Patent Litigation Weekly: Data Shows That Troll Problem Persists

Joe Mullin

Corporate Counsel

08-02-2010

Patent defense schemes seem to be everywhere these days. There's Allied Security Trust (AST), a coalition of frequently sued companies that aims to pool resources to buy up patents that could be wielded in infringement suits. There's Article One Partners, a company who goal is to "crowd source" the search for prior art and make money while eliminating bad patents. And there's the more controversial RPX, whose CEO John Amster has ambitious plans to end the "NPE problem" altogether.

Less flashy, but in many ways more interesting, is PatentFreedom. For $25,000 a year—a small fraction of what the average patent litigation can cost--PatentFreedom offers operating companies access to exclusive research about the non-practicing entities using patents against them. PatentFreedom's database contains information about more than 330 NPEs, which between them hold more than 23,000 U.S. patents and applications and are involved in more than 3,000 lawsuits--many of them sprawling multi-defendant affairs.

PatentFreedom's self-proclaimed mission is to correct what it views as an information imbalance that exists in these disputes. Typically, an NPE filing suit against an operating company, especially one that's publicly traded, knows a great deal about it. Defendant corporations, on the other hand, know virtually nothing about who is coming after them. And gathering background information on a single NPE can cost an operating company much much the $25,000 subscription fee PatentFreedom charges, says the group's founder and chairman Dan McCurdy.

"The problem is when an operating company gets a letter from 'XYZ corporation' and you've never heard of them," says McCurdy, noting that PatentFreedom has spent about 33,000 hours compiling the information in its database. "You have no idea whether it's a non-practicing entity, whether it's a corporation--you know nothing. You could spend, easily, many tens of thousands of dollars simply trying to find out what these companies are about." 

Adds McCurdy, who also heads AST:  "We're a provider of information. Not rumor, not innuendo, not points of view--just information that companies and their counsel can use."

This week, McCurdy and PatentFreedom president Chris Reohr shared some of their latest research, which highlights a few interesting NPE trends.

NPE Litigation On the Rise

Let's start with what everyone knows--NPE patent litigation isn't going away. Since 2007, more than 1,500 companies per year are hit with lawsuits brought by the more than 300 NPEs that PatentFreedom track (using its fairly conservative definition of what constitutes an NPE). NPE litigation has grown from where it accounted for between 2 to 3 percent of all patent suits a decade ago to the point that it now accounts for 17 percent . For some operating companies, NPE litigation makes up more than 90 percent of their patent litigation docket.

The cost of that litigation--and even just the threat of litigation--remains high. PatentFreedom estimates that for every litigation it faces, a defendant company will see between three and five "assertions" (a.k.a nasty letters).  Dealing just with those letters can cost a company $200,000 per assertion. PatentFreedom estimates that the total tab paid by defendant companies in connection with patent suits and assertions in 2009 was more than $5 billion. And that doesn't include any of the money paid in settlements and judgments.

NPEs Don't Do Pharma

While the pharmaceutical industry is hugely influential when it comes to the politics of patents, it is mostly absent from the NPE debate. The reason: drugmakers simply aren't hit with such suits.

And though NPEs aren't suing over life science patents, it's not because they don't have those assets in hand. Of more than NPE-held patents that PatentFreedom analyzed, 16 percent were related to chemical or life sciences. By contrast, PatentFreedom examined more than 1,300 NPE-asserted patents, and found that just  2 percent of those that were ultimately litigated covered those fields.

The Attack on High-Tech Continues

The list of the top ten companies most often targeted by NPE's is essentially a list of the top names in the technology sector: Panasonic, Nokia, AT&T, Motorola, HP, Samsung, Microsoft, Dell, Sony, and Apple., with each of those companies named in at least 40 NPE suits between 2004 and 2009.

NPEs aside, not all tech companies take the same view of patent litigation. Some of those that complain about patent suits they see as spurious haven't hesitated to use patents against competitors. Microsoft, for example, recently sued Salesforce.com and has rattled its patent sword against open-source rivals in the past. Nokia and Apple have both unleashed patent suits against rivals in the smartphone market--and against each other.

Other tech heavyweights--including Dell and HP--don't engage in offensive patent-licensing or litigation, but will still assert patents against competitors who attack them.

Financial Firms, Retailers Feel the Sting

Anecdotally, many observers know that patent suits have seeped into new areas of the economy--such as banking, retail, and, insurance--over the past few years. Now, PatentFreedom puts some data behind that observation.

Retailers, for example, had seen less than 50 patent suits a year--and often saw less than 30--prior to 2006. In 2007, though, the retail sector was hit with 211 patent suits, and has faced more than 100 per year ever since. 

The flood of litigation is the likely explanation for why these companies are increasingly getting involved in the public discussion over patents. In the Bilski case, for example, retailers filed an amicus brief decrying the high cost of lawsuits in which the allegations of infringement being made against them boiled down to "we have a patent, you operate a website."

Many Suits By a Few NPEs

PatentFreedom data shows that just 20 non-practicing entities are responsible for nearly half of the NPE suits filed between 2004 and 2009. And the five most litigious NPEs accounted for almost 25 percent of those suits. The remainder--more than 260 distinct NPEs--filed 53 percent of the lawsuits. (The data PatentFreedom includes in its publicly available report doesn't name names, but anyone interested will find see a list of some of the most litigious NPEs on PatentFreedom's website.)

Those numbers might make it seem like the NPE industry is one in which a few players loom large. But, says PatentFreedom president Chris Reohr, compared to "real" industries it actually has a huge number of players.

"It's not like the cola market, where three colas have 70 percent of the market," says Reohr. "The industry remains very fragmented."

Quick on the Draw

In the early part of the last decade, NPEs often held patents for a time before asserting them. But by 2006, most NPEs used patents in lawsuits within a year of acquiring them. In 2009, close to half the asserted patents had been held for less than six months. Some patents even become litigated immediately after issue. (The 2007 patent lawsuit that ultimately turned into the Troll Tracker defamation lawsuit, ESN v. Cisco, is a prime example of a patent that became litigated the day it was issued.)

• Read the whole PatentFreedom report  [PDF]