Patents support innovation by allowing companies to protect their technology from copying, to share and develop new technology, and to obtain the freedom to operate necessary to bring new products to market. But a patent system that is out of balance and can be exploited through abusive litigation tactics will undermine rather than support innovation, disserving consumers and the economy by draining scarce resources from the development of new products.
The patent landscape in today’s fast growing high-technology areas is increasingly complex. Artificial intelligence, connected homes and cars, Industry 4.0 and the broader Internet of things all involve multi-feature, integrated products that incorporate high-tech products and systems covered by thousands of patents. Any new entrant to these high-tech markets, including SMEs, faces a patent thicket in which even an accidental infringement of one trivial or invalid patent can result in its product being removed from the market, with devastating impact to the company.
The rise in patent litigation involving Patent Assertion Entities (PAEs) and the underlying causes of that rise pose a threat to innovators that merits the attention of EU policy makers, Member States, the legal profession and judicial authorities in Europe.
Watch our video to learn about how Patent Assertion Entities are threatening innovation:
PAEs do not innovate and do not create and sell new products. They are financial vehicles that buy up patents and profit from asserting these patents against operating companies. Their business model relies heavily on making threats to operating companies that must then choose to employ significant human and financial resources to fight their claims or to settle them with payments or licenses on terms dictated by PAEs. In pursuing this model, PAEs exploit the imbalances in Europe’s patent legal system to the detriment of Europe’s innovators.
For further information on the imbalances in Europe’s patent system and how they can be remedied, please click on the links below.
+Imbalances in Europe’s patent legal system are driving increasing activity by PAEs
- The threat of automatic injunctions: PAE lawsuits in Europe are fueled, in part, by a PAE’s ability to obtain an automatic injunction against a product following a finding of infringement. This gives a PAE tremendous leverage even when its patent covers a trivial feature of a complicated product, and it really wants payment, not removal of a product from market.
- The injunction gap: some patent systems use different tribunals to decide the issues of infringement and validity, creating the potential for an “injunction gap” in which one tribunal decides infringement of an asserted patent and awards injunctive relief before the other decides patent validity.
- The ineffectiveness of fee shifting: European courts traditionally recognize fee shifting as a means of deterring abusive litigation. However, the effectiveness of that deterrence policy in deterring PAE litigation is undermined by allowing underfunded PAEs to bring speculative patent cases without posting sufficient bonds to meet the fees, coupled with high initial fee payments required to challenge a patent’s validity and caps on fee shifting.
- Low quality patents: abusive practices often entail PAE’s taking advantage of lower quality patents to apply business leverage to achieve quick settlements. Patent quality is essential to a strong and efficient patent eco-system.
- Lack of patent litigation data: it is presently very difficult to gather information on patent cases across the EU Member States or members of the European Patent Convention. Data is thus scarce and it is hard to identify and analyse trends that could improve decision-making and systems.
+The rise in European patent litigation involving PAEs is an alarming trend signalling imbalances that merit the attention of EU policy makers and judicial authorities
- The report titled “NPE Litigation in the European Union” released by Darts-IP in February 2018 provides the most comprehensive study of the problem to date.
- Key findings of the Darts-IP report include:
- Between 2007 and 2017, the average annual growth rate of actions related to NPEs was 19%. The growth in NPE-related cases beginning in 2014 has been especially dramatic, with 2017 showing the largest number of cases ever.
- Nearly 20% of infringement actions in Germany were initiated by NPEs.
- The five most active NPE companies in the EU are based in the United States. They account for 60% of NPE-related litigation in the EU.
- NPE litigation impacts companies of all sizes. 23% of unique defendants in NPE cases are SMEs.
- NPEs bring weaker cases than operating companies. NPEs win on infringement less often and lose on validity more often than non-NPEs.
- NPEs are particularly active in information and communication technologies (ICT). These technologies account for 75% of the patents asserted by NPEs in the EU. As application of ICT is central to innovation and growth across many industries, the consequences of these attacks will be far-reaching.
- As concerning as these findings are, they do not provide a complete picture of the amount of PAE activity in Europe. Most likely, they are only the tip of the iceberg. It is very difficult to gather information on patent cases across the EU Member States. In some states, including Germany, the filing and progress of infringement actions are not made public. In these states, Darts-IP cannot learn of and add an infringement action to its database until the court holds a hearing or issues a decision. There is no way to track cases that are filed and settled prior to a hearing. There is no way to learn of payments that a company makes to an PAE based on the threat of litigation to avoid the filing of a lawsuit. But both of these scenarios tax European innovation.
- CEOs of European companies have confirmed the impact of PAE activity on their businesses
- View CEO video testimonies on the impact of patent trolls on European companies
- Patent Assertion Entities are increasingly viewing Europe as an attractive place to exploit Europe’s legal system and attack innovators. Many have moved here from the United States as recent legal developments have made it a less hospitable forum after years of rampant PAE growth.
- Marathon sees enforcement opportunities in Asia, Europe and U.S. from acquisition of CPT IP energy storage patents [The Patent Investor - 19 Sep 2016]“Our portfolio of assets and opportunities continues to expand at a pace never previously seen in our corporate history,” CEO Doug Croxall said in a statement. “This portfolio will further expand Marathon's patent licensing activity into Asia, while remaining active in both the United States as well as countries in Europe."
- Erich Spangenberg’s Patent Predictions for 2016 [Spagen Blog - 4 Jan 2016]“The European Patent Office expects the Unified Patent Court to become a reality late in 2016. If this does in fact happen, Europe will all of a sudden become a much more interesting place for patent monetization – and that will be reflected in the value of patents.”
- Non-Practicing Entities Face Financial Woes [Bloomberg BNA - 21 Jun 2016]“Previous to the America Invents Act in 2011, I think Europe was less favorable [for patent assertion],” Spangenberg said. “Post America Invents, selected European venues are much more favorable. China’s a clear TBD but trending in the right direction.”
+The imminent introduction of the Unitary Patent and Unified Patent Court is likely to make Europe even more attractive to PAEs
- The threat of obtaining an automatic, immediate Europe-wide injunction against an entire product will give PAEs more leverage to demand settlements against productive and innovative European companies, even when the patents they assert cover minor features of a complex product.
- There is a risk that, once the UPC has been established, PAEs might engage in forum shopping and select the most favourable local or regional court.
+Europe must act now to ensure balance in patent litigation and address the root causes of abusive PAE litigation practices
- Increased judicial discretion in the management of patent cases and the granting of proportional remedies to deter abusive litigation practices;
- Recognition that an injunction may not be an equitable and proportional remedy in some circumstances, and damages may be more appropriate;
- Elimination of the “injunction gap” in which an injunction issues based on infringement of a patent whose validity is still in question;
- Enhanced measures to recover legal expenses and the posting of bonds for underfunded entities;
- Higher patent quality;
- Greater transparency of patent litigation filings for better informed policy and decision-making.
“Our portfolio of assets and opportunities continues to expand at a pace never previously seen in our corporate history,” CEO Doug Croxall said in a statement. “This portfolio will further expand Marathon's patent licensing activity into Asia, while remaining active in both the United States as well as countries in Europe."The Patent Investor - 19 Sep 2016
“The European Patent Office expects the Unified Patent Court to become a reality late in 2016. If this does in fact happen, Europe will all of a sudden become a much more interesting place for patent monetization – and that will be reflected in the value of patents.”Spagen Blog - 4 Jan 2016
“Previous to the America Invents Act in 2011, I think Europe was less favorable [for patent assertion],” Spangenberg said. “Post America Invents, selected European venues are much more favorable. China’s a clear TBD but trending in the right direction.”Bloomberg BNA - 21 Jun 2016