Good practice: why the NPE model can help all businesses

Non-practising entities (NPEs) have acquired, alongside their patent portfolios, an unwanted reputation in the past few years. The assumption seems to be that there is something at best slightly uncouth, and at worst immoral in some way, about the notion of a company that owns patents but does not ‘use’ them to produce things. Of course, many companies that ‘practise’ patents also maintain lots of patents that they don’t use to develop products or technologies, but that fact can sometimes get lost amid talk of trolls and nuisance litigation.

Jasmine Kway is executive vice president for business development at Transpacific IP, in Singapore. The company is an NPE which works with young and established companies, as well as universities, to license and so monetise their patent portfolios.

Kway acknowledges the image problem that NPEs have. “A common definition of the NPE is probably a troll that uses weak patents to go for defensive companies.” Transpacific has never sued anyone over a patent, preferring to license, but Kway notes that there is nothing inherently wrong with litigation: “If the judge rules in favour of the plaintiff, there must be proof that there has been infringement ... and if there’s infringement, from a very pure understanding of patent law, there’s no problem with compensating the patent owner for that infringement.”

Of course, the level of compensation can be a sticking point, especially since “there is no standard way of valuing patents”. But licensing is always the preference. Patent law has at its heart the notion of encouraging innovation, and in order to do that, there needs to be a commercial incentive for innovators. Universities and many established companies lack the resources and expertise to make the most out of their patents, so it might well make sense, from a technology transfer or a simple economic perspective, to outsource that aspect of the process to an NPE.

As Kway points out, the line between operating companies and NPE can be pretty blurred. “Even an operating company amasses a patent portfolio,” she says. “When they can’t be defensive, they will start wanting to look around and see who the potential licensees are.” Then the question is whether they have the right people to work on that function, or whether it makes sense to outsource it. For many, the answer is the latter. “Then, the same actions happen whether you’re an operating company or not,” Kway says.

"If you need to source a number of patents covering a particular technology, an NPE may provide a one-stop shop that an individual operating company cannot."

From a purely patent perspective, an NPE can serve a very useful function in this context. If an operating company has a small IP department, most of those people will be focused on managing the company’s prosecution, and even when they also manage licensing activities, it is impossible to bring to bear the same level of focus to the exercise as can a company dedicated entirely to licensing and monetising patents, and the profile of patents for licensing is likely to be markedly different in emphasis from what might be termed the company’s ‘core patents’.

There is another advantage too, because an NPE can provide a second level of cover to an operating company when negotiating licences. As Kway puts it, “As an operating company they don’t want to be at the forefront of the negotiation.”

It may also be useful for companies looking for patents to work with the right NPE. If you need to source a number of patents covering a particular technology, an NPE may provide a one-stop shop that an individual operating company cannot, especially if the NPE can proactively search the market on your behalf. “Transpacific gets very deeply involved in the function,” Kway says, “not to mention in technology transfer.”

Jurisdiction matters

Not all NPEs are created equal. Ways of doing business in the US may not have the same traction in Europe, just as the legal framework in Europe is not equivalent to that in Asia. Similarly, there are cultural legacies to consider—the NPE model is, if not exactly popular, then far more widely known in the US than in many other parts of the world.

Asia is a case in point. Kway says: “In Asia there is always a fear of NPEs, and so for any NPE that wishes to operate, building and sustaining a reputation is important.” Japan, for example, used to be extremely closed, with companies not typically looking for patent licensing opportunities overseas and often keeping their patent portfolio firmly in-house. But Kway says that has changed, as more companies have “started to look at selling their patents outside Japan ... they have seen that there is a need to commercialise and monetise their patents.”

A consequence of this shift in business priorities has been a new appreciation of what an NPE can bring to the table. “We are slowly moving away from the fear, and people are becoming more receptive to understanding how the various NPEs work,” Kway says. But the cultural imperatives remain. Kway underlines that for a company like Transpacific to be successful, it would be a very bad idea to get into litigation against companies from the countries in which it operates.

“If we were litigating, it would have to be against a foreign company in China, for example,” she says. “Our company has to maintain that pledge,” and it is the route to more licensees.

“We are slowly moving away from the fear, and people are becoming more receptive to understanding how the various NPEs work.”

There are other important measures to take. Transpacific will work with the local authorities and governments of the various countries in which it operates to engage and educate on the role of NPEs. “We work in tandem with that vision,” Kway says. “Often, there’s no one view of how the patent system works. NPEs need to know what the various systems are asking for.”

One way of doing that is through taking a lead on dialogue around the issues. “We partner various stakeholders and government, we put them around the table and talk through the issues.”

One country which has been of particular concern, in terms of conflicting noises about how NPEs will be received, is Taiwan. Kway confirms that it will be a focus over the coming year, and that steps are underway to sit down with the various companies and stakeholders in the country with a view to clarifying the situation and improving the lie of the land for NPEs such as Transpacific.

Opportunity knocks

Of course, it’s not all about Asia. The most important patent for a given company is likely to be, and likely to remain, its US one. In comparison, patents in Europe or Asia carry less commercial weight. This is clearly a function of the sheer size of the US market, but is it likely to change with the advent of the proposed Unitary Patent system in Europe? Kway thinks not.

“I think the Unitary Patent will be beneficial to companies like us: it would give benefits from the technology transfer perspective, and it allows us to go to more licensees ... but the US will stay the most important.”

Of course, much of the future success of NPEs depends on winning the argument about perception. And that, principally, means correcting a failure of definition. NPEs have been called, variously in the past year, patent trolls, patent assertion entities, hijackers of the patent system and patent bullies. Some companies are some of those things, and some may even be all of those things, but tarring a whole class of enterprise with the same sticky brush seems unfair, if not dishonest.

Just as operating companies can be ‘good’ and ‘bad’ (and sometimes good for their shareholders and bad for their competitors, or good for the market and bad for public relations), so too can NPEs. IP litigation is decided on a case by case basis—perhaps that principle should be extended to companies as well.

Jasmine Kway is executive vice president for business development at Transpacific IP. She can be contacted at: jasmine.kway@transpacificip.com