GuestPost: Is there really a problem with NPE litigation in Europe?

Number crunching the NPE patent litigation
stats....

A couple of weeks ago, the AmeriKat posted a summary of the Darts-IP report which investigated the number and frequency of NPE-related patent litigation disputes in Europe (on the basis of the available data).  As with the presentation of any data or statistics in an area as politically sensitive as NPEs, comments abounded about the data set, the presentation of the data and whether the conclusions from the report was just storm in patent litigation teacup or whether legislative action should be taken.

Igor Nikolic, a final year Ph.D law student at University College London (UCL) who is concentrating on SEP licensing (as well as NPEs), wrote to the AmeriKat with his take on the study.  Take it away Igor:

"Recently, Darts-IP has published a study on the non-practicing entity (NPE) litigation in the EU which seems to suggest that there is a growing issue with NPEs. The key finding is that between 2007 and 2017 the average annual growth rate of actions related to NPEs registered in the Darts-IP database was 19% and that the most active NPEs are coming from the United States.

The study has been interpreted by some to suggest that there is a pressing problem with abusive patent litigation by NPEs and that something should be done to prevent such abuses.

The IPKat covered initial responses to the study by the Member of the European Parliament, which stated that the study was “just the tip of the iceberg” and called for more “transparency and more complete data” which he says are needed to find solutions to what he called “the problem of abusive patent litigation”. Further, another MEP said that: “in order to prevent abuses, we need to make sure that Europe’s patent legal system operates effectively for both litigants and society and supports digital innovation in Europe.”

Additionally, IP2Innovate group issued a statement saying that: “without rigorous implementation of safeguards by Member States, abusive litigation practices will undermine European innovation. Europe’s patent legal system must be able to detect and prevent these abuses.”

However, what does the study actually tell us about NPE litigation?

• The vast majority of patent litigation in the EU actually comes from practicing entities. The study provides information on the proportion of the NPE-related litigation in relation to the total patent litigation in certain countries. Excluding Germany, it shows that NPEs are responsible for only 5% of patent litigation overall. The number is higher in Germany, but still only 19.5% of patent litigation involves NPEs, meaning that the majority of patent litigation actually comes from non-NPEs (presumably practicing entities) and that NPEs are responsible for only a very small percentage of patent litigation overall. 

• The majority of actions are brought against NPEs. The study shows first the number of overall “NPE actions”, which include disputes where NPEs are defendant, plaintiff and a party in the opposition proceedings to patents validity at the European or national patent office.

• Out of this total number of NPE actions, the study shows that NPEs initiated infringement proceedings in only 42% of cases. In other words, the majority of “NPE litigation” in fact involves NPEs being  a defendant in invalidity actions before courts or opposition actions before patent offices.

• This also shows, as pointed by Richard Lloyd from IAM, that only around 475 suits were filed by NPEs in the whole of Europe in the last 10 years. This is hardly an explosive number [at least when compared with US figures, notes Merpel].

• NPEs target large companies. The study contains a list of top 10 companies that cumulatively account for 57% of all patent infringement actions initiated by NPEs. All these companies are large international players: Vodafone, ZTE, Huawei, Deutsche Telecom, Telefonica, LG, Samsung, Google and Apple.

• Very small chance of SMEs being targeted. The study finds that just around 23.5% of all unique defendants in patent infringement cases initiated by NPEs are small and medium sized companies (SMEs) – with turnover equal or less than 50 million euros. To put into perspective, this mean that in the last 10 years there have been around 112 NPE suits filled in the whole EU against SMEs. This is not a big number. The illustration by IAM is telling - in 2015 there were around 23 million SMEs in the EU, which means there is approximately 0.000005% chance of an SMEs being sued for patent infringement by NPE. 

What are then the key takeaways from this study?

First, while it is true that there is some rise in NPE litigation, overall NPEs are responsible for initiating only a small number of patent infringement cases in Europe (around 5%, with a bit more in Germany). This suggests that there is hardly a problem with “abusive” patent litigation.

Second, the study highlights that it may be actually getting harder to monetise patents in Europe. NPEs mostly initiate patent infringement suits against large international telecommunication companies, presumably after prior licensing negotiations have failed. NPEs are also having their patents challenged in invalidity proceedings before courts and opposition proceedings before patent offices, presumably by the same large telecommunication companies. It seems that increase in NPE litigation may be actually attributable to hold-out tactics by large companies.

The 2016 study by the European Commission’s Joint Research Centre explains that large practicing companies are, in fact, divesting their patent portfolios to NPEs. The study explains that this is because new entrants in the telecommunications market are increasingly questioning the validity of incumbents’ patent portfolios (especially for standard essential patents) and adopt a tactic of “infringe and then settle.” i.e. hold-out strategy. While before cross licensing was the norm, now it seems that is becoming harder to license patents without some patent litigation. Because of increasing obstacles to monetise their patent portfolios, practicing companies are arming NPEs to do the job.

Before jumping to conclusions about “abusive litigation by NPEs” and calls for regulatory intervention, a more careful analysis is required about the causes of NPE litigation. It may actually reveal that the true picture is more nuanced, and that the problem may lie in difficult patent monetisation and, to some extent, a hold-out by large companies. European innovation economy should protect inventors and incentives to innovate. It should aim to treat the causes of NPE assertion, not its symptoms."

What do readers think?  Merpel, herself, has some follow-up questions:  Should Europe wait for more data and analysis before taking any action?  Or should they look to the US experience and guard against that potential?  Does it matter that NPEs target large companies instead of SMEs?  Does that somehow neutralize the perceived problem?  Is the absolute number of NPE-related patent actions what matters, or is the trend (increase/decrease) in the number of actions more important?  Is it correct to suggest that NPE litigation is attributable to "hold out", or is that an oversimplification of what is really going on/is it fair to call that "hold out"?