Trends show trolls’ persistence

According to some industry observers, the risk from so-called patent trolls is in decline. Some believe that the inter partes review (IPR) process and the US Supreme Court ruling in Alice v CLS Bank have made it easier to invalidate patents and harder for trolls to litigate successfully. There’s a grain of truth here, but the impact is clearly limited to a relatively small number of nuisance patents. After a lull in 2014 while trolls assessed the impact of IPRs and Alice, litigation levels—and the quality of asserted patents—rose 
in 2015.

Patent troll attacks have become a fact of business life for thousands of companies. While patent trolls, as some non-practising entities (NPEs) are known, continue to threaten essentially any business that makes, sells, or even just uses patentable technologies, the nature of the threat ebbs and flows in response to a changing patent ecosystem.

Making progress against troll attacks

In 2011 Congress passed the America Invents Act (AIA), which included several provisions designed to limit the impact of patent troll behaviour. The most important of these was the IPR, a process that can enable expedited regulatory re-assessment—and possible invalidation—of a contested patent. Defendants have increasingly embraced IPRs, along with covered business method (CBM) reviews (another invalidity process to come out of the AIA), as a way to fight back against the most egregious patent troll attacks. More than 4,300 of these kinds of petitions have been filed against nearly 2,800 patents since 2012.

Defendants against NPEs have also been heartened by several Supreme Court decisions. The Alice ruling, in particular, gave district courts a clearer and narrower characterisation of what constitutes a patentable invention, and it is seen as weakening patent trolls’ ability to assert with impunity.

In 2015, the number of new defendants added to NPE campaigns began to rise, increasing by 22% from 3,246 in 2014 to 4,139 in 2015.

These were important changes in the patent legal environment and have made NPEs think twice about the validity of many of their patents. At RPX Corporation, we have seen clear changes in how certain, lower-quality patents are being valued in the pre-litigation market, and anecdotally we have noted a decrease in nuisance-level NPE campaigns that are designed to quickly monetise low-quality patents.

Marginal victories

That said, the impact of IPRs and the Alice decision remains relatively modest. For example, from the passage of the AIA through to the end of 2015, approximately 15,000 patents have been litigated in district courts. In the same four-year period, 4,361 IPR and CBM petitions have been filed against approximately 2,800 patents (multiple petitions are often filed against the same patent). Of these, only 16% have been accepted by the Patent Trial and Appeal Board for a final ruling on validity. To date, only around 600 patents have ultimately had claims invalidated through the process.

NPEs have obviously watched these developments with keen interest, and our data indicate that many slowed their assertion activity to gauge the impact of IPR petitions and the Alice decision. During that lull in late 2013 and through to 2014, they launched fewer campaigns and named fewer defendants. But the respite was short-lived. In 2015, the number of new defendants added to NPE campaigns began to rise, increasing by 22% from 3,246 in 2014 to 4,139 in 2015.

So NPE activity is expanding again, presumably being driven by patents of relatively higher quality. In light of this resurgence of the NPE threat, it is worth remembering that the majority of companies attacked by trolls are small and medium-sized businesses. There were 2,688 separate companies named in NPE cases last year (up from 2,176 in 2014) and 63% of them had revenues below $100 million.

These smaller companies usually struggle to successfully weather the costs of an NPE litigation and settlement. They are ideal candidates for mitigating third party risk, particularly the full risk transfer of insurance. We have explored the role of patent troll insurance in previous articles and next time I will discuss how patent insurance is evolving to protect against this changing threat.

Paul Scola is head of RPX insurance services at  RPX Corporation, which provides patent risk management solutions to more than 250 companies. RPX aims to reduce the cost and risk of NPE litigation through defensive patent acquisition, liability insurance, and market intelligence and strategic advisory services. He can be contacted at: pscola@rpxcorp.com