Patent trolls are not a European problem

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April 18, 2024

There should be no place for bad faith debate around IP policy in Europe. Unfortunately, this is not a message that everyone involved in lobbying for change wants to hear

By Joff Wild

In my previous life as a journalist, I spent a lot of time watching the erosion of patent rights in the United States. From the Supreme Court’s eBay v MercExchange decision through the passage of the America Invents Act in Congress and its implementation at the USPTO then back to the Supreme Court for Alice Corp v CLS Bank, a series of developments have left patent holders in a much weaker position than they were 20 years ago.

This change took place against the backdrop of a narrative dominated by the activities of so-called “patent trolls”. It was built very successfully by the kind of deep pocket corporations that tend to be net payers of patent licensing fees. By funding academic studies and then using their findings to create news stories and lobbying talking points, Big Tech set the policy and judicial agenda.

A US phenomenon

There is no denying that trolls are part of the US patent landscape. They have a very simple business model: acquiring and then asserting generally poor-quality patents in the hope of securing multiple low value settlements from defendants that lack the resources or the inclination to spend a higher sum they know they are not going to recoup after fighting a court case, even if they win.

It is the wide availability of patents in the US, the very high cost of litigation and the lack of any standardised loser pays regime that makes this strategy possible.

What those who sought to weaken patent rights in the US did brilliantly was to take a niche business practice and turn into something that was apparently ubiquitous. Trolls, it was regularly claimed in the legislature, in the media and in courtrooms, impose huge costs on US businesses, especially smaller ones, causing them significant financial harm. Thanks to trolls, the claim went, patent litigation generally was out of control. Something had to be done.

In the US now, trolls are everywhere. They are brilliant universities, they are world class research institutions, they are groundbreaking companies producing technologies that the entire globe depends upon. The original meaning of the term has become lost. Instead, if you assert a patent that you do not use yourself to make a product - if you are, in other words, a non-practising entity (an NPE) - be prepared to be labelled a troll. Forget about the behaviour of the defendant, its refusal to negotiate and its egregious theft of your IP, if you file a lawsuit you are the bad guy.

The overall impact of this has been marked. The working assumption in the US for the last two decades or so has been that, unless the ability to deploy them is significantly restricted, patents will always do more harm than good.

The results have been plain to see: the continuous erosion of patent holders’ rights, an increase in their costs, more opportunities for infringement and a decrease in patent values. Guess who benefits most from all of that.

Muddying European waters

Depressingly, it seems we are now seeing a similar playbook being deployed in Europe. Recently, lobbying group IP2Innovate (IP2I) – financed by a group of predominantly deep pocket American and European net payees of patent royalties – has been publicising a series of academic articles which, it claims, demonstrate the need for significant reform to European patent laws in areas such as proportionality and injunctive relief.

Let’s look at a couple of these, both of which have been boosted by IP2I on LinkedIn over the last few weeks.

On 11th April, the group posted about a two-part study written by academics Dr Franz Hofmann and Dr Benjamin Raue which, it stated: “Calls for a more nuanced approach to patent infringement cases, and it urges judges of the recently launched UPC to consider damages instead of automatic injunctions as a remedy in their rulings. This should especially be considered in cases involving a patent asserting entity, or cases concerning complex high-tech products containing hundreds or even thousands of patented inventions.”

The post also linked to an interview with the professors that IP2I published on its website back in December. In this, the concept of the “patent asserting entity” was expanded upon. They are, IP2I explained, “also known as non-practising entities or more colloquially patent trolls”. In other words, NPEs are patent trolls.

Of course, as is also the case in the US, everyone who works in patents - including the staff at IP2I and all the people who fund the organisation – knows this is not true. Instead, they know that NPEs come in many shapes and forms and that in Europe patent trolls are next to non-existent. That’s because the conditions which might give rise to their existence in the US – sky-high litigation costs and no loser pays provisions – do not exist on this side of the Atlantic.

But here’s the thing: while everyone in IP knows that NPE is not another way of saying patent troll, people outside of the bubble – journalists and policy makers, for example – do not. So, if you can create an equivalence and then demonstrate that “trolls” are becoming an ever-greater threat in Europe, especially for SMEs, you have a chance to persuade the people who matter that changes in the law, coincidentally suiting your patent weakening agenda, are required.

False picture

This takes us to another study IP2I has recently chosen to highlight. At the start of the month, it ran a LinkedIn post about research which, we are told: “Shows that NPE activity in Europe is on the increase: NPEs own nearly 20,000 EPO patents, primarily in the Electrical Engineering domain, where they account for approximately 9% of EPO patents transacted during the period spanning from 2010 to 2019.”

Although its lead author, Professor Valerio Sterzi, and his team do not say it, you can see how the narrative might start to build. It goes something like this: “NPEs are the same as patent asserting entities which are the same as patent trolls and, look, they hold 20,000 patents in Europe and important percentages in certain technology areas. SMEs are in danger. Something must be done.”

In its LinkedIn post, IP2I chose not to say that it has employed Professor Sterzi as a consultant in the past and that he has received funding from both it and Google, one of its members. However, the professor himself did make a funding disclosure in an acknowledgement at the end of the cited article and also recognises his relationship with IP2I and Google on his website. He has behaved entirely properly.

However, when you look at the paper written by Sterzi et al the problem with conflating NPEs with patent trolls becomes immediately apparent. In a table on page 9 the leading 30 NPEs holding patents granted at the EPO are listed. The top three are, in order, InterDigital, Dolby and Xperi. Between them they own just over 44% of all identified assets.

InterDigital and Dolby invest tens of millions of dollars in R&D each year, Xperi is a product company. If you add fourth place Provenance Asset Group, which has no history of initiating patent suits in either Europe or the US into the mix, you get to over 50% of all EPO patents held by NPEs.

I should also mention that Sisvel is on the list and is, in fact, identified as Europe’s top “Litigation NPE”. That is, it is one of a subset formed of “NPEs with a percentage of litigated patents in their portfolio exceeding the average (2.46%)”.

In reality, though, Sisvel has not initiated a single lawsuit in Europe since the beginning of 2022 and was not a serial filer of cases before then. There have been times when the firm has felt it needed to launch actions and it may well decide to do so again if the patents it holds are infringed. However, Sisvel is not driven by litigation. It is primarily a patent pool administrator. This is how it generates the vast majority of its income.

Honest debate

When you look at businesses like InterDigital and Dolby, which both invest heavily in innovation and have well-resourced R&D centres in Europe, and Sisvel, which has returned billions of euros to the world-class innovators that contribute to its patent pools, it’s clear that the conflation of NPE with patent troll is wrong. When it is done by people working in IP, it goes beyond that and moves towards deliberate dishonesty. But you can also see why people choose to go down such a path. The US experience shows that it can deliver spectacular results.

All that said, perhaps I am being overly cynical. Maybe I am misreading what IP2I is seeking to do. It’s possible the equation of NPE and patent troll found in the interview with professors Hofmann and Raue was an aberration, a mistake. If so, it should be easy enough to ensure the relevant section is revised.

Furthermore, to establish its commitment to good faith debate, IP2I could state publicly that it does not believe NPEs are equivalent to patent trolls and will not make such a comparison in future. It might invite other organisations lobbying to change Europe’s patent system to do the same.

I write all this because my fear is not that Europe is set to be overwhelmed by patent trolls and vexatious litigation. Instead, my worry is that the toxic, disingenuous, sometimes downright deceptive US patent debate is making its way across the Atlantic. Wherever you stand on patents, you should surely want to avoid that. Let’s all work together to ensure we do.

Joff Wild is the Head of Content and Strategic Communications at Sisvel. He was formerly editor-in-chief of IAM, which he co-founded in 2003

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