Who speaks for the SMEs?
The issue of non-practising entities (NPEs) or ‘patent trolls’ is among the most contentious debates in IP policy. In one narrative, advanced by those who want reforms to inhibit their behaviour, patent trolls are a pervasive threat—preying on small to medium-sized enterprises (SMEs) with frivolous litigation designed to extract a quick settlement.
But major patent owners have rejected this telling. It is a false narrative, they say, a Trojan horse intended to weaken patent rights and empower infringers.
Each side has produced argument and counter-argument, including empirical data to support their respective accounts. Few deny that patent trolls exist, but the extent to which they pose a threat to SMEs is deeply contested and difficult to verify. In the midst of this debate, SMEs are instrumentalised in order to advance policy positions backed by companies with much greater resources than their own.
The patent troll ‘myth’?
The past year has seen the patent troll issue raised more forcefully in European policy debates around IP. In a January 2020 op-ed in the Financial Times, senior advisor and co-founder of IP Europe, Francisco Mingorance, urged policymakers to reject the “patent troll myth”.
IP Europe is a coalition of European patent owners, including some of the world leaders in telecommunications standard-essential patents (SEPs), such as Nokia, Ericsson, and Orange. For these companies, NPEs are invoked by implementers who want to weaken patent protections and enable infringing activity.
Mingorance’s letter came in response to BMW, Microsoft, and Apple urging the European Commission to crack down on patent troll behaviour which, they claimed, was harming innovation in Europe. This is where the back story to the patent troll debate comes into sharper focus.
The fault lines tend to be drawn along the same lines as other debates in the SEP and broader patent space: between rights owners and implementers. NPEs have become, if not exactly a proxy war, just one battleground in a much bigger policy dispute with a lot of money at stake. The independent voice of SMEs, so commonly invoked by both sides in the debate, becomes diluted amid the policy objectives of major corporations.
“I don’t see patent trolls as a huge threat to an SME in a knowledge-rich industry.” Rhian Granleese, Marks & Clerk
“There are horror stories of SMEs being on the receiving end of a letter before action from a patent troll. However, the risk of this happening needs to be put into perspective,” says Rhian Granleese, partner at Marks & Clerk in London.
Granleese advises multinational corporations and SMEs on patent matters in the electronics and physics fields.
“From my own practice, I do not see patent trolls as a huge threat to an SME in a knowledge-rich industry. However, they do change the ecosystem. Patent trolls acquire patent portfolios from both multinationals and SMEs and, therefore, provide a potential revenue stream for SMEs who have patents that they have decided not to commercialise,” she says.
The relationship between patent trolls and SMEs, therefore, is not one-way. While small businesses can be targeted in NPE litigation, SMEs are also the source of many patents which are picked up on the market and later asserted in lawsuits.
“NPEs are allowing companies to monetise patents that would have otherwise been dropped and this, in turn, must lead to increased licensing and litigation,” Granleese explains.
NPE litigation is just one part of a wider ecosystem, which impacts businesses in different ways. There is no homogenous “SME interest” on the issue of patent trolls, any more than there is for other policy debates.
ACT: ‘We’ve heard that claim for years’
Yet it is typical for any group intervening in IP policy debates to argue that they are representing the interests of SMEs and promoting a healthy innovation system. One of the most prominent organisations lobbying for reform of EU IP policy is ACT | The App Association. According to ACT, its purpose is to campaign on behalf of app developers and small businesses in the technology sector. One of its key policy concerns is highlighting a patent system which, it says, is skewed towards the interests of SEP owners, and enabling patent trolls to target SMEs.
“Here’s the challenge for an organisation like ours that’s dealing with small businesses: they’re resource-constrained, they don’t have numerous product lines or the ability to write infinity-sized cheques like some larger companies do,” says Brian Scarpelli, senior global policy counsel at ACT.
“The negative effects of patent trolls on small companies are exacerbated because they’re put into a position where everything is on the line,” he says. Scarpelli agrees that solid empirical data on NPE activity in Europe, including any trends indicating whether the problem is getting worse, is quite limited. But anecdotal evidence from ACT members concerns him, he says: “What we hear from our members, not just in the EU, is that NPEs do pose a pretty significant threat. We’re at a point where our membership is asking us to do all we can to improve the situation, whether it’s small and incremental, or broad and sweeping reforms.”
One area of interest for ACT is in Germany, which is currently mulling reforms to its patent laws. ACT has been engaging with policymakers to persuade them to adopt proportionality and the public interest as key factors for judges to consider when deciding whether to issue patent injunctions.
“That’s a critical reform, because Germany is something of an outlier in that judges don’t consider these factors,” Scarpelli says.
“The negative effects of patent trolls on small companies are exacerbated, because they’re put into a position where everything is on the line.” Brian Scarpelli, ACT | The App Association
This is just one reform that ACT claims would materially advance the interests of SMEs when it comes to patents and NPEs. But, as ever in policy debates, some claim there are bigger economic interests at play—those of implementers looking to reduce the amount of patent royalties they need to pay to SEP owners.
This was the view behind Mingorance’s letter to the FT, which accused companies such as Apple of being “engaged in a campaign to change the licensing norms governing their access to the patented technologies underpinning cellular communications standards like 4G and 5G”.
This narrative—that groups such as ACT are a front for bigger corporate interests—is familiar to Scarpelli.
“I’ve heard that claim for years—that these are just insulting monikers used to devalue patents. I think that’s just an extreme view. My opinion is that, in reality, there’s a sliding scale. At one end of the scale is behaviour that most reasonable people would see as that of a patent troll,” he says.
He turns the criticism back at the types of companies who back IP Europe, those who hold large SEP portfolios.
“What I observe is there is a small number of large companies who are increasingly in the SEP monetisation business, and decreasingly actually making anything,” he says.
“If they can move the goalposts even one metre in a way that’s advantageous for them, it can translate into an increased royalty in their next negotiation.”
The debate around NPEs often comes back to the conflicting economic interests of large corporations, grappling over access to the technology standards which will define future generations of consumer products. Each side, meanwhile, claims to be advancing the interests of the innovation economy and SMEs, whose independent voice it can sometimes be difficult to hear.
App wars
It’s useful to compare the patent troll debate to an antitrust dispute between tech platforms and app developers. The EU is currently engaged in a reform of the laws governing the digital marketplace in Europe. ACT has so far been critical of the latest draft of the Digital Markets Act (DMA), which some app developers argue will open up competition in the sector and reduce their reliance on a select number of very powerful tech platforms, such as Apple and Google.
Jurgita Miseviciute is public policy and government affairs lead at ProtonMail, which is a member of the Coalition for App Fairness (CAF). According to Miseviciute, the DMA could be a “revolution for app stores”, and a critical opportunity to rebalance the marketplace in favour of developers.
Under the current draft, “Apple will have to allow third parties and business users to have other means of payment methods” other than the platforms’ in-house systems, she explains. Crucially, platforms would also have to allow third-party app stores to rival their own, where they collect a share of the sale price.
For members of CAF, which include Spotify and Deezer, this is shaping up to be a major win for app developers. Yet ACT, which counts app developers as its major constituency, is opposing the reforms.
One senior figure at a tech company supporting the DMA reforms suggested to WIPR that ACT’s policy positions tend to closely align with those of its major sponsor, Apple, rather than smaller businesses.
“Big Tech is using its financial power to influence certain positions and improve its image,” they said. Smaller businesses, meanwhile, are offered a seat at the same table as Apple, even though their best interests may not be being represented in policy terms, the source suggests.
But ACT is not the only player in the debate to have a significant backer eyeing an opportunity to advance its policy goals. Scarpelli, for example, replies that there are “large companies with billions hiding in plain sight behind small business”, in reference to one organisation group backed by Spotify. According to Scarpelli, ACT’s interest with respect to the DMA is not to up-end a system that has generally achieved high levels of growth.
“A historical role that we have had is creating dialogue between the small business community and Apple,” he says, adding, “there’s a bunch of larger developers trying to seize the moment with a lot of politicised stuff.”
We can see parallels with the patent troll debate, where organisations backed by huge corporate resources advance competing policy positions, in the name of innovation and small business. In truth, SMEs’ policy interests are diverse. On antitrust, some developers may prefer to have a “seat at the table”. Others may see the DMA as an opportunity to challenge the dominance of the tech platforms. Some SMEs may see patent trolls as a threat, others as a revenue source that allows them to monetise their patents.
The NPE and antitrust debates highlight why it’s important to closely scrutinise the interests and backing of groups speaking for SMEs. Undoubtedly they speak for some. But the companies that tend to shape policy debates and secure lobbying groups are those with hefty resources. Behind all these narratives are powerful industries and companies with specific policy goals. SMEs are, of course, entirely free to form alliances with whoever they wish on issues of concern. But it is easy to instrumentalise the interests of small businesses as a whole when the picture is nearly always more complex.
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