Patent Trolls Research Articles

Litigating Monetization and Patent Trolls: Evidence from the Patent Market

Firms’ valuation of resources depends on their expected value appropriation from the resource. Being important resources, patents are used by firms to practice the technology and to exclude other firms from using the technology. However, the valuation of patents can be drastically different depending on the monetization method, especially when the firm has no interest in the product market. This paper studies patent assertion entities (PAEs) which are firms that use legal threats as the business model to monetize patents. The paper sheds light on various value appropriation mechanisms from patents by examining PAEs’ patent acquisitions in the market of technology. I theorize and show that patents with stronger but older technologies are more likely to be acquired by PAEs. Also, PAEs purchase patents with medium exclusion scope. Besides, I show the dependence of litigating monetization on the legal regime by exploiting the enactment of America Invents Act (AIA).

UTILITY MODEL PROTECTION - TRENDS IN THE EUROPEAN UNION AND CHALLENGES FOR UKRAINE

The issue of utility model (UM) protection in Ukraine in1993–2020 and the practice of the EU Member–States is considered. It is noted theproblem of UM trolling and exceeding the number of applications in Ukraine for UM in comparison with inventions. It is associated with the expansion in 2003 of the UM object in addition to the device also to a process, substance, microorganism strain, plant or animal cells culture and limiting the criterion of patentability only to the requirementnovelty and industrial applicability.It is concluded that the adoption of the Law of 21.07.2020 № 816-IX is an important step to limit patent trolling. The Law provides for exclusion from the protection of the substance and the introduction of post grant opposition in the Appellate Chamber.However the Law does not solve the problem of patent trolling at the customs border and did not exclude process from the protection. Also there will still be the problem at the courts as well Appellate Chamber to declare a utility model invalid if the UM is a new but obvious technical solution due to the lack of inventive step requirement or lower requirements for inventive step.The peculiarities of the protection of the utility model in the 15 old EU member states and the United Kingdom are analyzed. It is shown the tendency to increase level of protection of UM in the EU. In 6 EU countries there is no UM protection. In 5 there is an inventive step requirement. In 2 countries protection is possible only for three-dimensional objects (Italy, Greece). In 2 countries (Finland, Spain) - lower requirements for the inventive step.The directions of change of UM legislation in Ukraine are substantiated, including: Option 1: cancellation of protection of UM taking into account experience of Luxembourg, Sweden, Great Britain, Belgium, the Netherlands.Option 2: introduction of protection only for three-dimensional UM (protection is not provided to the method, substances, biotechnological inventions). Establishment of the criterion of inventive step the same as for inventions. Determination of mandatory examination of compliancewith the criteria of patentability (novelty, inventive step, industrial applicability) before the enforcement of UM in the courts, customs, Antimonopoly Committee.Option 3. Definition of protection of utility model as a form of protection of the invention with similar requirements as in option 2.

ТЕРМІНОЛОГІЧНЕ «РІЗНОМАНІТТЯ» У ЗАКОНОДАВСТВІ УКРАЇНИ ЩОДО ВІДЧУЖЕННЯ МАЙНОВИХ ПРАВ ІНТЕЛЕКТУАЛЬНОЇ ВЛАСНОСТІ

The article analyses the provisions of the legislation of Ukraine covering the assignment of economic intellectual property rights. It concluded that legal acts provide various terms and synonyms. The article provides the overview of the relevant clauses of the elaborated draft laws in intellectual property field. It is noted that in these draft laws changes in terminology are not given due attention. The article proposes the changes to the Civil Code of Ukraine, Laws of Ukraine "On Protection of Plant Variety Rights", "On Protection of Rights to the Composition of Semiconductor Products" and draft laws of Ukraine "On Amendments to Certain Legislative Acts of Ukraine (on Patent Legislation Reform)" , "On Amendments to Certain Legislative Acts of Ukraine Concerning Strengthening the Protection and Advocacy of Rights to Trademarks and Industrial Designs and Combating Patent Trolling" and "On Copyright and Related Rights".

PROBLEMS OF CRIMINAL LAW EVALUATION OF PATENT TROLLING

The article deals with the issues of criminal law and legal assessment of patent trolling, which, on the one hand, is a kind of abuse of law and violation of the principle of good faith of participants in civil legal relations, and, on the other hand, has a sufficient degree of public danger and prevalence to be the basis of criminal liability. The author's conclusions are based on the study of media materials and judicial practice. Most of the “victims” of patent trolling pay money, not being mistaken about the legality of the claims, but being guided by the desire to avoid legal costs and other problems associated with litigation. Establishing the criminal legal nature of patent trolling is somewhat problematic, since it is a combination of fraud and extortion in the broad sense of these concepts. Signs of existing crimes, such as fraud (article 159 of the criminal code) and extortion (article 163 of the criminal code), contain definitions of these concepts in a narrow sense. This does not allow such actions to be classified as specified crimes.

Does Alice Target Patent Trolls?

The Supreme Court upended the patent world in the past decade with a series of decisions restricting the scope of patent-eligible subject matter. The culmination of those cases – Alice v. CLS Bank -- has been at the center of a firestorm of controversy in the five years since it was decided. AAs we show in this paper, it has also been the basis of nearly a thousand court decisions. We evaluate how Alice and similar Supreme Court decisions on patentable subject matter have been used in the courts five years in. Using a comprehensive dataset we hand-coded of every district court decision and subsequent appeals to the Federal Circuit involving patentable subject matter, we explore not only how patent owners fare in patentable subject matter cases but how a variety of factors, including industry, the nature of the patent owner, and the judicial venue may influence those results. While we confirm some conventional wisdom, we upend other assumptions common in the legal and policy debates over patent eligible subject matter. In particular, we find that once in court, biotech/life science innovations are more likely to survive patentable subject matter challenges than software/IT innovations. Most surprisingly we find that the entities most likely to lose their patents at this stage are not patent trolls but individual inventors and inventor-started companies. Our findings have important implications for current legislative and judicial disputes over patent reform. As biotech worries about deterrence of new innovation and software worries about patent trolls dominate the debates, we may be ignoring some of the most important effects of Alice.

Patents and intellectual property in orthopaedics and arthroplasty

The provision of musculoskeletal services comes at a cost. This is, in part, due to the expense of patent-protected orthopaedic implants. However, patents have a finite lifespan. Patents of the most successful implants are now beginning to expire. They will be exposed to competition from generic but equivalent implants. The net effect is potentially a dramatic diminution in cost. One company, Orthimo, has taken advantage of this and begun manufacturing generic implants with identical design specifications to the most bio-durable hip prostheses. This will ultimately have a radical impact upon musculoskeletal healthcare provision with regard to cost and accessibility. The expiration of drug patents, with the subsequent use of generic drugs saves £7.1 billion annually in the United Kingdom and $254 billion in the USA. Estimates suggest the introduction of equivalent implants could result in an annual cost saving to the United Kingdom National Health Service of £120 million. Intellectual property remains an enigmatic area of law. It encompasses anodyne principles that seek to protect innovation but are open to manipulation and exploitation. The last decade has seen the emergence of undesirable practices in the medical industry such as "patent trolling". Here we explore patents and their repercussions for musculoskeletal care.

Патентний «троллінг»: визначення негативного впливу та необхідності захисту

Patenting of products, technologies and designs for manufacturers should be one of the key elements of the production process. Intellectual property and enterprise innovation are increasingly being the subject of illegal actions, so-called «Patent Trolling». The result of patent trolling for the manufacturer (importer) or seller can be unforeseen losses from litigation, product delays at the border, loss of foreign partners, loss of image and reputation. As a result of the analysis made such a phenomenon as «Patent Trolling» and the need for patenting products was investigated. The key benefits of patenting for the manufacturer have been identified and characterized. Considered what is a patent and the rights granted by the patent to the owner. It is determined which result of intellectual and creative activity is subject to patenting. The state and tendencies of patenting in Ukraine are investigated. The peculiarities of the activity of patent trolls in the world and in Ukraine are analyzed and compared. The mechanism of patent troll’s activity in Ukraine and abroad is developed. The main reasons for the emergence of patent trolling in Ukraine are identified and ways to overcome it at the legislative level are formed. These measures will help the manufacturer to avoid patent trolling and minimize its impact on economic activity. The patent gives the owner (manufacturer) the opportunity to single-handedly produce a unique product, take a leading position in the market, receive royalties, and protect products and reputation from the actions of unfair competitors and patent trolls. Patent trolling causes great damage to industry and the country. After all, with each case of patent trolling the country loses its image, investment attractiveness, foreign exporters and reduced imports of Ukrainian goods. The solution to this problem is possible if manufacturers (importers) will use the right to patent the product, as well as change the legislation on patenting products.

Patent Trolls and Capital Structure Decisions in High-Tech Firms

Under the growing threat of patent trolls, high-tech firms face substantial legal fees, increased cash flow volatility, and greater expected costs of distress. I show that the exposure to patent litigation leads to overly conservative capital structures in high-tech firms. My identification exploits a 2017 U.S. Supreme Court decision limiting the ability of patent trolls to seek favorable venue outside the defendant’s incorporating state. Following the decision, firms incorporated in states with strong anti-patent troll laws increased leverage. Treatment effects are stronger for high-tech firms, the premier targets of patent trolls. Decreased cash flow volatility, especially in treated firms closer to financial distress, provides a key channel for my results.

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.

SOME ASPECTS OF INTELLECTUL PROPERTY RIGHTS IN MEDICINE IN THE CONTEXT OF EUROPEAN INTEGRATION PROCESSES

The aim of the article is to analyze the objects of patent law in the field of medicine in the context of European integration processes. The field of medicine is quite speculative, it is about the life and health of people. As technology in the field of medicine improves, intellectual property rights become the privilege of medical companies, and technical organizations, etc. That is, we are talking about the fact that patents in our country are issued for everything. Today we seethat the policy of medical and pharmaceutical companies, according to the existing legal system in Ukraine, receives patents for inventions (utility models) and thus monopolizes the medical market, which in turn leads to a limitation of people to affordable drugs or available treatment services (patent for the method).The current state of the system of legal protection of inventions and utility models in Ukraine (patent system) is characterized by some problems. The legislation of Ukraine does not distinguish between objects covered by legal protection as inventions and utility models. In this regard, it is argued that securing the possibility of dual protection (patenting) of the same object as the invention or as a utility modelleads to a large number of patents that duplicate each other, has negative consequences for the realization of human rights in field of medicine.In this regard, we propose to bring the legislation of Ukraine into line with the European legislation by amending the Law of Ukraine «On Protection of Rights to Inventions and Utility Models» in Art. 6 «Legal Protection Conditions» are provisions that exclude medicinal products from among patentable utility models. At present, Ukrainian legislation allows the registration of a medicinal product on a utility model, which is inadmissible in the medical field. Such an opportunity creates favorable conditions for patent holders to monopolize the market and not to lower drug prices. Such legal protection of inventions is «evergreen patents» — patents whose holders artificially extendits exclusive rights to the active substance by providing protection to the additional properties of the active substance and methods of treatment. As for the industrial design, Article 5 of the Law of Ukraine «On Protection of Industrial Design Rights» provides legal protection for the industrial design, which does not contradict the public order, the principles of humanity and morality and meets the conditionsof patentability. An object of an industrial design may be the shape, drawing or coloring, or a combination thereof, which determine the appearance of the industrial product and are intended to meet aesthetic and ergonomic needs. We would like to draw attention to the fact that such industrial design patents as rubber stoppers are patent trolling and are an example of unfair use of intellectual property rights. Therefore, it is necessary to harmonize the patent legislation of Ukraine with the European Patent Convention.

Patent Trolls and the Market for Acquisition

Frivolous patent-infringement claims increase the cost of innovation for small businesses and force them to exit via premature and discounted acquisitions. This study investigates the effect of abusive patent-infringement claims by patent trolls on acquisitions of small firms. I exploit the staggered adoption of anti-patent troll laws in 35 states as a quasi-natural experiment and find that the laws have two effects on acquisitions. First, the number of acquisitions of small businesses by large firms declines after these laws are passed. Second, the anti-troll laws increase the acquisition price for large firms. I find that the market reflects the increased cost of acquisition following the passage of anti-troll laws as measured by the lower acquisition announcement returns. Moreover, I find evidence that large firms increase R&D expenditure after the adoption of state laws. Using a sample of acquisitions that are plausibly unaffected by the state laws, I disentangle alternative explanations such as local economic shocks, industry-wide changes and merger waves. Overall, the findings suggest that the anti-patent troll laws increase the value of small innovative firms.

Trolling the U.S. and EU Patent System: Solved by a Loser-Pays-Attorney-Fees Regime?

Frivolous litigation over patent issues poses a significant barrier to innovation, especially in United States where so-called “patent trolls” or PAEs are responsible for most legal conflicts on patent issues. In comparison, Europe has far less PAE-activity than the United States, but the number of such cases in Europe has increased in recent years. Although the situation is complex, the differences between PAE-activity in Europe and the United States are most likely caused by the use of different legal frameworks for fee-shifting, i.e. the presence and absence of a loser-pays-attorney-fees regime, respectively. In analyzing the arguments for and against moving to a loser-pays system, this paper concludes that the existing troll problem can be reduced by adopting, as a standard practice, a system under which the loser must pay the winner’s attorney fees. It follows that a loser-pays-attorney-fees system disincentivizes PAEs from filing frivolous suits, increases the quality of patents in lawsuits, ensures a more equal bargaining position for defendants in settlement negotiations, and results in lower settlements. Nevertheless, this paper also cautions that the benefits of fee-shifting substantially depend on the mechanism chosen. Limiting the reimbursable fees by pre-determined caps might render fee-shifting less effective. However, placing no limits on reimbursable fees might disincentivize innovation and potentially threaten access to justice. Therefore, this paper recommends two features to find a right balance between the reimbursable costs subject to fee-shifting on the one hand, and innovation and access to justice on the other. First, legislative and judicial authorities are advised to implement certain procedural safeguards to shift only reasonable and proportionate attorney fees. This can be accomplished through an issue-based approach and/or the adoption of mandatory case management conferences. Second, automatic fee-shifting should be limited to “PAE losers” only. In determining which parties should be exempted from automatic fee-shifting, this paper suggests, in line with the never adopted working-requirement, to exempt only those parties that submit proof of adequate patent commercialization.

Decentralized Patent System

The patent system features a centralized structure almost from end to end. The United States Patent and Trademark Office (PTO) possesses power to examine inventions, publish patents, and increasingly manage post-examination proceedings. The centralized nature of the patent system leads to well-known inefficiencies, including production problems, low quality patents, and information inefficiencies. Yet, despite intense criticism, and even proposals to ‘demonopolize’ the agency, the PTO’s dominance persists, and has in fact increased with the recent enactment of the America Invents Act (AIA). This Article considers an alternative, decentralized, patent system. Harnessing new developments in database technology, I propose that inventors would submit patent applications to a shared patent record instead of to the PTO. After a grace period, in which inventions would remain secret, the record would open to the public and the patent examination process would ensue. Following the examination, granted patents would be published to the record. During the examination process and throughout the lifetime of the patent, industry and state actors would be able to dynamically update the record. For example, third parties would be able to submit prior art, scientists — to weigh in on obviousness, patentees — to offer licenses, and courts — to list decisions and outstanding cases that pertain to the patent. A decentralized patent model fosters a participatory and dynamic patent record and promises to transform the record into a central tool in the innovation economy. This strategy would yield several key benefits. First, it would boost the quality of patent examination and improve productivity, by allowing knowledgeable parties to shoulder some of the tasks that examiners now perform alone. Second, it would spur innovation by advancing information on new inventions, and reduce waste by preventing a race for patents that have already been filed. Third, it would allow inventors to avoid innocently infringing patents that are strategically held by ‘patent trolls,’ tackling one of the most troubling issues in patent law. Finally, decentralization would facilitate patent licensing, thus driving the adoption of new inventions in the market. Improved licensing forecasts would also produce a dynamic effect: increasing the potential reward of patents ex post, thus boosting the incentive to invent ex ante.

Patent Trolls: Evidence from Targeted Firms

We provide the first large-sample evidence on the behavior and impact of nonpracticing entities (NPEs) in the intellectual property space. We find that, on average, NPEs appear to behave as opportunistic “patent trolls.” NPEs sue cash-rich firms and target cash in business segments unrelated to alleged infringement at essentially the same frequency as they target cash in segments related to alleged infringement. By contrast, cash is neither a key driver of intellectual property lawsuits by practicing entities (e.g., IBM and Intel) nor of any other type of litigation against firms. We find further suggestive evidence of NPE opportunism: targeting of firms that have reduced ability to defend themselves, repeated assertions of lower-quality patents, increased assertion activity nearing patent expiration, and forum shopping. We find, moreover, that NPE litigation has a real negative impact on innovation at targeted firms: firms substantially reduce their innovative activity after settling with NPEs (or losing to them in court). Meanwhile, we neither find any markers of significant NPE pass-through to end innovators, nor of a positive impact of NPEs on innovation in the industries in which they are most prevalent. This paper was accepted by Tyler Shumway, finance.

Attorney Fees after Octane Fitness and Highmark

A court may award attorney fees to a prevailing party in a patent trial under exceptional circumstances. Since 2005, courts had applied a rigid formula to determine whether a case was exceptional. In the summer of 2014, the Supreme Court rejected this rigid test. Instead, the Court held that an exceptional case is “simply one that stands out from others.” Finding a case exceptional, the Court said, was at the discretion of the district court and only reviewable on appeal for an abuse of discretion. A little over a year later, one interesting question is: how do district courts now determine what cases are exceptional in the absence of a more formulaic approach? The analysis of several recent cases reveal that district courts primarily analyze a party’s (1) litigation position and (2) litigation conduct to determine whether — in its discretion — to award attorney fees. To a lesser degree, district courts have also awarded attorney fees to deter infringement and unsavory litigation practices. However, the deterrence rationale has the potential to be problematic: its purpose is to deter litigation practices, but given the current legal climate it could be used to unfairly penalize litigants that might be classified as “patent trolls.” The existing literature on the award of attorney fees in patent cases sheds very little light on the problems district courts’ reliance on the deterrence rationale could present. This essay addresses these problems and offers practical insights as to when courts should rely on the deterrence rationale to award attorney fees. The essay points out that what makes a case exceptional should have little to do with the identity of the parties. In addition, this essay prescribes that district courts should not take into account the business model of the parties to justify deterrence as a rationale for awarding attorney fees.

The Current Dilemma and Future of Software Patenting

The unprecedented division over patent eligibility based on the “abstract idea” construct among the courts and judges in the Alice v. CLS case, the post-Alice contradictory decisions and the trend of rejecting or invalidating software patents, as well as the uncertainty about the concept of “computer program as such” (or “per se”) in Europe and China, present a chaotic reality and serious dilemma as to the future direction of the software patenting regime around the world. The recent revisions to patent examination guidelines by the patent offices in the US, Europe and China, particularly the “grouping” of “abstract ideas” by the USPTO, providing examples of a “further technical effect” by the EPO, and distinguishing a “computer program per se” and “computer-implemented inventions” by the CNIPA, although helpful in patent examinations, cannot solve the root problem and fix the dilemma. A more general definition, or a “safe harbour”, for the “abstract idea” or computer program “as such” is needed. In addition, to prevent patent trolls and promote true software innovation, the scope and length of software patent protection should be limited, e.g. allowing only the means of implementation but not the function to be patented; and granting 10 years of utility-model-type or sui generis protection. All the above proposed reforms should be undertaken at the international level, e.g. by adopting a Software Treaty under the auspices of the WIPO, because the software patent dilemma is a global one that deserves an international solution, especially in the age of the internet where most of the software patents cover borderless internet technologies.

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.

Innovation Safety Management by Shaping the Law on Non-Practising Entities (Patent Trolls) in the USA and EU

Abstract In a knowledge-based economy, innovation resulting from R & D activities and subsequent management of their legal safety are of particular importance. Incorrect patent law can lead to abuse in the area of innovation security on a large scale through the activities of the NPE organization (patent trolls). This phenomenon is particularly noticeable in the US while in the EU it is at a negligible level. The aim of the article is to demonstrate and prove by using comparative literature and documents analysis of US and EU, that inappropriate law leads to violations of innovation safety through the unhampered activity of patent trolls, while a change of the law to more restrictive law is a right step to reduce the patent trolling. On the other hand, the author proves that in an area with a less liberal definition of patentability, there are no many violations of innovation safety through patent trolling.

After the Trolls: Patent Litigation As Ex-Post Market Making

Recent patent policy emphasizes the superiority of ex ante licensing over ex post patent assertion. Ex ante means before costs are sunk by a patent defendant, so licensing at this stage avoids the leveraging of a defendant’s investments in product design which is a presumptive aspect of litigation in the ex post period. Contrary to the dominant narrative (ex ante good, ex post bad) this Article defends patent litigation as a reasonable way to award compensation in the ex post (i.e., after product development) period. The literature on strategic delay, together with the sometimes heavy costs of negotiating patent licenses during an intensive product development project (including opportunity costs), point to a productive role for patent litigation: ex post market-making. Patent litigation determines which patented inventions contributed to product success during the all-out scramble for successful product development and market entry. But it does so after development is complete and the product market is established. This temporal decoupling – separating intensive development competition from a careful assessment of the contributions of individual patented technologies – is a rational way to appropriately compensate the various contributors to a new product in fast-moving, technology-intensive markets. The last part of the Article reviews the many ways that litigation has been reformed in recent years in response to the problem of rent-seeking litigation, i.e., patent trolls. Many patent doctrines have been adjusted to better police the “troll line”: the line separating socially worthless troll patents from value-adding patents that are worth enforcing. Because of these reforms, we can be confident that patent litigation primarily serves the positive function of rewarding (ex post) the actual contributors to a new product.