Life isn’t getting any easier for companies that rely on intellectual property to power their businesses, according to a recently published study by PriceWaterhouseCoopers (PwC) that shows patent suits filed by non-practicing entities (NPEs) increasing by 29 percent over the year before.
The drain on companies’ incentive to innovate, and on the resources of their treasuries – awards are now having an impact on the bottom line – has reached a significant enough level to attract attention. It is to such a level that the White House has called on the US Patent and Trademark Office to tighten the standards for granting patents.
The number of patent actions filed reached 5,189 in 2012, the highest number ever recorded. A significant part of the increase likely stems from the anti-joinder provision the America Invents Act that was signed into law in September 2011. It forced patent holders to sue companies individually rather than as a group so, for example, what might have been one suit against 20 defendants became17 suits.
Nevertheless, suits by NPEs, typically financial firms that buy patents specifically to enforce them against alleged infringers, continue to rise.
“It’s gotten to the point where more than half the new cases filed were brought by NPEs, but the percentage of cases decided that involve NPEs was only 16 percent in 2012,” said Chris Barry, forensic services partner at PwC.
Opportunistic NPEs tend to seek settlements rather than going to court, but when they do go to court, they often win cases. NPEs have been successful 24 percent of the time overall compared to 34 percent for companies that actually produce goods and services, due to their relative lack of success at summary judgment. However, both have an approximately two-thirds success rate at trial.
And key for companies’ bottom lines, when NPEs do go to trial, they tend to win double the amount of non-NPEs. Mr. Barry noted that counter suing isn’t much of an option, because NPEs don’t make anything. He also noted that in seeking to defend themselves, companies have bought up portfolios of patents or joined patent-pool organizations, where they pay an entry fee to access the pool’s patents, thereby inoculating them against litigation.
For example, a consortium of major technology firms, including Apple, Microsoft and Sony, referred to as the Rockstar Group, bought 6000 patents last year from bankrupt Nortel for $4.5 billion. The year before, Google, which is not a part of the consortium, bought Motorola Mobility for $12.5 billion, in a move that the company said was in part to “help protect its Android ecosystem.”
For corporates facing patent-litigation trials, plaintiffs may want to push for jury trials. The study found that median damages awarded by juries were $12.2 million and by bench trials $0.3 million between 2007 and 2012, compared to $6.9 million and $5.4 million, respectively, between 1995 and 2000.
“This growing gap in damage awards reflects the decrease in big money cases that are heard by the bench,” the study says.
PwC’s Mr. Barry noted that the industries with the highest payouts, consistent with the year before, were telecommunications, biotechnology, pharma, medical devices and computer hardware/electronics.
“Those tend to be big companies with a lot of sales and high margins, so claims tend to be proportionate to those metrics,” Mr. Barry said.