The long anticipated Government Accountability Office (GAO) report on rising patent litigation and the role of nonpracticing entities (NPE) was published in August to relatively muted response from corporate America and legislative bodies. Rhetoric lobbed from both ends has long defined the public discussion on NPEs, or as they are more commonly known, “patent trolls.” The conversation seems poised to change, though, based on the GAO’s data and conclusion, which revealed contradictions regarding the NPE affect.
The GAO report, “Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality,” was mandated by section thirty-four of the 2011 Leahy-Smith America Invents Act (AIA), which made several fundamental changes to United States Patent Office (USPTO) procedures. The report’s inclusion came in response to overwhelming frustration with NPEs, expressed up and down supply chains at every level of industry, from small business owners to America’s largest manufacturers and retailers.
NPEs have come under intense scrutiny from lawmakers, industry and a growing rank of academics. Under less scrutiny has been a fundamental question in the NPE debate that the GAO strove to address in its report: exactly who is a patent troll? Neither the president, nor the legislator, nor the Supreme Court — nor industry reports and academic studies — have yet to solidify a definitive terminology, much less a consensus of what entities and business models belong in the NPE category.
Attempting to grasp this obscurity, the GAO report identified several kinds of NPEs: “In addition to individual inventors who may choose not to develop products based on their patents, there are other types of “nonpracticing” patent owners, or nonpracticing entities (NPE). For example, some universities are NPEs, as they develop technologies in campus laboratories, and rather than producing and selling products that incorporate these technologies; they license their patents on these technologies to companies who use them in their products. In addition, some private firms are NPEs as they specialize in R&D, and rather than selling products, they license the patents for those products to fund further research. Some NPEs simply buy patents from others for the purpose of asserting them for profit; these NPEs are known as patent monetization entities (PME). Other PMEs include companies that produced products at one time and still own patents on the technologies for those products.”
Still, the report concluded: “Experts agree that NPEs have a variety of business models, which makes it difficult to fit them neatly into any one of these categories.”
Astonishingly, the GAO didn’t find the cause of rising litigation in this muddle. Actually, it distanced itself from the NPE backlash in the first paragraph of its report, “History is filled with examples of successful inventors who did not develop products based on the technologies they patented… In the United States, the party that owns a patent — the patent owner — is not required to put the patent to use in order to profit from it; he can also license others to use it. In some instances, patent owners may need to actively assert their patents in an adversarial context if another firm’s product infringes their patents.”
Data contained in the report seemed mostly to support caution in the face of the recent slew of NPE legislation. In the years they focused on, 2007 to 2011, the GAO found operating companies brought most of the patent infringement lawsuits, with PMEs accounting for only about a fifth of the total. Still, even though PMEs accounted for only about a fifth of the total during this time, PMEs sued close to one-third of the overall defendants, “accounting for about half of the overall increase in defendants.”
This statistic regarding PMEs didn’t sway the GAO, though, in its determination that other factors had greater impact on the rise in patent litigation in recent years. The report pointed out several, including the granting of patents with overly broad or unclear claims, the potential for large awards from the court, “even for ideas that make only small contributions to a product,” the “recognition by companies that patents are a more valuable asset than once assumed” and even the implementation of the AIA, which limits the number of defendants a plaintiff can name in a lawsuit, causing some plaintiffs that would have previously filed a single lawsuit with many defendants to multiply the lawsuit as many times as its defendants.
The GAO ended its report with perhaps the most benign description of NPEs a government entity has made to date: “Public discussion surrounding patent infringement litigation often focuses on the increasing role of NPEs. However, our analysis indicates that regardless of the type of litigant, lawsuits involving software-related patents accounted for about 89 percent of the increase in defendants between 2007 and 2011, and most of the suits brought by PMEs involved software-related patents. This suggests that the focus on the identity of the litigant – rather than the type of patent – may be misplaced.”
By GREGORY L. HILLYER
Feldman Gale
1700 Market St., Suite 3130
Philadelphia, PA 19103
267-414-1300
ghillyer@feldmangale.com
www.feldmangale.com
South Florida Legal Guide 2014 Edition