+Imbalances in Europe’s patent legal system are driving increasing activity by PAEs

In several important ways, the European patent system is out of balance, and the consequences undermine investment in innovation and harm the public. These include:
  • The threat of automatic injunctions: PAE lawsuits in Europe are fueled, in part, by a PAE’s ability to obtain an automatic injunction against a product following a finding of infringement. This gives a PAE tremendous leverage even when its patent covers a trivial feature of a complicated product, and it really wants payment, not removal of a product from market.
  • The injunction gap: some patent systems use different tribunals to decide the issues of infringement and validity, creating the potential for an “injunction gap” in which one tribunal decides infringement of an asserted patent and awards injunctive relief before the other decides patent validity.
  • The ineffectiveness of fee shifting: European courts traditionally recognize fee shifting as a means of deterring abusive litigation. However, the effectiveness of that deterrence policy in deterring PAE litigation is undermined by allowing underfunded PAEs to bring speculative patent cases without posting sufficient bonds to meet the fees, coupled with high initial fee payments required to challenge a patent’s validity and caps on fee shifting.
  • Low quality patents: abusive practices often entail PAE’s taking advantage of lower quality patents to apply business leverage to achieve quick settlements. Patent quality is essential to a strong and efficient patent eco-system.
  • Lack of patent litigation data: it is presently very difficult to gather information on patent cases across the EU Member States or members of the European Patent Convention. Data is thus scarce and it is hard to identify and analyse trends that could improve decision-making and systems.

+The rise in European patent litigation involving PAEs is an alarming trend signalling imbalances that merit the attention of EU policy makers and judicial authorities

  • The report titled “NPE Litigation in the European Union” released by Darts-IP in February 2018 provides the most comprehensive study of the problem to date.
  • Key findings of the Darts-IP report include:
    • Between 2007 and 2017, the average annual growth rate of actions related to NPEs was 19%. The growth in NPE-related cases beginning in 2014 has been especially dramatic, with 2017 showing the largest number of cases ever.
    • Nearly 20% of infringement actions in Germany were initiated by NPEs.
    • The five most active NPE companies in the EU are based in the United States. They account for 60% of NPE-related litigation in the EU.
    • NPE litigation impacts companies of all sizes. 23% of unique defendants in NPE cases are SMEs.
    • NPEs bring weaker cases than operating companies. NPEs win on infringement less often and lose on validity more often than non-NPEs.
    • NPEs are particularly active in information and communication technologies (ICT). These technologies account for 75% of the patents asserted by NPEs in the EU. As application of ICT is central to innovation and growth across many industries, the consequences of these attacks will be far-reaching.
   
  • As concerning as these findings are, they do not provide a complete picture of the amount of PAE activity in Europe. Most likely, they are only the tip of the iceberg. It is very difficult to gather information on patent cases across the EU Member States. In some states, including Germany, the filing and progress of infringement actions are not made public. In these states, Darts-IP cannot learn of and add an infringement action to its database until the court holds a hearing or issues a decision. There is no way to track cases that are filed and settled prior to a hearing. There is no way to learn of payments that a company makes to an PAE based on the threat of litigation to avoid the filing of a lawsuit. But both of these scenarios tax European innovation.
   
  • CEOs of European companies have confirmed the impact of PAE activity on their businesses
    • View CEO video testimonies on the impact of patent trolls on European companies
  • Patent Assertion Entities are increasingly viewing Europe as an attractive place to exploit Europe’s legal system and attack innovators. Many have moved here from the United States as recent legal developments have made it a less hospitable forum after years of rampant PAE growth.
  • Marathon sees enforcement opportunities in Asia, Europe and U.S. from acquisition of CPT IP energy storage patents [The Patent Investor - 19 Sep 2016]“Our portfolio of assets and opportunities continues to expand at a pace never previously seen in our corporate history,” CEO Doug Croxall said in a statement. “This portfolio will further expand Marathon's patent licensing activity into Asia, while remaining active in both the United States as well as countries in Europe."
  • Erich Spangenberg’s Patent Predictions for 2016 [Spagen Blog - 4 Jan 2016]“The European Patent Office expects the Unified Patent Court to become a reality late in 2016. If this does in fact happen, Europe will all of a sudden become a much more interesting place for patent monetization – and that will be reflected in the value of patents.”
  • Non-Practicing Entities Face Financial Woes [Bloomberg BNA - 21 Jun 2016]“Previous to the America Invents Act in 2011, I think Europe was less favorable [for patent assertion],” Spangenberg said. “Post America Invents, selected European venues are much more favorable. China’s a clear TBD but trending in the right direction.”

+The imminent introduction of the Unitary Patent and Unified Patent Court is likely to make Europe even more attractive to PAEs

Many companies fear that the UPC, with its opportunity for a Europe-wide injunction, will make Europe much more attractive to PAEs.
  • The threat of obtaining an automatic, immediate Europe-wide injunction against an entire product will give PAEs more leverage to demand settlements against productive and innovative European companies, even when the patents they assert cover minor features of a complex product.
  • There is a risk that, once the UPC has been established, PAEs might engage in forum shopping and select the most favourable local or regional court.
Inventors beware: the EU's opening the floodgates [The Register - 15 Jun 2016] “The EU's new Unified Patent Court will, according a German law expert, ‘increase patent trolling in Europe’ and open the UK up to patent trolling because ‘a judgment from the UPC will ... cover the territory of all participating member states... This significantly increases the business risk.’” Open for business: how the UPC paves the way for patent trolls [Intellectual Property Magazine - 3 Jun 2013] “Indeed, the creation of the UPC is an open invitation to the trolls. The threat of an injunction that applies across the European Union is a powerful weapon to wield against a business operating throughout the territory, which would face immediate and substantial damage in the event of such an outcome. The UPC hands the trolls exactly such a weapon, and they will be all too ready to use it.” “The UPC therefore offers three separate attractions to patent trolls. They will have more time to prepare for the case than the defendant, they are able to choose the ideal venue for the hearing and they have, for the first time, an opportunity to seek a Europe-wide injunction in a single case.“ ‘Patent trolls’ on the prowl for ‘smart’ product providers [Financial Times - 25 Jan 2016] “Once the UPC is up and running, any patent holder can bring a claim that covers the whole of the EU. [Plaintiffs will] finally have the ability to claim the sorts of sums that are more commonly seen in the US today,” says Mr Thornham. “That means that the UPC could make the EU a preferred territory for patent owners wishing to seek enforcement.”

+Europe must act now to ensure balance in patent litigation and address the root causes of abusive PAE litigation practices

IP2Innovate represents a strong, united voice working with European policymakers and the legal community in Europe to implement the following safeguards:
  • Increased judicial discretion in the management of patent cases and the granting of proportional remedies to deter abusive litigation practices;
  • Recognition that an injunction may not be an equitable and proportional remedy in some circumstances, and damages may be more appropriate;
  • Elimination of the “injunction gap” in which an injunction issues based on infringement of a patent whose validity is still in question;
  • Enhanced measures to recover legal expenses and the posting of bonds for underfunded entities;
  • Higher patent quality;
  • Greater transparency of patent litigation filings for better informed policy and decision-making.
Such safeguards will ensure a robust patent legal system that protects R&D and invention while preventing abuse that could undermine the goals of the system to encourage innovation.