If the Great Recession of 2008 is any indication, 2020 and beyond could be especially litigious years for companies seeking to defend their patents against infringement claims from non-practicing entities, known more colloquially as patent trolls.
In a study released in April by Unified Patents, an organization that seeks to deter abusive NPEs, Unified found that the number of lawsuits filed by NPEs and other patent-assertion entities nearly doubled in the years following the Great Recession.
“There could be a number of reasons, but some factors could be investors looking for alternative or non-cyclical vehicles to get a return, cheaper and higher-quality portfolios available, and more attorneys willing to take contingency or lower fees,” Unified said in a statement. “One takeaway is that if the economy weakens further, NPE assertions will likely increase significantly if the previous pattern repeats.”
Unified is a regular client of Erise IP in Overland Park, Kansas, a law firm specializing in intellectual property law. Jason R. Mudd, a shareholder of the firm, said Unified’s primary method of deterrence is to fight NPE assertions — or infringement claims against a company’s patents — in proceedings known as Inter Partes Reviews.
The IPR process was created through the 2011 Leahy-Smith America Invents Act, also known as the Patent Reform Act, Mudd said.
“They were created in response to there being a view at that time that NPEs were a big problem in the economy,” Mudd said. “Patents are designed to promote innovation, and the concern was the way in which they were being used and asserted by NPEs, it was actually having the opposite effect of discouraging innovation and imposing a financial burden on operating companies that are actually trying to innovate, develop and sell products.”
Anecdotally, Mudd said, he noted a slight uptick in NPE activity in the early months of the pandemic that is consistent with Unified’s hypothesis. He and other IP attorneys warn against selling patents to NPEs.
For companies with an urgent need to offload IP as a means to bring in revenue, Mudd said it wouldn’t make sense to sell IP that protects a current product line. If companies have an abandoned product line, however, he advises them to transfer their IP to other companies practicing in that particular area that may have similar products they may want to protect.
“In other words, transfer it to an actual operating entity, as opposed to going to an NPE,” he said.
Mudd said transferring IP to an NPE can cause problems for the original patent holder because the NPE is likely to assert the patent in litigation against other companies.
“Those companies will seek to take discovery into how those patents were developed, so there’s going to be subpoenas and third-party discovery coming back at you,” Mudd said. “To think that you could just sell off your IP to an NPE and just be done with it, that’s not the case, because there’s going to be subpoenas, discovery, deposition of your inventors — so [there are] a lot of issues there.”
Samir R. Mehta, an IP attorney at Stinson in St. Louis, agreed that companies should avoid doing business with NPEs.
“There’s a lot that comes with being the former owner,” he said. “If you still employ the inventors of a patent that later gets asserted, you can’t truly get out of litigation, you’re going to have to [participate]. It may implicate other parts of your IP that you didn’t license — that may be undesirable.”
A new legal environment
While an uptick in litigation is anticipated as a result of the economic downturn, a lot has changed in patent law since the Great Recession, Mehta said. In addition to the America Invents Act, the U.S. Supreme Court has further shaped patent law, he said.
Mehta pointed to the high court’s 2012 decision in Mayo Collaborative Services v. Prometheus Laboratories Inc., and two years later in Alice Corporation v. CLS Bank International.
“At the highest level, they made it easier to challenge patents [of software and certain types of biotechnology] based on subject-matter eligibility,” he said. “One of the results is that it has made it considerably harder to successfully assert types of software patents all the way to trial.”
While plaintiffs might have some success in the initial stages of a suit, defendants now have more tools available in their defense than in 2008 and 2009, he said.
“That may mean these plaintiffs can still file suit, but it may reduce the ability of those suits to go far if related to software,” he said.
Both Mudd and Mehta also gave advice for companies navigating the pandemic.
Mudd said one thing companies should do right now is to maintain detailed records of their past products and technology that they’ve developed. That can help in putting up a prior art defense against NPE assertions should they arise, he said.
Also, companies should continue to invest in protecting their IP, he said. While recognizing that legal budgets may be cut in response to the recession, he said it would be short-sighted for companies to stop taking necessary steps to protect their IP and filing their own patents.
“Perhaps you instead just prioritize and decide: What’s the most important IP to invest in? What are the most important inventions that your company develops that you should seek patent protection on?” he said.
Mehta said companies also need to be mindful of the explosive innovation that is happening during the pandemic. Companies risk not capturing and filing patents for those innovations, and they should be thinking creatively about how they can efficiently protect their IP, he said.
“There are going to be significant changes responding to COVID in our technology, whether that’s in actual biotech, contact tracing, vaccines, vaccine development,” he said. “There’s a shocking amount of technology that leads to diagnosis and treatment.”
Today’s research will fuel new technology and products down the road, he said.
“If you’re involved in this, it could be an opportunity to really broaden your protection,” he said. “You also may want to think of the risk of not filing. You may be subject to later litigation by someone else who thinks that they have that space covered. There’s going to be entire new areas and focus that were not as important before.”
Beyond health-related developments, Mehta said the adoption of telework and teleconferencing in response to the pandemic also will likely lead to a proliferation of new services that also could be challenged in litigation.
“Coming up with strong positions to defend yourself, whether that’s owning your own IP portfolio or having a plan of attack against NPEs, that’s going to be something companies need to think about,” he said. “Embracing this technology can open you to suit if companies claim they have a limited monopoly [on it].”