Has Europe turned into the Eastern District of Texas? New study shows NPE activity has risen 19% year-on-year

Are the rain clouds of US NPE litigation gathering
over Europe and will Brussels act?  

Does Europe have a patent troll problem? It depends on who you ask and if you think trolls, non-practicing entities (NPEs) or patent assertion entities (PAEs), or whatever you call them and however you define them, are a "problem".  No matter what side of the fence you happen to be on, there has not been any empirical evidence to prove or disprove that notion.  Anecdotal evidence has mostly been relied on, but unless you are running a political campaign in 2016, anecdotal evidence can only take you so far. That is about to change...

The AmeriKat is in Brussels this evening for the launch of a new study by Darts-IP at the European Parliament which investigates and analyzes the prevalence and trends of patent litigation by NPEs (the term deployed by the study, see below) in courts across Europe and at the European Patent Office (EPO).

Ever since the proposals about the Unified Patent Court (UPC) really started to solidify in 2012, the potential inclination of some European patent judges in some jurisdictions to grant automatic injunctions was flagged as concern. Without the ability to rely on the safeguard of eBay v MercExchange (i.e, no rule for an automatic injunction for patent infringement), there was worry from certain sectors that the granting of automatic permanent injunctions in the UPC would create a playground for NPEs. The harm being that, with the grant of an automatic injunction, the NPE would have considerable leverage to extract extremely high damages and licence fee rates – despite the NPE not even having a market for which an injunction would have been necessary to protect. With the US patent litigation environment becoming more hostile to NPEs, the concern expanded from just UPC-centric issues to the current landscape of classical patent litigation in national courts across Europe. There was thus a call to re-focus and re-emphasize the principle of proportionality and the specific circumstances of a case when tailoring remedies in patent cases, as set out in Recital 7 and Article 3 of the IP Enforcement Directive.  This was to try and push Europe towards a more eBay environment when granting injunctions.  The European Commission's IP Package published on 29 November 2017 reaffirmed the proportionality principles, but groups like IP2Innovate (see below) wanted to see more development, such as ensuring that the proportionality principle and other safeguards applied to all patents, not just standard essential patents (SEPs).

So are the concerns about Europe becoming the new patent troll playground rooted in reality? It seems so…and there seems to be an American invasion.

Annual growth rate of NPE patent infringement in Europe

Pooling data from their database of 3 million cases and focusing on actions commenced between 1 January 2007 and 31 December 2017, the study (link here) has found as follows:

• 19% - average annual growth rate of NPE patent infringement in Europe. In 2012, there were 75 NPE actions. In 2016, there were 169 actions. 2017 is estimated to break the record for NPE related cases at 173 (although data is not complete). 

• 60% - the proportion of cases which originate from NPE entities based in the US since 2013. 

• According to the report on page 6, the top 5 most active entities are Intellectual Ventures (19.18%), Marathon Patent Group (14.29%), Acacia Research Group (10.20%), Unwired Planet (8.98%) and FORM Holdings (8.16%). 

• The top 5 most sued companies by NPEs are Vodafone (7.8%), ZTE (7.5%), Huawei (6.9%), Deutsche Telekom (6.5%) and HTC (6.5%). 

• 80% - the proportion of NPE litigation faced by the top 4 most sued companies in Europe (Vodafone, ZTE, Huawei and Deutsche Telekom), as compared to their non-NPE European patent litigation (see page 7).

• 23% - the proportion of SMEs who are sued by NPEs. Most companies (77%) sued by NPEs in Europe are large enterprises. 

• The steeper increase of NPE litigation in the US corresponds to recent legal changes in the US. 

• Germany - the hotbed of NPE litigation which accounts for 20% of their patent actions. Italy takes second place with 6%, the Netherlands at 5% and the UK and France at 4% each. Germany appears to be favored because of the bifurcated system with faster infringement courts than validity courts and a relatively high infringement win-rate for NPE plaintiffs. 

• NPEs litigating in Europe comes at a risk. An NPE’s patents are more often successfully invalidated than patents asserted or owned by non-NPEs. 

• 52% - the likelihood of an NPE in Germany and the UK winning on infringement. The rest of the EU has an infringement win rate of 23% (although there is much less NPE litigation in those jurisdictions, so the data pool is not there to be terribly meaningful). Weirdly, for non-NPE litigation the infringement win rate in Germany is 66%, but in the UK it is less than NPE litigation at 41%. However, validity tells a different story... 

• 60-65% - the validity loss rate for NPEs in Germany and the UK, compared to 44-45% for non-NPE litigation. 

However, the data is imperfect. This is only data held by Darts-IP and in many countries information about issued cases which settle early is impossible to maintain. Data and scrutiny of data is important. The lack of fulsome data from EU Member States' courts is important not just for this study but for analysis of all substantive and procedural IP subsistence, validity, protection and enforcement. As it is in the business of sharing IP decisions from across the world, the IPKat has been banging this drum for near 15 years now - the EU must make it a priority to ensure that all Member States court information and decisions relating to IP are made easily accessible by the public (subject to confidentiality restrictions of course).  It is noted that this issue was/is being looked at by the Commission as part of their IP Enforcement consultation.

MEP Delvaux (Luxembourg)

Swedish MEP, Max Andersson stated that the study was “just the tip of the iceberg”.  Echoing the IPKat's sentiments he called for more “transparency and more complete data” which he says are needed to find solutions to what he called “the problem of abusive patent litigation”.

MEP Mady Delvaux from Luxembourg was concerned that artificial intelligence (AI), the internet of things (IoT) and the digital economy was being put at risk:

“In order to prevent abuses, we need to make sure that Europe’s patent legal system operates effectively for both litigants and society and supports digital innovation in Europe.”

The AmeriKat expects that there will be comments about the use of the term NPE and how a company is classified as an NPE. The use of the word “troll” is emotive and often unhelpful, so the terms NPE and PAE are used instead. However, classifying whether a company is a NPE and/or a PAE is increasingly difficult as companies transform the ways in which they commercialize their R&D and IP portfolios (i.e. selling products, withdrawing from markets, licensing their IP or a mixture).  Darts-IP considers NPEs to be “independent organizations which own or benefit from patent rights but do not sell or manufacture goods or services associated with them (i.e. non-operating companies) and which have an active (offensive) assertion or litigation role as plaintiffs towards the enforcement of their patent rights).” Darts-IP states that the focus is on “assertion-focused NPEs” and that the definition takes into account the flexible nature of a company’s business.  Still, the assessment is always qualitative to some respect.

IP2Innovate, a group of 65 companies (including corporate members that include Google, Spotify and Intel) that create innovative products in Europe, issued this press release in response to the study. Kevin Prey, Chairman, stated that the study confirmed what they had all expected about the rise of PAE activity in Europe. He called on the European Commission and Member States to

“to move quickly to provide investors and innovators with greater protections, particularly in terms of increased transparency and litigation data. The patent system must support, not hinder, innovation and growth.”

However, the study does not examine the impact of the rise of NPEs/PAEs in Europe, just the frequency of litigation, in which courts and the chances of an infringement and validity success. On a case-by-case basis, patent litigators may well be able to see the commercial impact of NPE litigation, but there needs to be more exploration of and evidence on the economic impact of such activity on Europe’s innovation economy. The longer countries and the legislators wait to act of course the more difficult it will be to change the landscape in the future. But pending that next stage of analysis, it seems clear based on the evidence so far that US NPE patent litigation has crossed the Atlantic to our European shores. Whether history repeats itself is up to the parties, legislators and judges…

The full Darts-IP report can be found here.