobile operating systems competition. It begins with Microsoft’s funding of litigation against Linux – a threat to Microsoft’s desktop operating system monopoly and continues to a analysis of recent competition in the smartphone space. The paper raises potential competitive concerns and related antitrust and IP enforcement issues.

Are PAEs Different? The Legal Treatment of Patent Assertion Entities in Europe and the United States

Patent assertion entities are playing an increasing role in patent litigation, in both the United States and Europe. Analyzing the resulting case law, mainly in the SEP/FRAND context, this article shows similarities as well as differences in the approaches taken by U.S. and EU courts. These distinctions can assist policy makers as they consider various proposals for patent law amendments in their jurisdictions.

THE ROLE OF PATENTS IN INFORMATION AND COMMUNICATION TECHNOLOGIES: A SURVEY OF THE LITERATURE

AbstractDuring the last few decades, the number of patents in information and communication technologies has increased considerably. An increasing number of patents and the associated fragmentation of IP rights have generated a series of potentially problematic consequences. Patent thickets, royalty stacking, the emergence of patent assertion entities, increased patent litigation – particularly around standard essential patents – and the difficulties with defining fair, reasonable, and nondiscriminatory licensing terms are some of the most debated issues in the literature that we review in this paper. We devote a specific section of our survey to patent quality, currently one of the most debated issues surrounding the patent system. In our analysis, we mix theoretical and empirical arguments with a more policy‐oriented reasoning. This allows us to better position the different issues in the relevant political and economic context.

Who's Suing Us? Decoding Patent Plaintiffs since 2000 with the Stanford NPE Litigation Dataset

Despite widespread interest in the impact of patent assertion entities (“PAEs”) on the U.S. patent system, there has been no publicly available dataset that categorizes more than a fraction of lawsuits as involving practicing entities, non-practicing entities (“NPEs”), or PAEs. To address this knowledge gap, Stanford Law School student researchers, led by Mark Lemley and Shawn Miller, have created the Stanford NPE Litigation Dataset (“the Dataset”). The Dataset is the first comprehensive patent litigation dataset to categorize patent asserters and will do so for every U.S. patent lawsuit filed since 2000. With over 80% of total cases categorized as including practicing entities or one of eleven types of NPE patent asserters, the Dataset is nearing completion of the 63,000 lawsuits filed between 2000 and 2017. Thereafter, we will continue to update the Dataset with more recently filed lawsuits. The Dataset provides an invaluable tool to help policy makers craft effective rules, and help judges, litigators, and scholars better understand the nature of the entities filing patent suits. This is especially true because the Dataset captures how patent litigation patterns evolve over an era of heightened activity and policy reform. The Dataset will reveal trends before and after passage of the America Invents Act, key Supreme Court patent cases including eBay and Alice, and various executive orders focused on increasing transparency and reducing costs in patent suits. The first half of this paper explains the motivation for creating the Dataset and details the methodology used to create it. At present, we have completed and made public a random sample of 20% of the lawsuits filed from 2000 through 2015 (10,812 lawsuits). We utilize this sample in the second half of the paper to reveal, for the first time ever, trends in the share of patent disputes attributed to different types of patent asserters over a span of sixteen years. These trends show that while practicing entities dominated patent litigation in the first half of the 2000s, NPEs and PAEs now assert patents in most lawsuits. Further, the trends show that the rise of NPEs and PAEs began before—and thus is not attributable to—the 2011 change in joinder rules. We hope this data will be used to further policy discussions and therefore conclude this paper with examples of how the Dataset can be used in future research on the impact of different types of patent asserters on the patent system.

Are Patent Assertion Entities (PAEs) a Threat to Europe?

Patent Assertion Entities, companies that monetise patents but do not practice them, have been over the years negatively portrayed as harmful “patent trolls” that engage in speculative and abusive patent litigation against manufacturing companies, threatening them with injunctions in order to extract settlements unrelated to the value of their technology. Although mass PAE litigation has mainly been US phenomenon, recent study indicated that PAEs are on the rise in Europe and a number of changes the European patent and litigation system have been recommended, in particular the denial of injunctive relief in case of finding of infringement of a valid patent. This article provides a different perspective on PAEs. It will first show that it is incorrect to label all PAEs as “bad” actors. Generally, PAEs are in the business of patent licensing and serve a useful intermediary function in the market, facilitating licensing and technology transfer, while some may be engaging in aggressive monetisation practices. Whether there is abuse of litigation system would depend on the facts of the case, and not a priori whether plaintiff is PAE or not. Second, PAEs have mainly been US phenomenon and the incentives for abuse of European patent and litigation system are not present, or are not present to the same extent as in the US. A combination of factors, such as patent cases being decided by experienced judges, higher costs of patent enforcement, lower costs of defence, loser pays principle and generally higher quality of patents all disincentivise the emergence of opportunistic litigation practices. Finally, the available evidence shows that PAEs are actually responsible for very small number of patent litigation in the EU. The vast majority of litigation is between practicing entities and in majority of cases PAEs are actually defendants in invalidity suits initiated by practicing entities. The evidence therefore suggests that European patent and litigation system is functioning well and that the fear about massive PAE litigation abuses is unfounded. European judges should continue in applying the relevant legal framework for granting legal remedies for infringement of IP rights, which already gives them the tools to guard against litigation abuses by any type of entity.

What Aggregate Royalty Do Manufacturers of Mobile Phones Pay to License Standard-Essential Patents?

For a decade or more, proponents of the royalty-stacking conjecture have claimed that, when an end-user product (such as the smartphone) incorporates multiple standard-essential patents (SEPs), the aggregate SEP royalty might be so high as to make it infeasible for manufacturers to make a standard-compliant product. A decade’s worth of royalty-stacking claims in the academic literature and in patent-infringement litigation begs this question: what is the aggregate royalty actually paid for SEPs used in standard-compliant products — specifically, smartphones? In 2015, Keith Mallinson, an engineering consultant in the mobile telecommunications industry, supplied an elegantly simple answer. He estimated the total monetary burden that royalties for mobile communications SEPs actually impose on manufacturers of mobile handsets and then compared that aggregate royalty to total global handset revenues for 2014. Mallinson found that the aggregate royalty for 2G, 3G, and 4G SEPs was approximately 5 percent of global handset revenues. I replicate Mallinson’s important study. I am able to confirm his results with publicly available data and my own analysis of a dataset on mobile handset sales in 2013 and 2014. In this article, I first explain Mallinson’s methodology. I then separately examine the revenues of major SEP owners, patent pools, large implementers of SEPs, and patent-assertion entities (PAEs). I show that, even using large assumed values for balancing payments in cross licenses, the aggregate SEP royalty that implementers paid in 2013 and 2014 was between 4 and 5 percent of global handset revenues for handsets practicing the 3G and 4G standards.

Comments Submitted to Japan Patent Office on Guide to Licensing Negotiations Involving Standard Essential Patents

These comments were submitted to the Japan Patent Office (JPO) in response to its request for comments on its Guide to Licensing Negotiations Involving Standard Essential Patents (Draft Mar. 9, 2018). These comments relate primarily to: (1) assertion of SEPs by Patent Assertion Entities, (2) confidentiality of information in SEP negotiations, (3) Bottom-up royalty calculations, and (4) exclusivity.

Heterogeneity Among Patent Plaintiffs: An Empirical Analysis of Patent Case Progression, Settlement, and Adjudication

This article empirically studies current claims that patent trolls, also known as patent assertion entities (PAEs) or non‐practicing entities (NPEs), behave badly in litigation by bringing frivolous patent infringement suits and seeking nuisance fee settlements. The study explores these claims by examining the relationship between the type of patentee‐plaintiffs and litigation outcomes (e.g., settlement, grant of summary judgment, trial, and procedural dispositions), while taking into account, among other factors, the technology of the patents being asserted and the identity of the lawyers and judges. The study finds significant heterogeneity among different patent holder entity types. Individual inventors, failed operating companies, patent holding companies, and large patent aggregators each have distinct litigation strategies largely consistent with their economic posture and incentives. These PAEs appear to litigate differently from each other and from operating companies. Accordingly, to the extent any patent policy reform targets specific patent plaintiff types, such reforms should go beyond the practicing entity versus non‐practicing entity distinction and understand how the proposed legislation would impact more granular and meaningful categories of patent owners.

The good, the bad and the ugly – the future of patent assertion entities in Europe

ABSTRACTMost of the available evidence on patent assertion entities (PAEs) is coming from the United States, while little is known for Europe. The up-coming Unitary Patent (UP) and the Unified Patent Court (UPC) system are considered to be game-changing elements for strategic patent options and for patent assertion activity in Europe. Many patent practitioners are watching Europe as the future market place for patenting. PAE activity in Europe is increasing and one reason for this trend is that PAEs originating from the United States are becoming more active in Europe. In the future, fuzzy boundaries of patent claims in general and of software-related claims in particular, new combinations of technologies and enhanced interoperability under the schemes of Industry 4.0 and the Internet of Things could attract PAE activity in technological fields where it has not been seen before. Altogether, some of the features of the new UPC have the potential to play into the hands of PAEs in Europe. The future will much depend on the implementation of the new UPC system, how the different divisions of the court will establish case law decisions and how PAEs will make use of the new system. The intention of the article is to provide an overview of ongoing PAE activity in Europe and to assess the future strategic options of PAEs in Europe based on the design of the new UP and UPC system.

The Role of Patents in Information and Communication Technologies. A Survey of the Literature

During the last few decades, the number of patents in information and communication technologies has increased considerably. An increasing number of patents and the associated fragmentation of IP rights have generated a series of potentially problematic consequences. Patent thickets, royalty stacking, the emergence of patent assertion entities, increased patent litigation – particularly around standard essential patents – and the difficulties with defining fair, reasonable and non-discriminatory (FRAND) licensing terms are some of the most debated issues in the literature that we review in this paper. We devote a specific section of our survey to patent quality, currently one of the most debated issues surrounding the patent system. In our analysis we mix theoretical and empirical arguments with a more policy-oriented reasoning. This allows us to better position the different issues in the relevant political and economic context.

Patent privateering, litigation, and R&D incentives

AbstractWe model “patent privateering”—whereby producing firms sell patents to Patent Assertion Entities (PAEs), which then license them under the threat of litigation—in a bargaining game. PAEs can negotiate higher licensing fees than producing firms because they cannot be countersued for infringement. Privateering produces two countervailing effects: it increases the offensive value of patents, whereas it decreases their defensive value and lowers the aggregate surplus of producing firms. Embedding the bargaining game into a Research and Development (R&D) contest for multiple complementary technologies, we find that privateering may increase R&D investments, even as it induces more litigation threats and reduces industry profits.