Last October, Popular Mechanics reported that non-practicing entities (NPEs) may have “bled companies for half a trillion dollars” between 1990 and 2010. Sometimes called “patent trolls” by their detractors, NPEs are generally defined as companies that obtain most of their revenue from the licensing and/or enforcement of their intellectual property.
Not all NPEs are created equal. Some, such as the Wisconsin Alumni Research Foundation (WARF) and the Commonwealth Scientific and Industrial Research Organization (CSIRO) are public institutions (or the licensing arms thereof), focused primarily on research and education (NPE Type 1).
Others, such as Tessera Technologies (NASDAQ: TSRA) and Intellectual Ventures, combine legitimate research enterprises with patent licensing/enforcement units, where the latter form the basis of the companies’ revenue streams (NPE Type 2). The third type of NPE exists solely as a patent enforcement/licensing organization, and is far less common than the aforementioned research-and-licensing outlets (NPE Type 3).
If most NPEs perform legitimate research, why are they called “patent trolls”? Shouldn’t companies (and individual inventors) be encouraged to profit from their innovative efforts?
The answer to this is simple, at least on the surface. It takes a lot of hard work, and substantial financial resources, to develop a prototype into a marketable product. NPEs reap the benefit of successful products without investing heavily in development, marketing, and logistics.
Companies that have transformed an idea from lab bench prototype to marketable product are naturally irked by the notion that someone who had a similar idea — yet never developed it into anything useful — could be entitled to a substantial portion of their profits. Much of this irritation is likely tied to the magnitude of the financial awards that NPEs have enjoyed in recent years, as much as it is to any quibbles over innovators’ intellectual rights.
According to IPEG Consultancy, the median damages awarded to NPEs in patent infringement lawsuits was more than three times the median damages awarded to product-producing companies. The source(s) of this imbalance are likely multitudinous; however, one key factor could be that NPEs wait to ensure that a product is successful before pursuing infringement suits.
Also, unlike product-producing companies, who generally enforce patents early, NPEs “frequently continue to litigate to the verge of [patent] expiration.”
As patent assertions continue to skyrocket, costly litigation–with both NPEs and industry competitors–has become more commonplace, and more public. Despite numerous public outcries, there is no indication that this trend will abate anytime soon. Therefore, innovative companies would be wise to remain current on patented technologies that are relevant to their product offerings.
A quick perusal of IP Checkups’ CleanTech PatentEdge indicates that NPEs own over 1200 cleantech patents, in a variety of different industry sectors. The table below documents patent ownership NPEs with a strong presence in the cleantech space.
NPEs’ patent holdings in cleantech. This list of NPEs was accessed from Patent Freedom.
*Refers to the type of NPE, as previously described, where 1 is primarily a research organization; 2 is a licensing/enforcement organization that also performs research; and 3 is a company that enforces and/or licenses its IP holdings, but does not appear to perform any independent research.
Before breathing a collective sigh of relief, however, the cleantech community should definitely consider the fact that Intellectual Ventures houses its patent assets in an estimated 1200+ shell companies, the names of which are not currently available to the public. For example, Searete, LLC, a company purportedly owned by Intellectual Ventures, owns over 200 cleantech patents, in a variety of industry sectors.
The true scope of Intellectual Ventures’ presence in the cleantech space will be elucidated by IP Checkups‘ current Indiegogo project, Case I.V. Thicket: Unveiling Intellectual Ventures’ Hidden Web of Patents. First released on October 15th, 2012, this project will bring transparency to Intellectual Ventures’ operations by revealing to the public all patents owned by all of Intellectual Ventures’ shell companies.
From this increased transparency, cleantech companies and cleantech investors will gain greater leverage in their ability to negotiate license agreements and avoid litigation, enhancing their position in this increasingly competitive space.
*Kathryn Paisner is Director of Research and Business Development at IP Checkups.