Intellectual Property – are you ready to fight the NPE’s?

(This blog is an approx. 3 minute read)

 Section 1 – What is a Patent Troll?

Section 2 – How do Patent Trolls operate?

Section 3 – Who is under threat?

Section 4 – How do you fight Patent Trolls?

Section 5 – How can you be protected from Patent Trolls?

What is a Patent Troll?

Patent trolls make it their business to buy up portfolios of patents with no intention of using them for products or services. Instead, they force companies to purchase patent licenses, or sue them for infringing on those patents. Could you be a target for this?

A patent is the exclusive right to prevent others from making or selling an invention, and it can be granted for a wide range of different products or processes. They can be great for innovation, providing a competitive edge and enabling pioneers to prevent their competitors from copying their ideas. Used properly, patents fulfil an important role. However, the world of patents is not always that simple.

There are thousands of patent-holders that use their inventions to provide products and services or to help others develop theirs. However, there are also those that simply accumulate patents, sometimes in large numbers, in order to monetise them through licensing or litigation. These companies are known as patent trolls.

How do patent trolls operate?

Also known as NPE’s (non-practicing entities), patent trolls make it their business to buy up portfolios of different patents with no intention of using those patents in their own products or services. Instead, they purchase patents in order to force companies to purchase patent licenses, or to sue them for infringing on those patents.

Often, patent trolls will contact companies to advise them of their patent, before recommending that they buy a license to continue using the patented idea in their goods or services. If they don’t, the patent troll will bring a claim. To tip the scales in their favour, trolls will often bring patent disputes in jurisdictions that are more plaintiff-friendly. In many cases, companies find that it’s cheaper to take a license from the patent troll rather than defend a claim.

Who is under threat?

Mimecast Chief Scientist Nathaniel Borenstein explains, “More than 50% of businesses targeted by patent trolls make less than £10 million in revenue per year and 75% of the companies sued by trolls are privately held. And for good reason. For trolls, the whole point is to impose a costly and scary lawsuit, so that startups with limited resources to protect and defend themselves are more likely to settle than fight.” Scary stuff eh?!

Tech companies make up a huge proportion of the businesses targeted by patent trolls. Admittedly the US in particular is a major market for patent trolls but the statistics will make chilling reading for many companies. In 2018:

• Over 90% of NPE claims targeted high-tech companies.

• NPEs started 55% of all IP litigation claims in the US.

See table below for US patent litigation by industry.

However, it’s not just tech companies that are at risk. And not every dispute makes its way to court. In fact, small to medium-sized enterprises are often unable to afford to defend themselves in court, so the power invariably lies with the patent troll. Rather than face a costly dispute, or be forced to cease and desist entirely, paying a license fee can be a more cost-effective solution even if the company does not believe it is infringing. While licensing fees can be quite expensive, the expense may well be dwarfed by the costs of going to court.

How do you fight patent trolls?

As patents don’t need to be used to be held – meaning, you can hold a patent for something even if you never actually use it – it’s easy for companies to begin accumulating different patents even if they don’t do anything with them. And, of course, companies who own patents are well within their rights to enforce them against others, whether they’re a patent troll or a regular business.

If a company receives communication from a patent troll, or from anyone in relation to IP licensing or infringement, it’s important to start with advice from an experienced lawyer, ideally one with experience in intellectual property. In some cases, the right legal response can deter the troll. If not, the business will need to decide whether to pay the license fee or pursue a defence. In some cases, a business can challenge the validity of the patent in question.

How can you be protected from patent trolls?

There’s no one-size-fits-all response for dealing with patent disputes, and the best strategy will depend on the situation at hand.

Intellectual property insurance can help by protecting the business from the costs associated with an infringement allegation from a patent troll, including both licensing fees or defence fees

It is important that you give full consideration to the financial and brand risks faced in the manufacturing and supply of products. Ensure that product recall is a board level issue and that the risks have been fully considered within your annual corporate insurance review.

Critically, this also links to director’s liability exposure.  Even if you decide against insuring the risk you will have demonstrated that the board carried out a good risk governance exercise in arriving at your decision to insure or not to insure.

For further information please contact your VRG Account Director or contact us via our website www.venturerisks.co.uk or email info@venturerisks.co.uk

Thanks to our colleagues at CFC for support with this article