Patent Risk Digest – December 2015

2016: Troll Impact Looms Large with Thousands of Defendants Added

In 2015, patent trolls added more than 5,400 total defendants to infringement lawsuits—among the highest levels of activity in recent years. That tally—not yet including December’s lawsuits—reflects how patent trolls have successfully responded to a shifting legal and policy landscape, increasing their volume of lawsuits to continue forcing settlements from a wide range of companies.

A review of activity from the beginning of 2015 and throughout the year helps explains how patent troll risk is evolving for 2016:

Smaller companies remain easy targets

2015 data continues to show that as many, if not more, defendants in troll suits are smaller companies—those with revenues under $100 million. Trolls have targeted a high number of smaller and emerging companies because most will pay whatever they can, as quickly as possible, to end the distraction and expense of lawsuits that cost from tens of thousands to millions of dollars to fight.

Through the first half of 2015 alone, smaller companies with less than $100 million in revenue were hit harder by trolls in both absolute volume and relative proportion. In addition, trolls targeted companies never before hit with a suit—“first-time” defendants—40% more often than in 2014.

No Easy Remedy: Legal Developments and Patent Reform

When it comes to patent troll litigation, 2016 will unfold against essentially the same legal and policy backdrop as in 2015. Congress once again tried to pass new legislation aimed at curbing abusive patent troll suits. However, neither of the two major, competing proposals had succeeded as of December. In addition, there’s likely to be reduced focus on patent reform in 2016, given the election year.

In the courts, a 2014 Supreme Court case known as Alice indeed had an impact on patent litigation. However, while defendants have used Alice to invalidate a number of low-quality software patents and defeat troll suits, trolls have responded by launching new litigation campaigns focusing on better-quality patents. Further, even when Alice might be used to defeat a case, it’s still prohibitively expensive for many small companies—often well into the six figures—just to reach the stage of litigation at which dismissal can be achieved.

Trolls Evolve - And Could Get a Boost in 2016

Patent trolls have continually evolved to overcome new challenges. Case in point for 2015: new patent lawsuits hit an all-time high in November—with hundreds filed for the month—as trolls anticipated rules going into effect requiring more explanation around the bases of their claims.

In addition, while Alice and other Supreme Court patent decisions over the past several years have often favored defendants, the pendulum may swing in the other direction in 2016. For example, in October, the Supreme Court accepted a pair of patent cases for review—Halo Electronics v. Pulse Electronics and Stryker Corp. v. Zimmer Inc. If successful, these appeals could result in a more flexible standard for when courts can award plaintiffs enhanced damages—up to three times what the jury awards.

The Patent Risk Digest will continue to follow these developments and patent litigation trends as they evolve in 2016.

Your Patent Troll Litigation Risk

Patent trolls—also known as NPEs or non-practicing entities—have a simple business model. They acquire patents directly from inventors, through patent brokers, or from companies selling off assets, then target operating companies that may be infringing those patents and bring legal action to generate a payment.

The legal costs alone of a single infringement litigation can range from six figures to several million dollars. For large companies it is a frustrating problem that can reduce investment and profitability. For smaller companies, a patent troll attack can be fatal. Patent trolls have increasingly targeted companies—both suppliers and users of patented technologies—in a broadening range of business sectors. That means companies can be vulnerable just by running their websites, managing their E-commerce, providing WiFi access, using mobile devices, or deploying enterprise software solutions—all operations that utilize patented technologies.

RPX provides a suite of business solutions to reduce the expense and likelihood of such litigation. One is Patent Litigation Insurance, which combines a traditional claims-paying policy with select, proactive intervention in the patent market. RPX has a uniquely broad and deep store of litigation cost data, and with it has built a highly accurate actuarial model for patent troll risk and cost. Policies are customized to reflect a company’s size and risk profile.

Contact Us

For further information on news and data presented in the Patent Risk Digest, or to subscribe now, please contact patentriskdigest@rpxcorp.com.