July 21, 2016
Josue Ortiz


Where will NPEs go Next?

Arguably, it is not easy being an NPE these days. This sentiment was clear in the comments made by Jim Skippen to IAM in the wake of his announcement last year that he would be retiring as CEO of NPE heavyweight WiLAN. Although RPX’s analysis of Q1 NPE litigation data suggests that, when 52-week moving median and average measures are considered, the decline of NPE activity in the US is not as steep as recent dips suggest, statements such as those by Skippen and anecdotal evidence suggest NPEs are struggling. Consider, for example, Seeking Alpha’s analysis of Acacia’s Q4 and year-end results and Unwired Planet’s plans to invest in new technologies and product development, both show a move away from a traditional patent-centric business model .

The mix of legislative changes in the US are widely accepted as the underlying reason for NPEs’ struggling as two cornerstones of their business model have been eroded: the US has always been the jurisdiction of choice for NPE lawsuits and software-related patents are generally believed to have constituted a substantial proportion of the assets held and asserted by NPEs . Clearly in that environment, strongly litigious, pure patent licensing had been a substantial business; in fact, it still is, it is just not growing.

This raises a strategic question for operating companies that are likely to face NPE license demands: where will NPEs go next, both from a legal forum and a technology/product perspective? Some NPEs will not survive, others may consolidate, and perhaps all will evolve and diversify their business model to a certain extent. But pure patent licensing, using the court system as a tool to achieve license agreements and settlements will not disappear. So which industries need to be prepared and where?

Sufficient time has now elapsed since the aforementioned US legislative changes came into force to look at the data and consider how NPEs have adapted to the new environment, the degree to which they have adapted and therefore what operating companies may be facing from NPEs in the future.

New Geographical Territories

In contrast with trends in US NPE litigation data, European NPE litigation is growing rapidly. There is, of course, more than an order of magnitude difference versus the volume of lawsuits and number of defendants in the US, but the trend is unequivocal.

Figure 1

Figure 1: Level of litigation activity of eleven NPEs known to be active in Europe, in terms of the number of lawsuits and number and defendants. Information on European NPE litigation is not as readily available as it is for the US, nevertheless, ClearViewIP believes the chart is sufficiently representative of the state of affairs. Source Data: Darts-IP.

Given that European NPE litigation was virtually non-existent prior to 2010, the data strongly suggests that at least some NPEs have embarked on a conscious strategy to use the European courts, Germany in particular. It is interesting to note that the inflection points in the chart above are broadly in sync with the ratification of US legislation. It is likely that at least some of these cases are exploratory in nature, part of a learning exercise in preparation for a more substantial move into Europe when the Unitary Patent Court comes into effect.

To assess whether the growth in European litigation is likely to be just a transitionary reaction to the difficult environment in the US, it is useful to consider the level of investment by NPEs into European assets. Historically NPEs have had assignment of substantially fewer European assets than US assets. This resulted from a combination of factors including the purchase of families without European counterparts in the first place, the active abandonment of European counterparts, the lack of official registration of the assignment and, less frequently, the purchase of partial patent families.

In 2012 ClearViewIP found that in the previous 15 years a total of 408 individual patent infringement lawsuits had been filed in the US, by NPEs, against a specific industry sector. These lawsuits involved a total of 1,234 different US patents, however only 15% of them had a granted European  counterpart that had been kept alive. In addition, we found that in aggregate, even the four NPEs perceived as the highest risk to European companies in this particular sector (excluding Intellectual Ventures) had allowed more European assets to lapse (1,726) than those they had kept alive (820 granted, 865 pending).

Contrast this with Figure 2 below, which strongly suggests the disposition of at least some NPEs towards European patents changed dramatically in 2012-2013. The acquisition level dropped again in 2014-2015, most likely as a result of the overall slowdown in patent sales in 2014-2015.

Figure 2

Figure 2: Number of families acquired by 9 specific NPEs (not including Intellectual Ventures) which included at least one European. German or British counterpart.

A specific example of a short-term link between the acquisition of European assets and European litigation is Vringo’s pursuit of ZTE. Figure 2 below shows Vringo’s acquisitions of sets of European patents in 2012 and 2013, this was followed by Vringo’s filing of lawsuits in Germany and the UK in late 2012. This was, of course, part of Vringo’s well-publicised global litigation campaign against ZTE, something largely unheard for an NPE, which started with these initial cases and spread around the world to over 15 different jurisdictions until 2015, when a settlement was reached which resulted in ZTE paying a $21.5M sum to the NPE.

Figure 3

Figure 3: European, British and German Patents reassigned to Vringo since 2010, showing a significant number of European patents prior to launching their non-US litigation campaign.

Shift in Industry Focus

In addition to the international diversification of the courts used by NPEs, it is interesting to consider whether there has been a shift in industry focus. According to RPX data for the US, in 2015:

  • 36% of NPE defendants operated in the e-commerce and software industries
  • 12% in consumer electronics and PCs
  • 10% in consumer products and
  • 9% in the networking industry.

Furthermore, the 15 companies targeted most often by NPEs in 2015 were all in the Technology Media and Telecommunications (TMT) sector. Yet, there is evidence of growth in NPE activity in other sectors, an expectation given the Alice Corp. vs. CLS Bank ruling and the increased use of high-tech across many aspects of life – particularly the prevalence of connected technologies.

Similarly to the NPEs new emphasis in Europe, when looking into the recent acquisitions and litigations of NPEs, it does appear to be a gradual shift in emphasis towards different industries

One such technology area is Medtech, where major medical implant manufacturers such as Medtronic, Covidien, Biomet, Stryker, Smith & Nephew, Cardinal Health, Johnsons & Johnson, Becton Dickinson, Boston Scientific, B. Braun, St. Jude Medical and Zimmer have been targeted by NPEs, mostly subsidiaries of Acacia Research corp. or IPNav; with the majority of these cases occurring in 2013-2014.

Figure 4

Figure 4: NPE Medtech litigation activity since 2000, showing a strong increase since 2010

Another emergent area of emphasis for NPEs is that of automotive technologies. While this isn’t a new area per se, the earliest case of NPE litigation being that of Selden vs Ford in 1903, the likes of Ford are now being targeted by modern NPEs, with reports that Ford has been hit over a dozen times from 2012-2014, and even signed a much publicised license agreement with Intellectual Ventures only days after becoming a member of RPX.

It would seem unlikely that Intellectual Venture’s success in respect of Ford will be a one-off, given that Intellectual Ventures has invested heavily in automotive patents, with at least around 600 US patents (plus at least 50 in other territories) related to automotive technologies within the published portion of their portfolio.  An examination of these patents’ expiry dates reveals that the automotive assets are of a broad range of ages, meaning that companies operating in the automotive sector will perhaps have to worry about the current portfolio until the early 2030s.

Figure 5

Figure 5: Expiry years for the Intellectual Ventures automotive portfolio

A further signal of this being an area of growth for NPEs is the fact that there were nearly 300 NPE cases filed in the US against automotive companies from 2013-2014, double the number from the previous 2 years. It is interesting to note that although automotive companies do not appear on RPX’s list of the 15 most targeted companies in 2015, their list of top 10 filers of IPRs against patents owned by NPEs does include three automotive manufacturers.

Responding to the Evolution of NPEs

Penetrating the smokescreen used by some of the more successful NPEs is vital for strategy, as you can make an assessment of the portfolios of the NPEs, in order to ascertain exactly which pose the threats to your business, and allow you to formulate plans for best strategy for each. NPEs like to hide their assets in shell companies in order to obfuscate what they own, making this far from simple, and worth investing the time to carry out this assessment before an approach comes your way. This means that you can already have an idea of the portfolios being enforced, and make an informed decision with regards to risk management as you can determine which of their patents that are relevant to your business, and even identify potentially invalid patents. At present, it is entirely possible to get a broad understanding of the European assets held by NPEs in particular industries.

Continual monitoring of NPEs is another pursuit which can yield beneficial results, as it can uncover recent NPE events that may justify a range of possible pre-emptive activity and be incredibly well prepared to repel such an approach. Without a doubt it is possible, particularly in Europe, to predict which NPEs are most likely to make an approach.

The takeaway message here is to let knowledge prevail –there are ways to fight back, don’t assume you can’t, it just requires that you put in the groundwork beforehand.

Co-authored by ClearViewIP Director Josue Ortiz and Senior Analyst Tim Higgs


[1] First, the Leahy-Smith America Invents Act (AIA) enacted on the 16th September 2011 curtails the number of defendants that may be litigated against within a single infringement action. In addition, section 6 of the AIA, with an effective date of 16th September 2012, expanded Inter Partes Review so that any person other than the patent owner may petition the USPTO for inter partes review of a patent requesting to cancel at least 1 claim as unpatentable; and introduced a new “all-issues” post-grant review proceeding in which parties may seek cancellation of patents on validity grounds within 9 months after the patent is issued. Second, the Supreme Court ruling from the case Alice Corp. v. CLS Bank Int. in 2014 stated that abstract ideas require an inventive implementation in order to be patentable.  This had a huge impact on the validity of many software patents, which describe functions performed on a computer, without specifying how the computer works or include details such as the code.

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