Last week marked the first steps forward for a broad-based coalition of businesses who are working together to fight wanton abuse of the patent litigation system by patent assertion entities (PAEs).
The coalition – United for Patent Reform – is comprised of grocery, hotel, retail, restaurant and technology associations and companies including Cisco. Our mission: to fight for patent reform legislation in Congress that will stop litigation factories that take advantages of anomalies in the patent system to extort financial settlements out of businesses large and small.
Simply put, patent assertion entities – companies who neither invent nor produce products, but simply buy patents for litigation value – file lawsuits or send intimidating demand letters, knowing that many defendants will pay to avoid litigation costs alone, or will pay to avoid the risk of losing a large sum in a lottery-like litigation system plagued by high costs and uncertain outcomes.
Opponents of reform claim that recent court decisions – particularly by the US Supreme Court, which in recent years has reversed a number of lower court decisions by unanimous or near unanimous votes –have solved the problem. They point especially to the decision last spring in Alice v CLS Bank, which in fact affects only a very narrow segment of the patent world.
The overall numbers, in fact, show just that the problem continues to persist.
- The PAEs themselves, which exist solely for litigation, continue to invest and buy based on the reality of continued business as usual. In fact, according to Allied Security Trust, a leading analyst of the market, patent assertion entities bought just as many patents in the first 6 months of 2014 as they did in all of 2013.
- The total number of defendants in cases brought by patent assertion entities remain within ten percent of recent years and still many multiples larger than a decade ago. The total number of defendants sued is comparable to 2012 and 2010. (2011 and 2013 were marked by significant action toward patent reform, which drove up the numbers.) The numbers of cases in 2014 were triple those of 2006.
- This is not just a problem for a few large companies. Nearly half of the NPE defendants of 2014 were companies with less than $100 million of revenue.
As our coalition’s membership illustrates, this is a problem that includes businesses of all shapes and sizes. In both 2013 and 2014, half of the defendants were not tech companies.
This cries out for Congressional action.
- Demand letter transparency
- More specificity in making patent allegations
- Protections against suits against innocent end users rather than against the company that built the supposedly infringing product
- Litigation procedures efficiency
- Putting burden of litigation costs on those who bring suits that prove to be for extortion value only or where parties demand inefficient, costly litigation procedures
- Encouragement of litigation alternatives
Over the next weeks and months, Cisco, in conjunction with United for Patent Reform and its member companies, will make the case for patent reform in the hope that Congress will approve meaningful reforms soon.
This is imperative if we’re to break the outlandish and exploitive business model that has encouraged patent assertion entities to thrive.