Patent Litigation Study Discusses Dealing with NPEs

Cheryl Milone, Article One Partners

Article One Partners (AOP), the world’s largest patent research community, earlier today announced the results from its second annual Napa summit. In a comprehensive survey designed to gauge the state of the global patent industry, 36 senior executives from more than 20 Intellectual Property (IP)-leading companies discussed issues facing the IP industry. The survey results, which were compiled anonymously, found that although patent threats are on the rise, collaborative solutions are key to both deterring and managing nuisance lawsuits.

“The IP industry reached a critical turning point last year,” said Cheryl Milone, founder and CEO of Article One Partners. “The AIA overhauled the U.S. patent system, and NPEs are growing both in volume and in sophistication. In this challenging environment, preventing and mitigating patent litigation threats is becoming a top priority for companies across industries. By facilitating a better understanding of the patent challenges faced by today’s companies, the senior thought leaders at the Napa summit are equipping decision makers to better handle today’s patent environment.”

Highlights of the Article One Partners Survey

Participants responding to the survey included companies in the computer, Internet, telecommunications, software, media and entertainment, semiconductor, energy, and retail sectors, including 10 of the top 30 Non-Practicing Entity (NPE) targets.  To get a sense of their IP litigation docket, attendees were asked how many active patent litigation matters their companies are currently handling. The number varied widely among the group. Forty percent reported less than 10 active litigation matters, while over one-­?third reported more than 50.

  • NPE litigation in the high technology industries represented 75% of all active litigation matters. More than half the executives surveyed reported that NPE litigation increased over last year, with a median estimated increase of 22%.
  • NPE lawsuits were reported to settle more quickly, in an average of 6 months or less 62% of the time, as compared to only 6% for all matters. The majority of overall patent litigation matters take a year or more to settle, with 27% taking more than two years.
  • More than 80% of IP legal budgets are used for litigation defense activities.
  • The majority of overall patent litigation matters take a year or more to settle, with 27% taking more than two years.
  • It cost companies an average of $1.1 million to defend a single NPE lawsuit.


The Napa Summit’s Key Takeaways

Attendees agreed that it’s critical for companies to gain greater leverage to deter nuisance lawsuits and manage costs by reducing the cost of litigation defense.  According to those surveyed this is accomplished, at least in part, through the use of joint defense groups (JDGs), where parties engage in shared co-counsel to reduce defense costs.  JDGs have been used in approximately two-thirds of all NPE cases, and three-quarters of those surveyed reported working in some capacity with JDGs.

In addition to cost containment, five other “key takeaways” were identified from the survey results by Article One Partners.  These include:

  1. Make collaboration industry-efficient through tools such as standard JDG agreements and project management systems for joint defense efforts. Article One Partners plays an important role by offering patent intelligence and evaluating patent quality.
  2. Leverage the patent reexamination process. Engage the U.S. Patent and Trademark Office (USPTO) to determine the quality of patents, thus eliminating narrow or low-quality patents used in infringement claims.
  3. Deter future litigation by engaging senior leadership. Use business statistics and ROI analysis to educate executives on the impact and cost of litigation, gaining their support for pre-litigation and avoidance strategies.
  4. Engage with the AIA. Providing comments about key definitions and standards to the USPTO will help ensure that the views of stakeholders are incorporated into implementing the new act.
  5. Leverage data content and third-party services. Organizing large data sets is key to valuing and strategizing around litigation.

With respect to the America Invents Act, which is something that we have covered extensively here on (see AIA Articles), the feelings of those surveyed generally trend toward believing the AIA will have a positive impact on patent litigation generally, reducing NPE litigation and increasing patent quality.  See:

With respect to leveraging data-content and third party providers, this is where Article One Partners substantively gets involved with their crowdsourcing model and excels.  Article One Partners (AOP) has revolutionized patent research, particularly research on non-patent literature that is often difficult to find.  The company has distributed requests for prior art research to more than one million scientists and technologists using a global online crowdsourcing engine. The company is a partner to 16 Fortune 100 companies, 50 Forbes Global 2000 and 7 of the top 10 US patent filers. AOP’s client satisfaction rate exceeds 90%.

It is also worth pointing out that executives discussed the rise of patents as a new source of a company’s assets.  Those with any knowledge of the patent industry have to be saying to themselves: “you’re kidding me!”  Indeed, most executives simply do not understand patents, the patent process, how to monetize patent assets and the nuances of patent enforcement and litigation defense.  It is astonishing that there is so much value in the patent portfolio for so many companies and the top level executives don’t understand even basic concepts.  The good news for shareholders in these companies is that executives can’t help but take notice of the ridiculous sums paid for even marginally valuable patent portfolios.  When the Nortel patent portfolio fetches $4.5 billion and the Motorola patent portfolio fetches $12.5 billion even corporate executives take notice.

Finally, I have to comment on the increase in patent litigation the survey references. An honest look at patent statistics just does not support any cause for alarm.  Sure, there are more patent infringement cases commenced in the United Sates now than 30 years ago, but the number of patents issued has also increased.  As you can see from the charts below, since 1980 the number of patent lawsuits has quadrupled, but so has the number of issued patents.  I never understand why this surprises anyone.

Additionally, the number of patent trials has remained surprisingly consistent even in the wake of increased lawsuits.  Even a casual look at the breakdown of terminated patent lawsuits shows that the growth is in the area of patent settlements before the district court gets involved and then even more so after court involvement but before pre-trial.  What this suggests is that the the third “takeaway” from the survey, relating to deterrence of patent litigation and deterrence and pre-litigation and avoidance strategies, is where executives should be concentrating.  That, in part, has to mean more aggressive use of reexamination and the soon-to-be post-grant review and inter partes review processes.



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