Analyzing the Role of NPEs in the Patent System

Guest Post by David L. Schwartz, Associate Professor at Chicago-Kent College of Law and Jay P. Kesan, Professor and H. Ross & Helen Workman Research Scholar, University of Illinois College of Law

Understanding the role of non-practicing entities (or "NPEs" for short) in patent litigation is important. For one reason, patent litigators appear to be polarizing into a plaintiffs' bar and a defense bar. This polarization in lawyers is new to patent litigation, but has existed for many years in other areas of the law, such as medical malpractice, products liability, and labor law. In addition to the lawyers, certain industries have experienced more infringement allegations by NPEs, which have created rifts in many debates about patent reform. The topic of NPEs in patent litigation – their costs and benefits – has been featured prominently in the press, including extensive coverage of a study reporting that the "direct cost" of NPEs was $29 billion in 2011.

We recently wrote a short paper called Analyzing the Role of Non-Practicing Entities in the Patent System, which attempts to set forth a coherent way to conceptualize NPEs.

Before we can meaningfully study or even discuss NPEs, it is important to precisely define what is an NPE. Unfortunately, there is very little agreement on this point. Technically, individual inventors and universities are non-practicing entities. However, they appear very different from each other, and they are also different from start-up companies that have unsuccessfully attempted to commercialize their patented technologies. In addition, the term NPE is often used to refer to both small patent holding companies and large patent aggregators who purchase portfolios of patents from inventors and others for the primary purpose of enforcement. Any credible study of NPEs should distinguish among these different constituents and report empirical information separately.

Beyond the definitional issue, numerous arguments have been offered about the positive and negative aspects of the rise of NPEs in patent litigation. We discuss below several of these arguments, and what the existing empirical evidence suggests.

1. Criticisms of NPEs:

One common criticism of NPEs (however that term is defined) is that they initiate patent infringement lawsuits seeking to enforce patents of dubious quality or with questionable infringement claims, and then settling for amounts far less than the defendants' litigation costs. The story is that NPEs take strategic advantage of the notoriously high cost of patent litigation, which requires several million dollars in attorneys' fees to litigate through the close of discovery.

There is a little firm empirical evidence supporting this scenario of the combination of dubious patent assertions with low settlement demands. There is evidence that NPEs settle more quickly compared to other patent holders, which could indicate the possibility of nuisance settlements. But there is also evidence that the patents asserted by NPEs are similar to patents asserted by practicing entities. There is some evidence that the most litigious NPEs lose more often when the cases are taken to a final judgment, but like other types of complex civil litigation, the vast majority of patent cases settle before judgment.

If widespread opportunistic conduct by NPEs is in fact true, then we need less expensive ways to invalidate patents (e.g., cheaper post-grant review and inter partes review) and to resolve infringement actions (e.g., with a small claims court for cases with less than $3 million in damages or with early ADR).

But before we conclude that such widespread opportunistic conduct is occurring, we need better data on the merits of NPE patent cases, settlement amounts in those cases, the length of time they last, and the amount of attorneys' fees paid by defendants and NPEs to get a true picture of what the reality is. Recently, James Bessen and Michael Meurer from Boston University released a highly publicized study estimating that the direct cost of NPE patent assertions is "substantial, totaling about $29 billion in accrued costs in 2011." We have criticized their methodology and findings, which has been reported on here, here, and here. Briefly, we believe that the $29 billion estimate is likely skewed too high for several reasons. The estimate is based upon a biased sample of NPE defendants. It also includes the settlements, verdicts, and judgments to NPEs as part of the costs, when in reality these are the transfers to patent holders at the very core of the patent system. We find their analysis unsatisfying, and our article offers various suggested improvements to their methodology. Their study also does not consider the merits of the underlying cases.

A second common criticism is that certain types of NPEs – those who are unrelated to the original inventors – pocket a large part of the settlement amounts received and pass little on to the inventors who initially developed the patented technology. We need more data to assess this, but what we currently know appears to point to the opposite conclusion. For instance, Acacia Research Group, perhaps the largest publicly traded NPE, reported that in 2011, it paid more in royalties to inventors than it did to contingent fee attorneys who enforced their patents in litigation.

A third common criticism is that NPEs are not true innovators. Rather, they wait for another to expend resources to commercialize a product with the patented technology and then demand a "tax" on it. We think that existing patent law doctrines can be used to analyze this criticism: Are the asserted patent claims invalid as obvious? Does the accused product embody the asserted claims? Is there some other defense to infringement that has merit? What is the appropriate amount of damages for infringement? And does equity support the entry of an injunction?

2. Benefits of NPEs:

Most agree that university faculty and graduate students are often true innovators. But even NPEs unrelated to the original inventors may provide benefits. This is difficult to empirically assess because nearly all such NPEs are privately-held companies, and there is little publicly available information about these entities. If the concern is that settlement dollars transferred to NPEs are not provided to R&D or inventors, we suggest that private NPEs be surveyed. A survey of NPEs on issues such as litigation costs, settlements, transfers to inventors, and other issues, could be of tremendous value. We do not believe that any such survey has ever been conducted. A survey of NPEs has the additional advantage of exploring both sides of this issue. It could reveal a more complete and balanced picture of patent litigation than what can be obtained from surveying only one side, the accused infringers.

Even NPEs who merely purchase patents with an eye toward enforcement may serve a useful purpose by creating a market for patent rights. They purchase patents from those who do not have the resources or expertise to take their patented technologies to market such as individual inventors. These individual inventors often do not have the resources to hire lawyers that bill by the hour and instead must look for alternate arrangements, such as contingency fee representation or a sale of their portfolios to NPEs. Thus, NPEs create opportunities, perhaps the only opportunities, for non-manufacturing patentees to monetize their patents.

From an economic perspective, many believe that NPEs may serve an important market need. They absorb the risks and uncertainties of patent litigation, and yet may provide an important service permitting non-manufacturing patentees to reap some monetary rewards for their innovations. This potential benefit is premised upon the assumption that the patents are not of dubious quality. With respect to the debate about NPEs, we believe that focusing solely on the costs from and the distributions of funds by NPEs is somewhat beside the point. The better question is whether NPE lawsuits are being brought because the defendants are infringers of a valid patent, or because the defendants are merely easy targets for a nuisance lawsuit. This determination requires looking beyond the identity of the patent holder. Rather, it means we need to evaluate the patents being asserted to determine if there are credible patent claims that are valid, enforceable, and infringed. To the extent changes are needed to the patent system, we suggest focusing on reducing transaction costs (e.g., lawyers' fees) in patent litigation, offering cheaper mechanisms to challenge issued patents (the AIA's post-grant challenges and other administrative procedures for challenging validity appear to be a step in the right direction), and providing cheaper and quicker adjudication through a new small claims court for patent lawsuits, instead of focusing solely on whether the patent holder is a non-practicing entity.

In sum, the debate about NPEs underscores the fundamental point that patent litigation is about whether a valid and enforceable patent claim has been infringed. The more efficiently we can determine this answer in a lawsuit, the better off we will be.

The full article, which includes suggestions for improving the patent system, areas for future study, and criticisms of the study by other academics is available here.

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

71 thoughts on “Analyzing the Role of NPEs in the Patent System

  1. Remember six lisencing is usually caused by the inability to find financing to start up and lack of injunction means no incentive to purchase patents or lisence on the part of companies=nonincentive to create=end of marketable patents and human advancement job growth revenue increases prosperity ect.

  2. Lenny:

    I would have agreed with you a few years ago. Lately, I’ve been seeing a limited number of claims though. Might have something to do with orders coming out of E.D. Tex. to limit the claims pretty early on — limit to 10 or 15 or 20 (and lately the same is true with invalidity).

    I think it just has to do with time (or laziness depending on your perspective). Some of the NPEs are just looking for $50K to $500K nuisance value, and the contingent attorneys don’t want to spend a lot of time on infringement contentions for 50+ claims. This is particularly true in some of the mega-litigations in E.D. Tex. where there are literally hundreds of defendants.

  3. Did you guys hear about the savage attack that went down at the PTO yesterday? There was a girl and a guy both a taebo in the gym and the girl was all up ins the dude’s space. So he raised up all ninja like and planted three kicks right down on her.

  4. It looks to me as there are no NPEs that now practice. I need about a dozen to begin to fund the restart of the economy. The big businesses only want to steal and refuse to deal. Until genuine progressive patent reform begins we will be in depression for 25 years or longer like the last time they riped the invntors until they quit in 1929

  5. “But when is the last time Big Blue was called an NPE, other than by me.”

    Greg Aharonian has been calling IBM the original patent troll for years now. You’re a little late to the party.

  6. As usual, getting what you wish for is not what you think.

    LOL some more at yourself and join the crowd.

  7. Thanks much. I could not wish for anything better than that last, to illustrate my “digging” point. LOL.

  8. Max, but they did dispute it, below, before Prometheus. For some reason, they did not appeal, but nevertheless Mayer would decided the case on 101, thinking the intervening SC decision justified it. Neverthess, it should have been the main issue on appeal. I wonder if now the losing side will not move for reconsideration an base its motion on the 101 issue?

    Something like this happened to me once on appeal as well. We had won on a particular issue — a claim construction issue. We litigated five more years. We won a final judgment. Then the other side appealed, but did not raise the claim construction issue. The Feds did, however, reversed that ruling and remanded back — for what? Another five years of litigation?

    This is why so many think early appeals of claim construction might be wise if constructions are both so critical and so easily overturned.

  9. I would strongly recommend the courts revisit the standards for declaratory judgements.

    “File a complaint before offering a license” is no way to run a patent system. Folks complain about the increase in NPE actions but shouldn’t be surprised in view of new DJ standards.

    We went from extreme (e.g., patentee could harass alleged infringers, customers) to another extreme (patentee cannot do much without risking DJ litigation).

    The goal should be to provide a clear safe harbor for a patent owner to offer a license. The standard for “willful infringement” was already adjusted. Recipients of license offers should be encouraged to review and ignore if a reasonable basis for non-infringement/invalidity. We should encourage both sides to engage in discussions without risking litigation.

    Otherwise, what other options do small inventors have other than sell to NPEs or via auctions.

  10. And I’m impressed (not) that you never weary of giving people the material to dig into. If digging as an activity is just so menial, your providing the material, being more base than that, makes you… what exactly? …where exactly?

  11. I’m impressed that you never weary of your incessant digging. Digging as an activity is just so menial. And where it gets you to is a place you just don’t want to be.

  12. Did you guys hear about the savage attack that went down at the PTO yesterday? There was a girl and a guy both a taebo in the gym and the girl was all up ins the dude’s space. So he raised up all ninja like and planted three kicks right down on her.

  13. I’m reminded of the system in German-speaking countries, where patent validity is tried in a Federal Patent Court, in which the judges are promoted PTO Examiners who can’t do infringement, and what is on trial is whether the PTO screwed up. Simultaneously, in another place (District Court)infringement is a civil dispute in which the court is not competent to look at validity.

    In infringement suits, the Plaintiff is asking the court to put the Defendant out of business. One would think that, if the Constitutional clause means anything, such a Defendant is entitled to be tried by jury.

  14. Disagree; in most nuisance suits, an awful lot of claims are asserted, at least at the beginning. You’ve got the dynamics all wrong. The strongest infringement suits often get focused and targeted early on because they’re going the distance and the patent holders come in with well developed positions. Nuisance NPE suits are brought by plaintiffs who have very little clue about whether there’s a viable infringement claim (not having spent a lot of time/money evaluating them), causing them to over-accuse in an abundance of caution.

    There might not be a strong basis for infringement of all of those claims asserted in nuisance NPE suits, especially when you’re talking about multiple dependent claims, but they’re usually dropped only if you get very close to trial. This is actually one of the NPEs strongest tools for driving up the cost of patent litigation — asserting a lot of claims up front forces the defendant to come up with invalidity/prior art positions on a lot more claims and, in the longer term, will make things like post-grant review under the AIA prohibitively expensive.

  15. We might be talking about different things here, but I don’t think I’m wrong.

    I’m saying that you can’t have a small claims court for infringement actions without a jury (i.e., you can’t make someone pay damages for patent infringement without a jury if the party demanded a jury). Yes, the patentee may waive by filing in the small claims court, but the defendant still has a 7th Amendment constitutional right to a jury trial. That defendant would also have to waive the right.

    With respect to reexaminations, ITC, etc, those aren’t case of waiver. There is no 7th Amendment constitutional right to a jury trial in those instances.

    At least with respect to infringement and reexaminations, my case cites to the Supreme Court and Federal Circuit are exactly on point.

  16. You are left with a mark that judicial activism is not even questioned. I think you miss the true mark.

    Perhaps the point that Mayer was a dissent view might impress you that his view has no force of law.

    Radical activism does not impress me much.

  17. Yeah, that’s not right either. First of all, if it was a voluntary system, there would be no constitutional issues whatsoever because the patent holder would be effectively waiving its right to a jury trial by bringing the proceeding in the small claims court in the first place. The right to a jury trial is, as with most rights, subject to waiver, and a federal patent small claims court system could make clear that submitting such a claim is a waiver, such as what occurs when claims are filed in other non-jury forums (such as the ITC, reissue, reexamination filed by patent holder, etc.).

    But assume we’re not talking about a voluntary system. There’s no definitive authority out there because all of the cases you are talking about involve cases that are already in district court litigation. They involve the question of whether the district court has to honor a demand for jury trial in the context of an underlying infringement suit.

    But if a new procedure was established taking these litigations away from the district court and given to an administrative agency or an “Article I” court (akin to specialized Tax Courts or Bankruptcy courts), there’s a good argument that would be fine and it could be done without a jury. The argument is based on what is known as the “public rights” doctrine, which basically says that when you’re dealing with rights that are inextricably intertwined with rights or obligations created by the government (e.g., federal taxes, bankruptcy, immigration, patents), Congress can assign the adjudication of those public rights to specialized courts with no jury rights. The argument’s never been tested in the patent context because no procedure exists, but it has been upheld in the context of core bankruptcy proceedings, tax, immigration, etc.

  18. Refreshingly clear briefing there, on the reality of NPE suits. As another contributer pointed out earlier, they are a licence to print money. Now, thanks to Lenny’s asymmetry point on discovery, I see how with more clarity the printing press works.

    I’ve always wondered how one reconciles equity with robust constraints on the scope of discovery. Such reconciliation is of course by now routine in the patents courts of London, England (they compete for work with the no discovery courts of Germany and Holland) but as I’m not an English litigator I don’t know how the tussle over discovery works out in practice. All I know is that the English patents judges tell us that it is a rare case indeed where discovery affects the (no jury) outcome.

  19. “The better question is whether NPE lawsuits are being brought because the defendants are infringers of a valid patent, or because the defendants are merely easy targets for a nuisance lawsuit.”

    Full disclosure…who paid you to write this? You write like a puppet of large infringers.

    Call it what you will…patent hoarder, patent troll, non-practicing entity, shell company, etc. It all means one thing: “we’re using your invention and we’re not going to pay or stop”. This is just dissembling by large invention thieves and their paid puppets to kill any inventor support system. It is purely about legalizing theft. The fact is, many of the large multinationals and their puppets who defame inventors in this way themselves make no products in the US or create any American jobs and it is their continued blatant theft which makes it impossible for the true creators to do so.

    It’s about property rights. They should not only be for the rich and powerful. Show me a country with weak or ineffective property rights and I’ll show you a weak economy and high unemployment.

    Prior to eBay v Mercexchange, small entities had a viable chance at commercializing their inventions. If the defendant was found guilty, an injunction was most always issued. Then the inventor small entity could enjoy the exclusive use of his invention in commercializing it. Unfortunately, injunctions are often no longer available to small entity inventors because of the Supreme Court decision so we have no fair chance to compete with much larger entities who are now free to use our inventions. Essentially, large infringers now have your gun and all the bullets. Worse yet, inability to commercialize means those same small entities will not be hiring new employees to roll out their products and services. And now some of those same parties who killed injunctions for small entities and thus blocked their chance at commercializing now complain that small entity inventors are not commercializing. They created the problem and now they want to blame small entities for it. What dissembling! If you don’t like this state of affairs (your unemployment is running out), tell your Congress member. Then maybe we can get some sense back in the patent system with injunctions fully enforceable on all infringers by all inventors, large and small.

    Those wishing to help fight big business giveaways should contact us as below and join the fight as we are building a network of inventors and other stakeholders to lobby Congress to restore property rights for all patent owners -large and small.

    For the truth about trolls, please see link to

  20. This is just pure ignorance, dawg. The high cost of patent litigation is primarily derived from pre-trial discovery, particularly document production. Motions just don’t cost that much, particularly in multi-defendant cases where the motions are jointly filed and the costs split among many defendants.

    In the case of NPEs, discovery is a purely one-sided expense. The defendant — an operating company — has to collect, review and turn over vast numbers of documents in discovery. It has potentially dozens of witnesses who can be forced to give depositions. But the patent owner, if it’s just an NPE, typically has little more than a one inch stack of documents consisting of very little beyond the public file history and maybe a couple of prior licenses. And many NPEs don’t even have a single witness, as the inventor is often not affiliated with the NPE and needs to be contacted through a subpoena.

    Discovery costs in NPE suits tend to be pretty bad because there’s no “glass house” effect — because of the manifestly different burdens between the patent holder and accused infringer, there’s no incentive for the NPE to show restraint in discovery. When you’re in a suit between two large operating companies, however, the two have comparable and reciprocal exposure to burdens in discovery, creating a “what’s good for the goose” effect. One operating company knows that they can’t demand something of its opponent without being willing to meet that demand itself. There’s no such reciprocity in the NPE litigation context, which tends to drive the costs up disproportionately against the defendant and increase the incentive to settle.

  21. That: that which “impresses” leaves a mark. What here left a mark on me was:

    1. that Mayer could do this

    2. the authority he relied upon derives from cases in 1941, 1991 and 1993

    3 that that authority is bang on point

    4. that the Mayer line might do for an awful lot more CII claims currently in dispute.

    When did this particular litigation start? A very long time ago, I imagine. Can we see that start date from the Decision?

  22. Someone tells me to think? Now how can I think without the File. I am sure that was not known. So really getting it probably started it all anew… McCrackin… LAHHHHHHHHHHLAHLAHLAH LAH LAHHHHHHHHHHHHHHHHH, that is the fat lady singing!

  23. Why is judicial activism that makes decisions on unbriefed and unargued positions “impressive?”

  24. Mark,

    You are completely correct and I agree with you 100%.

    Further, having just finished a round of massive change to patent law and having an absence of insertion of a working requirement can arguably be taken as an affirmation that such is not desired. That is why I stated that it is up to Congress (and I would add: Congress alone and not the courts) to affirmatively make ANY such working requirement part of the law. If and until that happens, the legal right of an inventor fully justifies a sitting on and complete exclusion of anyone using his property for the term (the limited term) of his right.

  25. link to

    Wow Ned, thanks for that, and what a startling dissent from Judge Mayer.

    Two of the three judges uphold the claims, seeing nothing much wrong with the DC. Meanwhile Mayer simply renders ALL litigated issues moot by announcing “No infringement. All asserted patents invalid under 101.”

    Defendant had never disputed 101-eligibility, but that doesn’t trouble Mayer for a moment. Impressive.

  26. N.A.P.E. thats a never allowed to practice entity. Mr.Dumbbunney to file An inventor files a marketable patent then cant startup because the corp boys steal it an begin production themselves denying dumbbunny the ability to fight them in court dumbbunnys patent now worthless to try to sell because its infringed and demand satisfacion will give all the profits to the infringer or patent inventorship thieves.Wat ever hppened to the concept of inventors producig patents to sell t get enough mney to open there own practiceng entity busines. The corp dumbbunnies are cutting of there own supply of marketable inventions to expand there busineses because they only want to steal them

  27. Well, in a lot of the nuisance suits filed, only a few claims are asserted. So the fee there would be $27,200. Definitely a lot cheaper than litigation.

    Of course, the litigation was probably filed in E.D. Tex. in the first place and won’t be stayed, so you’ll just get litigation fees + inter partes review fees.

  28. This guy is clueless about who is a great inventor. George,Isiah,Delbert and Michael all Roberts sons and fathers the inventors of all made by the hands of man since 1804-5 and the invention of fire and metal.

  29. Big Blue here,Remember NPE stands for non-paying entity big bsiness wont pay for any thing it doesent have to and knowing the indegent cant fight means crimes of opertunity will happen without encourageing prosecution partnerships between investors and inventors. The result of critisism or elimination of this option will destroy the incentve to create shuttering the patent system of valuable patents destoying job creation human advancement ad even patent attorney jobs although the present market looks ripe for trash patent ripoffs (its all they got left without me filing)

  30. Non-practicing entities are the nessary result of non-paying entities or rip off fat cats.The best way to eliminate the prosecution partnerships is eiminate infringement and fat cat inventorship frauds against the indegent. Get the corrupt congress back to work on progressive reform instead of regressive. We need imediate novelty checks and lockering and minimum 15% for concetion to inventor

  31. 6, while what you say literally true, the emphasis on using the term “NPE” tries to pigeonhole the lack of availability of an injunction on companies who license patents to producers rather than producing themselves. You know this. I know this. We all know this.

    I believe all big companies who license their patents are NPEs, properly considered, because they are hardly seeking to use their patents to maintain market exclusivity. But when is the last time Big Blue was called an NPE, other than by me. Never. It is assumed that such companies can obtain injunctions almost by right because they also sell products covered by their patents. That is the mindset out there 6.

  32. There’s one more that’s lost.

    Small to medium companies with valuable patents but no resources to sue. NPE’s can function as a way to enforce the value of the patents of many smaller companies.

  33. “Why should such a company be entitled to an injunction if it is willing to license its patents for a specified royalty, or balancing payment, to anyone?”

    They are not so entitled. Issuance of an injunction is a relief in equity for the one millionth time Ned.

    link to

    Nobody is entitled to jack in equity.

    Perhaps if you lawltar ds had spent more than a passing glance over the lawl of equity then this would make better sense to you.

  34. Fish, “both sides?”

    I’m not so sure. Big companies can afford to pay big bucks to attorneys. Small fry cannot. I really do not thing that small firms want to spend as much as possible on litigation in enforcing their patents.

    What they do do is seek to file in rocket dockets to minimize expense. The more time that firms have to litigate, the more time they can impose costs on the other side. Rocket dockets are the anathema of the patent defense bar who seek to maximize revenue from big pocket clients.

    So what does this all suggest. Patent litigation costs are a feature of big defense firms litigating on a per hour basis and who are advising the clients to stay out of rocket dockets as a matter of their own self interest.

    If we really want to reduct the cost of litigation, we need to do everything possible to promote the use of speed in litigation. Rocket dockets should be promoted, not subverted.

  35. Is an NPE anyone who is not using his patent to maintain an exclusive market position in the patented product?

    Even if the business holding a patent is selling the patented product, if he is willing to license and does license all comers (think Big Blue) how is such an entity not the same thing as an NPE? Why should such a company be entitled to an injunction if it is willing to license its patents for a specified royalty, or balancing payment, to anyone?

    But, no one has seriously argued that simply because a patent owner is willing to license his or her patents at a specified royalty that they are NPEs if they are also selling covered products. What emerges is that big companies want to pejoratively label anyone who is not one of “the club” as an NPE, stripping them of their rights. The game they play is apparent.

  36. The high cost of patent litigation is caused, not by issues raised in this article, but rather by all of the silly pre-trial motions and other games played by the attorneys on both sides. The bar associations will of course not do anything about this as this is how the patent litigators make their very high incomes. Rather, the judges should take charge and bring this under control. Instead, the judges just depend on one side or the other getting frustrated with the expensive time consuming process and deciding to settle, and so the judges thereby avoid trials.

  37. Gathering data so we know what we are talking about is clearly a good thing. Although it may make sense to differentiate between different types of nonpracticing entities when collecting data, proposals for legislation on this matter usually do not make any exceptions for individuals or those of little means. As for the percentage of the revenue given to the inventor by aggregators of patents, that seems like more of a problem in the lack of regulations protecting the rights of inventors in such transactions, than a problem with the existence of nonpracticing entities who at least give some benefit to the inventor even if the inventor is under-compensated. In contrast, inventor’s rights seem to be eroding with AIA as a result of the loosening of requirements for obtaining inventor’s signatures.

  38. Bucket Man —

    I don’t believe you are correct. Here’s the applicable precedent from the Supreme Court:

    “Equally familiar is the descent of today’s patent infringement action from the infringement actions tried at law in the 18th century, and there is no dispute that infringement cases today must be tried to a jury, as their predecessors were more than two centuries ago.” Markman v. Westview Instruments, Inc., 517 U.S. 370, 377 (1996); see also the 7th Amendment to the United States Constitution.

    You are referring to Joy Technologies, Inc. v. Manbeck, 959 F.2d 226 (Fed. Cir. 1992). The result there was different because the 7th Amendment does not apply to administrative proceedings.

    At best, Congress could perhaps set up a patent small claims court analogous to state small claims courts in which the judgment can be appealed for a trial de novo in front of a jury. Not sure that would do much good though.

  39. If NPEs are or become a real problem, one provision of the Paris Convention that has not been used to date by the United States is Article 5, which states in part:

    “A. — ***

    “(2)Each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work.

    “(3)Forfeiture of the patent shall not be provided for except in cases where the grant of compulsory licenses would not have been sufficient to prevent the said abuses. No proceedings for the forfeiture or revocation of a patent may be instituted before the expiration of two years from the grant of the first compulsory license.

    “(4)A compulsory license may not be applied for on the ground of failure to work or insufficient working before the expiration of a period of four years from the date of filing of the patent application or three years from the date of the grant of the patent, whichever period expires last; it shall be refused if the patentee justifies his inaction by legitimate reasons. Such a compulsory license shall be non-exclusive and shall not be transferable, even in the form of the grant of a sub-license, except with that part of the enterprise or goodwill which exploits such license.

    “(5)The foregoing provisions shall be applicable, mutatis mutandis, to utility models.

    “B. — The protection of industrial design shall not, under any circumstance, be subject to any forfeiture, either by reason of failure to work or by reason of the importation of articles corresponding to those which are protected.
    *** ”

    Some countries have a working requirement, while others, including the United States, do not. The patent grant is the right to exclude others from making (etc), not (at present) an obligation to make. In the absence of any legislation on a working requirement, all patent owners, whether NPEs or not, deserve to be treated equally under the law.

  40. Have an independent body evaluate infringement
    charges with a mandatory disclosure of all technical details by accused infringer and patent holder.
    I would gladly pay another 20K to pay for such independent evaluation as opposed to spending 500K on court-ordered discovery

  41. No this argument was largely put to rest decades ago when the Federal Circuit rejected a constitutional challenge to the reexamination procedure based on, among other things, the assertion that it deprived the patentee of the right to a jury trial on patent validity. The fact is that Congress could establish an administrative, non-jury adjudication procedure for patent cases and it would almost certainly pass constitutional muster.

    But it will never happen because there’s no way a plaintiff would ever go to small claims court, because it’s too cheap for defendants to actually defend. You get a much bigger bang with burdensome district court litigation.

  42. The author’s mention of inter partes review and other provisions of the AIA seems misguided to me. These procedures will not really get you to an inexpensive resolution of validity issues, for two reasons. First and foremost, the filing fees are exorbitant, running in the tens to hundreds of thousands of dollars just for the filing fees alone. So many of these NPE patents were drafted with a view toward burdensome litigation by larding up the patent with dozens and dozens of redundant claims. See, for example, the article entitled: “Inter Partes Review: A $ 448,800 Fee Against a 200 Claim Patent,” at < “>> That’s not even counting the costs associated with preparing the actual petition, which can be high.

    The AIA provisions are really only going to be useful for larger defendants who have the resources to challenge more significant patents, as an alternative to district court litigation. It won’t be particularly useful for nuisance cases.

  43. The authors conclude, “…focusing on costs and transfers from NPEs are somewhat beside the point. The bigger picture is whether the lawsuits are being brought because the defendants are infringers of a valid patent, or whether the defendants are merely easy targets for a nuisance lawsuit.”

    The bigger picture is not simply true infringement vs. nuisance, there is the “MAD” option or “Mutually Assured Destruction”. In Feldman and Ewing’s The Giants Among Us, the “Mass Aggregators”, such as Intellectual Ventures and RPX, offer their investors/partners “just in time” IP for defense, a Litigation Defense Fund. Yes, one would like to think that patent validity rules the day but as this IP-MMOG is played out in the courts and media, validity and enforceability may not even be able to login.

  44. Small claims court for patent suits sounds great.

    One of the problem is the constitution and the right to a jury trial in patent cases. (I don’t usually criticize the constitution, but I think it deserves it in this area.)

  45. I always love to read academics’ spin on NPE patent litigation, as it is usually hopelessly abstract and clueless to those who actually practice in this area. The poster says, “[t]he better question is whether NPE lawsuits are being brought because the defendants are infringers of a valid patent, or because the defendants are merely easy targets for a nuisance lawsuit.” That’s a hopelessly naive question, as most NPE lawsuits are some combination of both. A large number of NPE lawsuits, those that are brought against dozens of separate defendants in venues like East Texas, are brought because there is some arguable (albeit specious) basis to claim infringement of a valid patent, and the costs of defending that claim far exceed the cost of a nuisance settlement. This is why you see dozens of five- and six-figure settlements of these case, oftentimes before there’s even an answer filed.

    The problem with your analysis is that you’re not separating the big NPE cases where large amounts are sought from big targets, as opposed to the Acacia-style NPE suits where dozens of small to mid size companies are targeted for nuisance suits. The former suits are problematic but they’re against larger companies that have the resources to defend themselves. The specious E.D. Texas NPE cases against dozens of defendants are often targeting smaller companies that do not have the resources to defend themselves or the appetite to tolerate such an unfriendly forum, so settlement is the only real option.

    The real problem with the NPE system, in my mind, is that the number of marginal suits for nuisance values is multiplying rapidly as more and more people realize that the economics of defending the suits are absolutely hopeless for defendants. Target enough struggling companies in a place like E.D. Texas, agree to settle for an amount well under the cost of defense, and it’s basically just like printing money.

  46. I would certainly expect to see supporting data for relying on something like “Acacia Research Group, perhaps the largest publicly traded NPE, reported that in 2011, it paid more in royalties to inventors than it did to contingent fee attorneys who enforced their patents in litigation.”
    First of all, patents being sued on, even by NPE’s, are not typically even owned by inventors at the date of suit. The vast majority of patents are originally obtained and owned by the company employers of inventors who paid for the R&D including the inventors salaries.
    Secondly, an NPE can normally only bring suit solely in its own name if it has fully acquired the patent it is suing on.

  47. I’m pleased to see academic patent law studies directly criticising other academic patent law studies, as here, especially on issues that may affect patent legislation. I don’t think there has been nearly enough of that in the past, leaving unchallenged too much published nonsense about patent practice, too often written without consulting with actual practitioners.

  48. You might be right about the expense, especially if the criteria is easily challenged or the hurdle for proof is high. And there should be a balanced check and not simply a “yeah, wink-wink, we are using this;” however, as I mentioned twice now, we have a system to model from with trademarks, and no one seems to be saying that system is too expensive or does not work. Do you LOL that too?

  49. And you think that compliance with a formalized process for proving to an anti-patent bureaucrat is going to be LESS expensive? LOL.

  50. Further, fee based has several strikes: the fees take away from money that could be used in putting the invention into practice, fees do nothing in relation to the policy goal of using the invention, and fees are biased to the “haves” who are more capable of sustaining a portfolio thicket against small entities.

  51. Bad joke ahead,

    And who decides whether you’re far enough along to keep your patent?

    We already do this in the trademark arena, do we not?

  52. And who decides whether you’re far enough along to keep your patent?

    No thanks. It’s best to let the inventor decide whether to keep the patent in force with maintenance fees or not.

    You could make them bi-annual though and “republish” (electronic only) expired patents to ensure that people knew of the expiration due to failure to pay fees.

  53. To be fair, the intent to use could be styled after the ITC domestic industry legislation, which provides that licensing activities are a bonafide use.

  54. Perhaps instead of maintenance fees (which are arguably being double charged with the change in Office fees more reflecting “actual costs”), the legislature could see fit to draft a law to have a tiered “put into practice” requirement. For example, at the five year anniversary, the patent holder would be required to submit a sworn statement providing details of implementation costs or bonafide intended costs, much like the Intent to Use from trademark law.

  55. Another point to the “non-practicing” discussion is the existence of large portfolios or thickets held by large entities. Such thickets clearly are not for practicing but purely to keep others from practicing.

    I am not saying that there is something wrong with such practice per se, but it should be noted that pejoratives such as “Troll” were created by the type of large entity as an attack on others, while that entity engaged in the very same action of “not practicing.”

    Duplicity and naked aggression should not be rewarded.

  56. but in fact in this self-selecting we group, aren’t we ALL folks with not enough to do?


    Nothing wrong to allow for “vested interests.” Nothing too interesting with same.

  57. So it depends on the proportion of we posters that have a pipeline that is full. Good point, but in fact in this self-selecting we group, aren’t we ALL folks with not enough to do?

    You see, I’m just thinking ahead to reading the thread when it gets longer, and how much to allow for vested interests.

  58. For a start, how about the group consisting of readers of this blog, patent attorneys who bill by the hour. Do ‘we’ agree that we will be ‘better off’?

    The great legal answer: it depends.

    It depends on whether you need to fill your account by stretching out your workload or if efficiency is more important because your pipeline is full.

  59. Schwartz and Kesan write:

    “….whether a valid and enforceable patent claim has been infringed. The more efficiently we can determine this answer in a lawsuit, the better off we will be.”

    but doesn’t tell me who is “we”. For a start, how about the group consisting of readers of this blog, patent attorneys who bill by the hour. Do “we” agree that we will be “better off”?

    But in general I do like the Schwartz et al Paper, for reminding me 1) how an NPE can help David, in dispute with Goliath, and 2) it is not the fault of the NPE’s, when a patent litigation system is not fit for purpose.

  60. Another benefit: thicket busting and the nullification of threatened patent nuclear armegeddon by big corps with large portfolios.

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