The Ins and Outs of Non-Practicing Entities

Earlier this week at the IP Trademark, Copyright & Licensing Counsel Forum in New York City, I moderated a panel on “Non-Practicing Entities” (NPEs). With an audience of mostly in-house IP counsel, the panel agreed that there was no “silver bullet” regarding NPEs, but noted some trends and best-practices.

In the discussion about the various types of NPEs, two types of NPEs were noted as growing in influence:

  • Large patent holders who go through financial distress (including bankruptcy) and sell their patents to a bespoke patent-holding entity, resulting in an NPE with new owners and a coherent set of patents from a former operator
  • Small patent holders using a reverse merger to gain access to the public markets for attention and funding

Both of these trends show that additional financing is flowing into patent ownership and assertions, the panel noted.

We also discussed the various legislative proposals currently being considered by Congress, such as the SHIELD Act.  The panel’s consensus was that increasing transparency of assertion actions would be helpful, so the specific patents and claims being asserted and the patent beneficiaries are known from the beginning.  In addition, delaying discovery requirements – and the imposed cost on the defendant – was suggested as a positive change.

On the other hand, fee-shifting (so the losing party pays the winner’s legal fees) in patent litigation was not viewed by the panel as particularly helpful, as only 2% of NPE actions go to trial, and patent infringements lawsuits are already a “roll of the dice” and fee-shifting would increase the risk of even higher cost for both parties.

Finally, when handling an assertion from an NPE, a best-practice suggested by the panel was to work with other defendants to share information and possibly embark on a group defense. The only proactive way that was mentioned to reduce the threat and cost of NPEs also involved group actions – to buy patents available in the market to prevent them from falling into an NPE’s hands.

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