A Factured Fairytale Part 4: More Patent Troll Myths

Editor’s Note: This is part 4 of a 5 part series written by Steven J. Moore and with the assistance of Marvin Wachs and Timothy Moore, also of the Kelley Drye & Warren Patent Department. Part 1 was A Fractured Fairy Tale: Separating Fact & Fiction on Patent Trolls, Part 2 was Probing 10 Patent Troll Myths, which was continued in Part 3 with Myth #3. What follows is Myths 6 through 10.

Myth 6: There are a growing number of NPE bad actors since passage of  the AIA.

• Truth: The number of cases filed by NPEs can be said to have increased ONLY if one takes into account the AIA’s requirement to file separate cases against each defendant.  There has been no substantial increase if one looks at Unique NPE filers and cases filed on the same day.  The percent of Unique NPE filers remains the same as Pre-AIA.

Some authors maintain that the number of NPE bad actors has continued to rise post-AIA.  See Milone, Cheryl , “It’s Not Just the Tolls, It’s the Patent Quality,”  Corporate Counsel, June 10, 2013.  The basis of this purported rise is said to be unknown.

However, as shown below our data indicate that if one treats multiple cases filed by the same NPE filer (involving the same patents) on a single day, as one case, as was done prior to the AIA, that the number of NPE filers has remained relatively flat (17% pre-AIA to 21% post AIA counting independent inventors and independent inventor related companies).  See Fig. 12 Profile of Producer v NPE litigation filers per Unique Plaintiff  based on 428 Cases.

Thus one can state that any increase in litigation filings is not a direct result of NPE enhanced activity post-AIA but rather an artifact of the non-joinder rule of the AIA.  This finding is in accord with the “Facts and Trends Regarding USITC Section  337 Investigations” prepared by the U.S. International Trade Commission on April 15, 2013 which also found with respect to ITC proceedings that NPEs were not responsible for significant increase seen on its dockets.

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Myth 7: Retailers are bearing the largest brunt of suits by the NPEs.

• Truth: Our data did not demonstrate that retailers were bearing the largest brunt of suits by NPEs.  Indeed, our data suggest that companies producing products or selling products were bearing the brunt of NPE suits.

Retailers assert that they are taking the untold brunt of troll patent suits.  See, Press Release, Retail Industry Leaders Association, Retailers Press Congress to Take Action on Patent Trolls (March 14, 2013).

Neither our sample of the 267 litigations filed pre-AIA or our sample of the 428 litigations filed post-AIA suggests that retailers per se are a major target of NPEs.  However, we certainly understand that there are some NPEs that have been targeting retailers preferentially.  While a full-fledged study of NPEs filing suit against retailers was not in the opting, we did briefly search out the literature for some of the more vocal retail companies on the “troll issue” to test out the validity of their statements.

One such company has been particularly vocal about the problems with the patent system, which it asserts is broken.  We were intrigued to look at this particular company’s litigation history, given its assertions that all suits in which they were involved were brought by “trolls.”

Indeed when we looked into the filings made against it, we noted a greater fraction of NPE suits than we had seen on average.  However, we certainly did not find all the cases which had been filed against it to be “troll cases.”  With no names being mentioned we depict their litigation profile below which is based on slightly over 25 cases. See  Fig. 13 Breakdown of Type of Plaintiff Bringing Suit Against A Large Retailer.

As can be seen from Fig. 12, 25% of the cases brought against the retailer were actually brought by Producer companies.  The other 75% of cases could indeed be classified as NPE suits.  However, of these suits, 30% were by independent inventor or independent inventor related companies, and the other 45% of cases were brought by other NPEs.  Interestingly of the “other NPEs”, we found all of the patents asserted against this retailer were patents originally obtained from Producers.  Of these patents, one-third came from big corporate America and the remaining two-thirds from smaller Producing companies.  That means nearly 65% of this retailers troubles, which it directly attributes to “trolls” asserting bad patents, are actually related to patents that derived from Producing companies.  Of its cases that was resolved, pacer suggests none were tried and each was mutually dismissed within 4 months to 13 months.

Myth 8: NPEs are responsible for the majority of the patents asserted in litigation.

• Truth: Even counting patents asserted by independent inventors and their companies in the NPE mix, NPEs overall assert relatively low percentage of all the patents involved in litigation, but they do assert them against more defendants.

NPEs have been said to “account for the majority of patent assertions.”  See Brian J. Love, An Empirical Study of Patent Litigation Timing: Could a Patent Term Reduction Decimate Trolls Without Harming Innovators?, 161 U. Pa. L. Rev. 1309 (2013).

In our review of 425 random post-AIA litigation cases, we discovered that 181 unique patents were in play.  Of all the patents asserted in the 425 random litigation cases 84% were patents that were asserted by a producer company, with nearly 1/3 (27%) of all patents asserted in this random sample having been asserted by one of the largest companies in the world, public or private (again our numbers are underestimates as we could not find a listing of the largest private companies having revenues between 1 billion dollars and 2 billion dollars), i.e., could be found on our global 2000+ debt.  Very few of the total patents asserted in the cases  (6%) were asserted by a non-producing company (NPE) when not counting independent inventors and independent inventor companies.  Only 10% of the total patents involved in the sample were asserted by an independent inventor, or independent inventor company.  (Fig. 14)  Thus with respect to patent assertions, NPEs assert relatively few of the patents involved in litigation (approximately 16%) while, producers account for about 84% of the unique patent assertions. See Fig. 14 Distribution of Unique Asserters in 428 Post-AIA Litigations.

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Myth 9: NPEs predominantly assert old patents against their victims.

• Truth: We did not find the distribution of patent assertions made by Producers to be any different from those made by the NPEs in regard to the age of the patents being asserted.

The literature is replete with the assertion that “patent trolls” buy and assert “old” patents upon which they demand licensing fees “from innocent users of the technology.”  See, Matt Shay, Time to Stop Patent Trolls, NRF Stores News, July 2013; Cf. Colleen Chien, Everything-You-Need to Know About Patent Trolls (The Patent Kind), Wired Opinion, June 26, 2013 (An opinion piece in Wired Magazine by Professor Chien, who states: “Not making things while holding and asserting broad and old patents looks more attractive in certain cases than building something.”). See Fig. 15: Cumulative Distribution of Patents Asserted by Producers v. NPEs by Age of Patent at Time of Litigation Filing.

The modus operandi of the troll in asserting in litigation with soon to expire patents on its “victims” has become a sine qua non of the whole troll story.  We thought, therefore, it would be interesting to see if there was any basis for such widespread held belief.  We therefore looked at the issue date of the patents asserted in each of our 267 cases and compared it to the date of the filing of the litigation, determining the number of months between the same.  We compared the distribution of patent assertions for producers versus NPEs.

As shown in Fig. 15 above, we could find little support for the proposition that the NPEs were asserting substantially older patents than their producer counterparts.  For 80% of the cases the differential between the age of the patent being asserted is less than 15 months by Producers v. NPEs.  In fact the distribution of assertions appeared quite similar between the two groups.  Thus, another myth busted.

… And now it is time to unmask the power behind the Troll…

 Myth 10: Since the AIA, NPEs continue to assert poor quality NPE patents at a similar rate.

• Truth: The number of Producer patents being asserted by non-independent inventor NPEs has increased nearly two fold from pre-AIA days.  The vast majority of cases brought by such NPEs are based on patents held, or once held by, Producer companies.

A number of authors have suggested that since the AIA, the number of poor patent cases filed by trolls has increased dramatically.  See, Robb Evans, Patent Trolls Target Small Business & Startups, Global Patent Solutions Blog, Jan. 21, 2013.  If one adopts the prevalent wisdom that the patents of Producers are substantially better than those held by NPEs, then our data clearly show that this cannot be true.  We found that nearly 60% of all patent litigation cases now asserted by non-independent inventor/non-independent inventor company NPEs involve patents that were originally assigned to Producer companies.  See Fig. 16: Initial Ownership of Patents Asserted By Non-Independent Inventor-Related NPEs in 428 Random Post-AIA Litigations.

This is a significant increase with respect to patent filings made seven to ten years ago, wherein we found only 33% of the patents asserted by these non-independent inventor NPEs were obtained from Producer companies.  We also noted a significant increase in the percentage of unique patents being asserted by such non-independent inventor NPEs that at one time were assigned to Global 2000+ companies, the patents comprising nearly 37% of all such unique patents post-AIA, while only about 12% of all unique patents asserted pre-AIA.  See Fig. 17: Percentage of Global 2000+ Patents Asserted Pre-AIA (based on 267 cases) and Post-AIA (based on 428 cases).

The later suggests that a large part of the non-independent inventor NPE story lies directly in the hands of Producer companies themselves.  That is, it is clear that Producer companies are complicit in many of the cases that are being brought by non-independent inventor related NPEs.  We anticipate that the nearly three-fold increase in cases involving producer patents in regards to non-independent inventor NPE filings seen in our study will soon be dwarfed by an even larger increase in the near future.  We say this because of many reports of larger companies that are either setting up their own NPE entities to monetize their patents or making special arrangements with large independent NPEs to monetize their patents.

For example, we note that Ericsson was recently reported to have transferred over 820 patent families to the public traded company known as Unwired Planet, Inc. with the right to obtain a percentage of any revenue generated from the patents;  Eastman Kodak was reported to have transferred hundreds of patents to the large NPE, Intellectual Ventures;  Nokia was reported transferring about thirty patents to the NPE Memory Technologies LLC; it was reported that AOL, through Marathon Solutions, transferred over 100 patents to the NPE Bright Sun Technologies; and Ormet Corporation transferred its patent assets to Wayzata Investment Partners.  See, Crouch, “Recent Patent Assignments,” Patently-O April 15, 2013.

We also note that many of the largest companies have a financial and patent interest in some of the largest troll companies.  For example, in the case of XILINX, Inc. v. Intellectual Ventures LLC (N.D. Cal. 2011), Intellectual Ventures, one of the top-five owners of U.S. Patents (and often accused by Producers as being the consummate “Troll”), was required to list all major companies that invested in Intellectual Ventures as part of a licensing agreement.  Among the companies and universities listed by Intellectual Ventures are: Adobe, Amazon.com, American Express, Apple, Brown University, Cisco Systems, Cornell University,  Detell Relay KG, eBay, Inc., Google, Grinnell College, Mayo Clinic, Microsoft, Nokia, Northwestern University, Nividia, OC Applications Research, SAP, Sony Corp., Stanford University[1], TR Technologies, Verizon, Xilinx itself, and Yahoo.

Thus, the most significant powers behind the Troll seems to be both the small and large companies in the world who continue to monetize their patent portfolios through the  NPEs.

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