NPEs: hiding ownership and gaming the system
There is a serious lack of transparency in Europe’s patent system. It is being exploited by some non-practising entities (NPEs), sometimes known as patent trolls, with very disruptive results.
An academic study titled “Non-practising entities and transparency in patent ownership in Europe” published in June 2020 by the University of Bordeaux demonstrates how NPEs are able to game the patent system for profit, especially in Germany, due to insufficient rules to ensure accountability and transparency.
By hiding behind shell companies with no assets and often using so-called ‘straw men’—directors with no known connection to the NPEs—these firms manage to dodge the financial downside of losing a patent case, resulting in the target company being forced to pick up the tab.
For the targets—legitimate firms, including many innovative small and medium-sized European tech companies—it’s like being forced to play poker with someone who is betting with fake chips.
Many targeted firms buckle and settle under the threat of injunctions, internal disruption and staggering legal fees. Little, if anything, is ever made public about their legal encounter with the NPE.
Some fight back, however. When they win, they ought to be able to recoup their legal fees, but as the Bordeaux study shows, not even that is assured.
Case study
The study, written by Valerio Sterzi together with colleagues Johannes Van Der Pol and Jean-Paul Rameshkoumar, shines a spotlight on an NPE called Dragon Green Development Balboa (DGDB), and its repeated efforts to assert IP rights over target companies, including the German consumer electronics and network company AVM, over a period of seven years.
Based in the Republic of Panama, Dragon Green exploited the Panamanian, British and German legal systems to create a discrete and complex ownership structure suitable for patent litigation (Figure 1).
Figure 1 shows the network linking all directors, secretaries and shareholders of the DGDB group. Each node in this network is a company or an individual that acts as a director, secretary or shareholder.
Figure 1: The network of directors and secretaries formed around DGDB
