Non-enforcing entities (NPEs) are a special group in the historical process of the intellectual property industry. Patent litigation involving NPEs has become a common global business activity, and it is a patent issue that the technology industry needs to pay special attention to.
What is a NPE?
The Non-Practicing Entity (NPE) is based on the current academic understanding of the connotation of NPE, and it is believed that NPE refers to not engaging in any commodity production, or engaging in any research and development workers. In the current state of operation of NPE, it can include two types: The first is universities and research institutions, which mainly conduct basic research by faculty members or researchers in the school, and authorize the research results to other individuals or organizations, use, which itself does not engage in any commodity producer. The second is the acquisition of patent rights by individuals or small and medium-sized organizations/groups by purchasing patents, and by the inherently exclusive nature of patent rights, to sue successful product manufacturers who have infringed their patent rights, saying as a patent troll.
- This type of NPE collects patent licensing fees from potential or potential patent infringers (alleged infringers) through patent acquisition.
- Such NPEs do not conduct any research and development activities, nor do they engage in commercialization activities or develop new technologies for the patents they own.
- Such NPE speculatively waits for the manufacturer of the commodity (industry participants) to make a patent infringement claim against the manufacturer of the commodity after making an irreversible huge investment.
Overview of NPT:
Patent litigation initiated by NPE litigation has averaged about 30% of all litigation over the past 10 years, but the share of NPE litigation has increased significantly over the past few years, with 42% of new patent litigation activity by NPE in 2020 filed, which indicates a growing threat to businesses.
Defensive NPEs play a positive role in the patent transaction intermediary market. Purchasing patent rights and licensing members who pay membership fees, not only increases the value of patents in the market but also enables members to avoid litigation costs. Provides dual benefits.
Any company that manufactures, sells, or uses technology-based products and services faces a real risk of being sued for patent infringement. More than 25,000 companies have been sued for infringement since 2010, and the number of companies at risk is growing, costing billions of dollars in legal fees each year.
Most NPEs operate intellectual property rights rationally, which not only obtains considerable economic returns but also activates the intellectual property trading market and helps more business organizations improve their innovation capabilities. However, some institutions and individuals, using the form of NPE, adopt aggressive and frivolous intellectual property litigation tactics and entangle. And even harass entity companies to make speculative profits, contrary to the original intention of intellectual property to nurture and encourage innovation by law. The company is generally known as Patent Troll.
Non-Practicing Entity (NPE) can also be interpreted as a Patent Troll, which means that it owns patent rights, but does not engage in the manufacture of goods. Instead, it collects royalties from companies that infringe its patent rights through licensing negotiations or patent litigation. Or compensation, NPE can be divided into four types: research, attack, defense, and consulting management services.
What are the Types of NPE?
- R&D-oriented entities:
- Non-profit academic research institutions: The purpose of research and development is to drive technological innovation, and it is based on a non-profit type and does not implement patents.
- Large-scale manufacturing enterprises: After using the research and development results for patent authorization or production of products, then invest in research and development, to pursue the leading industrial technology research and development indicators.
- Offensive patent aggregates:
The revenue comes from licensing and patent litigation payments, and because NPE does not implement any technology, there is no risk of retaliation.
- Defense centralized entities:
The revenue comes from subscription fees for practicing entities. By purchasing threatening patents and licensing them to their members, it provides companies with an insurance system against patent trolls.
- Patent management service company:
It may not be the owner of the patent itself, but a patent intermediary, whose task is to find buyers and sellers of patents and provide the information and intelligence needed by both parties to help reduce economic costs and litigation risks.
How to Distinguish NPE?
To distinguish whether an NPE is reasonably engaged in patent operation activities or a so-called patent troll, the judgment factors are as follows:
- Whether there is a frivolous or abusive prosecution, such as not conducting sufficient investigation of the infringement facts and evidence before the prosecution, launching many lawsuits against multiple entity companies in a short period, etc.
- The patents used in the litigation have no practical value or contribute to the prior art, that is low-quality patents are used.
- Whether the patent used in the lawsuit is supported by certain R&D investments. Unlike NPEs that operate reasonably, to greatly reduce the cost of obtaining patents, patent trolls mostly hold patents through simple brainstorming or imaginings.
- Whether the patent license negotiation has been conducted with the respondent before the lawsuit. Since the patent trolls themselves know that the patent assets they hold are not valuable, they generally do not contact and negotiate with the respondent about the patent license, but directly sue for extortion.
- Whether the prosecution of the patentee has caused great trouble to the respondent and caused the so-called chilling effect. For example, many lawsuits are used to cause a lot of legal costs to the respondent, which makes the respondent tend to pay for the settlement or initiate a lawsuit at a special point in time to make the respondent hesitate to defend, etc.
NPE and the General Technology Industry Have Gradually Formed a Cooperative Relationship
When NPEs stockpile patent ammunition necessary for litigation, companies in general, especially the technology industry, have become an increasingly important source. In traditional cognition, NPE and the technology industry are always on the opposite side, that is, NPE holds patents and seeks technology companies to file lawsuits everywhere. Why are the two now developing a partnership for patent transactions? This is inseparable from the large-scale NPE.
Due to the low cost of capital in the market, NPE's pockets are getting deeper and deeper. In addition to being able to finance complicated and lengthy patent litigation procedures, it can also more carefully select the patent targets to be purchased. From the perspective of NPE, the absolute standard for measuring patent assets is liquidity through litigation or authorization, and the gold content of patents developed, applied for, and maintained by for-profit enterprises is naturally more beneficial than that of R&D institutions or universities also more favored.
On the other hand, technology companies also need to dispose of patents. According to experience, when companies encounter a financial crisis caused by the global epidemic, to maintain and enhance the cash position on the account, they will start to actively sell the patents they hold, some of which will inevitably flow to NPEs.
However, aside from financial considerations, timely sorting and reviewing patent inventories can also help technology companies deploy the technology. Of course, every technology industry has a system related to patent management, but if it is only based on the judgment of internal personnel, there will inevitably be blind spots, and the introduction of external NPEs can complement each other. As mentioned above, NPEs who are seeking profits must be picky when purchasing patents. If the patents sought by the company are not favored, it may be that the content of the invention does not conform to the market trend, or the technical protection is not strict enough to be litigated prevail in the middle. All of these are valuable experiences for companies to conduct research and development and patent layout in the future.
After being evaluated by NPE, some patents may be sold smoothly, while others are considered unmarketable and fail to be traded. Although the former can bring immediate benefits to the company, if the latter is truly incapable of monetization, the patentee can also consider giving up these patents directly to save high maintenance costs. In other words, both can create value for the company. Afterward, for these resources created by patent transactions and disposals, companies can also invest in new R&D and patent activities to strengthen their technological competitiveness.
n conclusion, the future enterprise's patent layout management thinking should be more flexible. Although many technology companies have been actively trying various modes of communication about patents, most companies still only stay at the level of Apply and Hold for patents, that is, after the patents are certified, they are put on the shelf. In the long run, not only the cost of patent maintenance will be higher and higher, but the benefits to enterprises are also limited. Therefore, strictly reviewing the quality of their patents through negotiation and transactions with NPEs, and further finding more market potential R&D directions, is an operational strategy that all technology industry manufacturers should consider.
