+A patent legal system that can manipulated by abusive practices undermines innovators and innovation

  • People benefit from innovation, enjoying new products and services that improve their quality of life.
  • Patents support innovation by allowing companies to protect their technology from copying, to share and develop new technology, and to obtain the freedom to operate necessary to bring new products to market.
  • A patent system that can be manipulated through abusive litigation tactics undermines rather than supports innovation, disserving consumers and the economy. Abusive litigation tactics put innovations at risk.
  • The dramatic rise in patent litigation involving patent assertion entities (PAEs) is an important example. PAE’s do not make anything. Instead, they buy up patents only to assert them against productive companies and demand payment by exploiting Europe’s legal system.
  • As a result of PAE abusive litigation tactics, complex, everyday items are being taken off the market and out of consumer’s hands. Such products that have been the subject of threats by PAEs: wifi routers, scanners and copy machines, and GPS navigation apps and devices.

+The US patent legal system has been exploited to the detriment of innovators and innovation

  • In the United States, lawsuits brought by PAEs have nearly quadrupled over the past decade.1
  • PAEs now account for a majority of all patent litigation.2
  • Small and medium-sized entities (SMEs) are frequently the targets of these assertions, and the lawsuits can disrupt their business and even threaten their survival.3,4
  • Start-UP X:

    This is an example of a company and product being permanently shut down not because they were found to infringe, in fact they won, but the legal costs of fighting the patent troll drained the company.

    • >David Bloom, Ordr.X:
  • Austin Meyer, X-Plane:

    This is an example of patent troll litigation preventing a product from coming to market, specifically the Android market, cutting Austin off from revenue and millions of potential users.

1 Rational Patents, NPE Litigation Is Up in Q2 2016—and New Plaintiffs Emerge (2016), http://www.rpxcorp.com/2016/06/30/npe-litigation-is-up-in-q2-2016-and-new-plaintiffs-emerge/ (last visited Oct 4 2016).

2 Unified Patents, 1st Half 2016 Patent Dispute Report (2016) https://www.unifiedpatents.com/news/2016/1sthalfpatentdisputereport (last visited Jul 5 2016).

3 Rational Patents, 2015 Report: NPE Litigation, Patent Marketplace, and NPE Cost (2016) https://www.rpxcorp.com/wp-content/uploads/sites/2/2016/07/RPX-2015-Report-072616.FinalZ.pdf (last visited Oct 4, 2016). (Companies with less than $100 million in revenue accounted for over 60% of unique defendants in 2015, and most were much smaller than that).

4 Colleen Chien, Startups and Patent Trolls, 17 Stanford Technology Law Review 461–506, 461-506 (2014), https://journals.law.stanford.edu/sites/default/files/stanford-technology-law-review/online/startupsandpatenttrolls.pdf (last visited Oct 4, 2016).

+Europe’s patent legal system is vulnerable to abusive practices

  • Europe’s patent legal system presents a number of characteristics that make it increasingly subject to abusive practices, including:
    • The threat of automatic injunctions: PAE lawsuits in Europe are fuelled, in part, by a PAE’s ability to obtain an automatic injunction against a product following a finding of infringement.
    • Abuses of 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.
  • Recent developments in the US and the imminent introduction of the Unitary Patent and Unified Patent Court in Europe have both been described as game-changing events that could increase assertion activity in Europe over the coming years.
    • More specifically, the UPC will provide the possibility of injunction with unitary effect in a very large market and this should attract more assertion.
    • 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’s patent legal system is being increasingly abused to the detriment of innovators and innovation

  • In Europe, PAE lawsuits have begun to follow the same trajectory as in the US, growing in number and often targeting SMEs.
  • Europe has long had a relatively moderate amount of PAE activity, accounting for roughly 10% of the lawsuits filed in Germany (during 2000-08) and the United Kingdom (2000-13).
  • But more recent evidence suggests that PAE activity is accelerating. An empirical study of the registers for recording patent ownership in Europe demonstrated that PAE purchases of European patent increased ten-fold from 2005 to 2015.5
  • Most of the transferred patents involved communications or computer technology and were purchased by PAEs based in the United States. Those purchases now form the basis of a growing number of PAE lawsuits in Europe against productive companies.
  • A recent study provides examples of lawsuits brought by Patent Assertion Entities in Europe.6
  • 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

5 Dietmar Harhoff, Übertangungen von Patentrechten in Europa - eine empirische Analyse, GRUR-Jahrestangung 2015 (Sept. 25, 2015) available at http://www.grur.org/uploads/tx_meeting/Prof_Harhoff.pdf (last visit Oct 4, 2016).

6 Brian J. Love et al., Patent Assertion Entities in Europe (2016), forthcoming in Daniel Sokol (ed.), Patent Assertion Entities and Competition Policy, Cambridge University Press, 2016, papers.ssrn.com/sol3/papers.cfm?abstract_id=2689350 (last visit Oct 4, 2016).

+Europe needs a robust, balanced and flexible patent legal system which addresses the root causes of the abusive practices while maintain the attributes that fuel innovation

  • Europe needs a more robust, balanced and flexible patent legal system that protects innovators against abuse, works in the public interest and rewards fairly innovators.
  • Patent court judges must have the ability to assess appropriate remedies and balance the rights and interests of all market participants.
  • IP2Innovate advocates for:
    • Proportionality in patent remedies;
    • Closing the injunction gap;
    • Reinforcing the benefits of fee shifting;
    • Improving patent quality;
    • Wider availability of national patent litigation cases and decisions.