Article One Partners has released the results of a survey it conducted last November among attendees of its annual client meeting. The 36 individuals at the event were drawn from 20 organisations and included representatives from 10 of the top 30 NPE targets, so what they had to say about NPEs, the threat they pose to operating companies and how this can be reduced was bound to be worth hearing. And it is. Article One states that:

NPE litigation was reported to represent 75% of all active litigation matters, and more than half reported that NPE litigation increased over last year, with a median estimated increase of 22%.

NPE lawsuits were reported to settle more quickly, in an average of 6 months or less 62% of the time, as compared to only 6% for all matters. The majority of overall patent litigation matters take a year or more to settle, with 27% taking more than two years.

There was much discussion about the high cost of NPE litigation. While companies were definitive in their respect for IP rights and view that licensing fees should be paid based on high quality patents and substantive infringement assertions, many were concerned by the increase in so-called nuisance lawsuits. Nuisance lawsuits are brought by NPEs whose strategy is to file litigation actions in order to force companies to settle - regardless of the quality or applicability of the asserted patent. The basis for this forced settlement model (or cost of defense settlement) is that it often costs the company far less money and time to settle an infringement case, than to defend the lawsuit.

The vast majority of IP legal budgets -- more than 80% -- are used for litigation defense activities, with little change expected over the next 12 months. Attendees reported that it costs their companies an average of $1.1 million to defend a single NPE lawsuit; with cost estimates ranging from $200 thousand to $3 million.

What I find very interesting about this is the nuanced view these senior operating company representatives have about NPEs. If you hear some public pronouncements emanating from certain high-tech businesses, what you get is unequivocal condemnation of all NPEs. But seemingly the respondents to the Article One survey do not see things in such black and white terms. While they have a gripe with nuisance lawsuits, at the same time they have a “respect for IP rights” and believe “that licensing fees should be paid based on high quality patents and substantive infringement assertions”.

Speaking to Article One founder and CEO Cheryl Milone about the survey yesterday, she emphasised that point. The key issue, she stated, is not who is doing the asserting, it is what is being asserted. Obviously, it’s never nice being the defendant, but if the plaintiff has a strong, thought-out legal argument backing up high quality rights it is far less aggravating than having to deal with suits designed to extract a settlement fee because this is cheaper than fighting a case. In other words, not all NPEs are the same. It may also be the case that as more operating companies work with NPEs their views of them become less hostile.

The other thing I noted from the survey is the proportion of IP legal budgets that go on litigation defence activities. Although 80% is a high figure, it is not out of the ball park. Milone was unable to say whether it included the costs of settling and on-going licensing fees, but at some level at least it indicates that companies are anticipating costs, which may give the lie to the idea that tens of millions of dollars are being diverted from other parts of businesses to deal with the NPE threat.

What’s more, Milone expects that over time, as companies become more sophisticated in their approaches to dealing with NPE assertions, costs may begin to fall. Collaboration among defendants, actual or potential, is already becoming more common, she explained. Companies are working together to look closely at the strength or otherwise of NPE portfolios and to identify patents that may be asserted against them in future (so allowing for pre-emptive action); while some law firms are developing an expertise in working with joint defence groups (JDGs) – the identity of such firms, Milone says, was a topic for conversation at the meeting.

As for Article One itself, it is worth remembering that, like RPX, it is only a relatively new player – having first burst onto the scene in November 2008. Since that time its use of cropwdsourcing as a means of identifying patent-related information has become increasingly mainstream. In the last year alone, the company has:

• Increased its revenues by 300%.

• Doubled the size of its research community.

• Established a client base that includes 18 of the top 25 companies most frequently targeted. by NPEs, according to data from Patent Freedom, as well as 30 of the Fortune Global 500.

• Announced that it has awarded more than $2 million in researcher rewards.

• Announced that it has raised $7 million in funding from Alleghany Corporation.

• Opened an office in Palo Alto.

That’s not bad going!

Sectors

IP management, IP litigation, Patents, IP business