How nonpracticing entities and patent trolls are changing the IP landscape

Michael G. Craig, Patent Attorney, Intellectual Property Group, Brouse McDowell

Smaller businesses often don’t have the wherewithal to enforce their patent rights because pursuing this type of litigation is very expensive, and they lack the expertise. However, the rise of nonpracticing entities (“NPE”) — organizations that enforce patents against alleged infringers with no intent to manufacture or market the invention — have made this an area that businesses need to take seriously.

“When you are a company that has one or two patents in an area and you’re fighting against an entity with hundreds in that area, it’s difficult to win,” says Michael G. Craig, a patent attorney with Brouse McDowell.

If you don’t have a standalone IP protection program, you’re losing revenue now, have lost it in the past and will continue to do so in the future.

“In the past, people assumed patents were a trophy for smart people to hang on their walls,” he says. “Now companies are monetizing their IP. Studies have shown that some 50 to 60 percent of a company’s worth comes from trademarks alone. These are commodities that need to be monetized. If you don’t have a strategy to do that, you are losing revenue.”

Smart Business spoke with Craig about NPEs and the importance of IP protection strategies.

What is a nonpracticing entity?

There are different types of nonpracticing entities. Generally, NPEs own and enforce patents but don’t intend to manufacture the products or provide the services associated with them. They instead enforce the patent rights in other ways. Some NPEs purchase patents from companies that don’t have the wherewithal to enforce those rights, doing so through licenses or lawsuits against infringers. These are groups created solely to buy up the intellectual property of others and enforce those rights without any other business plan or means of revenue.

Some entities hold defensive patents. Companies can partner with them for protection against lawsuits, and collectively, they become a harder target because they’re part of a group. There is also the purchase of patents for offensive purposes, such as buying patents to take over a segment of the market and force others to leave or enforce their rights.

Patent trolls are another aspect of NPEs. They hold patent rights, wait for someone to monetize the idea and then pounce. EBay’s one-click purchase — which allows buyers to bypass the bidding process and buy the item instantly — was a victim of a patent troll, as was BlackBerry, which had a patent troll sue it for its technology, worth hundreds of millions of dollars.

Why are NPEs significant?

They can drive the way a company’s patent strategy is developed. NPEs don’t have anything to lose when enforcing their rights. When you are sued, you have to allocate resources to defend your rights, which takes money away from your core processes. NPEs’ resources and business models are designed to enforce patents. You need to understand what NPEs are doing because they change the landscape of IP, and you need to develop an R&D strategy to navigate it and determine where you fit in.

You can join an aggregator, which is an NPE that aggregates IP property for the benefit of having safety in numbers. Those that join them can use the IP of others, as well as the aggregator’s resources for protection, offensively or defensively. And because the cost of a lawsuit is so deleterious, most will give up their IP rather than pursue a lawsuit. Also, when you practice in an area, particularly one that utilizes an industry standard, such as wireless networking, there is likely to be an NPE from whom you, or your parts supplier, may need to license the technology.

What can companies do to protect themselves from NPEs?

There is an overarching concern in the industry that there is no protection against an NPE. The reality is, under the current legal system, NPEs are not doing anything wrong. They would say they are just protecting the rights of inventors. IP is actually property that can be bought and sold and infringements against that need to be protected.

Err on the side of overprotection. Managing IP may seem expensive at first, but as far as costs associated with patenting or licensing, in the long run, the payback is tremendous.  Further, you need a strategy to deal with NPEs in areas in which you do business, such as licensing agreements and hold harmless agreements.

IP programs should have the use of legal professionals to help them determine what is worthwhile to patent and how to go about it. A lot of companies have brainstorming sessions to come up with a list of ideas of what to patent, then flesh them out and go to their legal professionals with a list of ideas to determine which are worth protecting and the costs to do so.

Also, every company needs to have a strategy on how to protect their IP when certain situations arise, such as a potential infringer or infringement.

What should companies do when they are in a potential infringement situation?

That can be an anxious time, particularly if it is a product that drives your business. Your first call should be to an attorney who specializes in that area to analyze the claim to see if it has merit. They could contact the other party and negotiate because you don’t want to reach litigation. The worst thing you can do is put your head in the sand, because after you have been notified, it becomes willful and the penalties can add up.

You don’t need to reach that point. If a company is unsure of what the next step should be, contact a professional to manage the process. All you need is a little help to point you in the right direction and periodic management from an attorney to help along the way.

Patents are assets that need to be exploited and monetized. The IP landscape is changing, and those who don’t recognize this and look at the other way are going to be left behind.

Michael G. Craig is a patent attorney with the Intellectual Property Group at Brouse McDowell. Reach him at (330) 535-5711 or [email protected]

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