Contact
blog
IP2Innovate

Prof. Valerio Sterzi: The problem with patents

Valerio Sterzi, associate professor (Maître de conférences, HDR) in Economics at University of Bordeaux

 

Valerio Sterzi is on a mission. Ever since his undergraduate days at Bocconi University in Milan, he has been fascinated by the economics of innovation. At first he had great faith in patents as a tool for fostering innovation.

 

But as he delved ever deeper into the world of innovation economics - through his master at Pompeu Fabra University, Barcelona, and then a doctorate at Bergamo University in Milan – he started to see problems.

 

Part of the problem was that patents were a topic mainly studied by legal academics, not economists. “I wanted to correct this,” Professor Sterzi said in an interview.

 

“There needs to be more exchange and interaction between economists and law academics. Without the input of empirical economic evidence the debate about the role of patents is rather abstract. I want to get away from that,” he said.

 

Sterzi has just released a new study into the secondary market for patents in Europe, showing that non-practising entities (NPEs) appear as current owners of almost 20K patent applications at the European Patent Office (EPO).

 

The study provides further evidence of the significant presence of NPEs in Europe. NPEs target mainly the ICT industry, where they acquired almost one in ten of all transacted patents over the past decade, with a peak of over 25% in 2019.

 

Last year Sterzi published an in-depth study of an aggressive NPE (also known as a patent assertion entity (PAE) or more colloquially, patent troll). It read like a detective story, following one dormant shell company after another to identify the true owners.

 

Sterzi’s latest study does not focus specifically on patent abuse. That will again be the main focus of his follow-up study expected in 2022. Instead this paper looks to quantify the presence of NPEs in the European patent market and to characterize their business models.

 

What is clear from this study is that the NPEs acquiring almost 10% of ICT patents traded in Europe include big established firms, many based in the US, as well as the small shell companies identified last year. “It’s not a question of size, it’s a question of intention,” Sterzi said.

 

The study’s findings also show that the majority of NPEs operating in Europe have business models built around monetizing their patents, rather than using them to make innovative products.

 

When an NPE acquires a patent, the number of citations of that patent falls when the acquirers are large patent aggregators. This indicates that the patented idea was of limited use, and that its owner wasn’t actively exploiting the patent in the market.

The number of citations is important because it indicates how relevant the patented idea is. Patents with limited citations are often used for financial gain only, and do not contribute much to further innovation.

 

Poor quality patents are ideal for NPEs looking to make money through litigation, rather than through exploitation of the patented technology. First, they are cheaper to buy. But more important, they are just as effective a tool to threaten companies that the NPE claims are breaching its patents.

 

To an operating company, the potential harm from an injunction, and the likelihood of a protracted and costly legal battle, may be as great with a trivial, low quality patent as with a higher quality one. So an operating company may  settle out of court to avoid these risks in either situation.

 

“I can’t say all NPEs are bad – some do encourage innovation by renumerating inventors – but there is a strong heterogeneity in the business models of NPEs – one focussed on monetization rather than intermediation,” he said.

 

Read full paper by Professor Sterzi
Share

Other blogs

IP2Innovate

IP2I calls on European Commission to protect Europe’s patent system from abuse

A new academic study by economists at the universities of Bordeaux, Grenoble, and Universitat Pompeu Fabra (Barcelona) highlights how patent assertion entities (PAEs) are continuing to take advantage of weaknesses in Europe’s patent system. The study, entitled Patent Privateering, looks at one specific method of patent abuse. Patent privateering is a term to describe a situation where a patent owner hands patents to a patent assertion entity (PAE) to exploit for mutual benefit, allowing the patent owner to maintain a secret stake in the patents. The study concluded that patent privateering is widespread in Europe. The practise has been around for many years but as other jurisdictions including the US have made it harder, Europe’s patent system is a ripe target for abuse. This is largely because patent courts in Europe do not apply the principle of proportionality, and instead hand out injunctions to patent owners almost automatically.
Patrick Oliver

SMEs – the unseen victims of patent trolling

As the European Commission turns its attention to helping improve the regulatory environment for SMEs here is a true story about how patent trolls broke the back of a successful small European business.
IP2Innovate

Seeking a new balance point in Europe’s patent system that better suits innovation and society

How to ensure the patent system in Europe best serves the innovation process has been a hotly debated topic for decades. In recent years lawmakers in Germany and in Brussels have started to realise that the old status quo – where patent courts hand out injunctions almost always automatically – doesn’t work in a world where advances in technology constantly bring more and more complex products to market, and where thousands of patents could possibly be relevant. It has become too easy for patent assertion entities (PAEs) to leverage the threat of automatic injunctions and disrupt the market presence of established consumer products in Europe to extract excessive license fees. While the interest of PAEs is limited to monetary compensation and not to stop the sale of products, the mere threat of such automatic injunctions is enough to push most targets of such assertions to accept disproportionate settlement conditions. It’s a hugely profitable business model for PAEs but it does little for innovation or for society, and undermines Europe’s competitiveness. By allowing this abuse, the European patent system is tilted too far in favour of patent holders and needs to be re-balanced. That is why in spring this year IP2Innovate called for the Commission to adjust the EU’s Intellectual Property Rights Enforcement Directive (IPRED), adopted in 2004. The law does require courts to apply proportionality when considering patent infringement cases, but this is not being applied in practice as injunctions continue to be granted effectively automatically even in cases where an alternative remedy would be more proportionate. An analysis of patent court rulings provided by Darts-ip, the leading source of global patent case data, for the period 2015-2020, shows that more than 99% of cases saw no proportionality assessment. Ensuring the equitable resolution of patent litigation in the EU through a targeted amendment of the IPRED is of even more importance with the establishment of the Unified Patent Court (UPC). Indeed, a recent study by Professor Sterzi of the Bordeaux School of Economics shows that PAEs initiated close to 30% of all infringement actions in the ICT sector – a key area for European competitiveness – in the UPC. If automatic injunctions become the norm in the newly established UPC, innovative companies would face UPC-wide automatic injunctions and not just ones at national level. The European Commission is evaluating this dynamic, and in 2023 commissioned a study to look at whether proportionality is being applied in Europe as well as looking into the role of PAEs in Europe. IP2I welcomes the European Commission’s initiative as Europe needs a properly functioning patent system fit for the modern age if it is to succeed in enhancing Europe’s competitiveness. The proportionality of remedies must be applied in patent litigation. Courts and parties need a clearer steer from Brussels to ensure it happens. Targeted revisions of the IPRED in relation to proportionality look set to be the next key challenge in patent policy in Europe. IP2Innovate hopes that the new attention being paid to the IPRED’s proportionality requirement will help to find a balance point in the European patent system that better suits the broader interests of innovation and society.
Back to overview

Subscribe to our newsletter

Privacy policy

© IP2Innovate 2024 - Website door Two Impress