By Manny Schecter, IBM Chief Patent Counsel
After a recent respite, plenty has been said in the blogosphere of late in defense of non-practicing entities (NPEs) often referred to derogatorily as patent trolls. Perhaps the renewed discourse stems from the passage of the America Invents Act or the smartphone patent wars. Before the conversation gets too passionate, let’s examine a few facts, which reveal that NPEs still pose serious problems.
Some pundits recently dismissed the impact of NPEs by noting that the number of patent suits initiated in the US remained flat from 2001 to 2010 and that only about 100 lawsuits actually go to trial each year. The inference is that the impact of NPEs cannot be substantial if patent litigation has not increased. But this is a plateau that was reached after the number of suits doubled to 3,000 annually over the previous decade, according to data from the Administrative Office of the US Courts.
Furthermore, in 2011, the number of patent suits initiated in the US spiked once again – so the upward trend has apparently renewed. A snapshot of a carefully chosen time period is simply not a fair assessment, particularly when a broader time period results in a different outcome. In addition, even if the number of suits levels off again, who is to say why or whether the level is acceptable?
And what should we glean from only 100 patent suits actually going to trial per year? Not much. Might the capacity of the federal court system be at play? Should we only concern ourselves with the number of trials? The number of suits is, obviously, far greater than the number of trials. And let’s not forget that the number of disputes (settled out of court) is certainly far greater than the number of suits. So, the impact is far greater than a statistic such as 100 suits per year suggests at first blush.
A narrow view of the total number of patent suits or trials is also not the best perspective of the negative impact that NPEs have on innovation and the economy. Better data is available from Patent Freedom, a community that shares information on NPEs. As the chart below shows, the number of patent suits initiated by operating companies has remained flat in recent years, but spiked up in 2011 in correspondence with the uptick in all patent suits. More significantly, the number of counterparties (defendants plus declaratory judgment plaintiffs) in patent suits involving NPEs has increased at a compound annual growth rate over 30% during the same period. The growth rate is also not uniform throughout the economy – the growth rate is significantly higher in some industries, such as financial services. NPEs frequently sue multiple defendants in the same suit, something that operating companies typically do not do. Clearly, there is something different about NPEs and the way they operate.
Concerns about the significantly increased rate of patent litigation by NPEs led to certain provisions in the America Invents Act, including an enhanced ability to challenge patents without resort to litigation, and an “anti-joinder” provision preventing patentees from joining unrelated defendants in the same suit based merely on the infringement of the same patent. These reforms could curb the way NPEs operate.
More data on the impact of trolls may be forthcoming as a result of patent reform legislation. While the AIA was the most extensive patent reform in the US in decades, it simply could not address every NPE behavior that operating companies have expressed concern about – such as shielding the true ownership of patents, assertions of irrelevant patents, strained interpretations of patent claims, and outrageous demands for damages. The AIA requires the Comptroller General of the US to study the consequences of litigation by NPEs. The comptroller’s report is schedule to be issued in September. The results may add greater depth to our understanding of the issue and perhaps even point toward potential solutions.