Non-practicing entities or “patent trolls” are generally those plaintiffs that seek to enforce patent rights against an industry in which they themselves do not compete. Stated another way, an NPE’s only business is patent litigation.
Often times the patents an NPE is enforcing were purchased from a traditional technology company for the sole purpose of exacting royalties from the relevant industry. In the hands of an NPE, which has no technological industry subject to a patent counter suit by their industry targets, the NPE patents become especially powerful weapons of economic coercion.
Over the last decade, law firms have recognized the efficacy of NPE litigation campaigns and have signed on in great numbers to get a piece of the action. Typically, an NPE will team up with a law firm that will conduct the campaign on their behalf in exchange for a contingent fee arrangement. (i.e., percentage of the collected settlements)
NPEs team up with law firms, at little to no cost, to launch patent assertion campaigns against entire industries. This profiteerring business model has lead to a significant proliferation of patent infringement suits in the last decade. As litigating a patent infringement suit can take years, and cost millions of dollars, a counter-suit for settlement leverage is not possible. Coupled with the fact that some plaintiff friendly jurisdictions like the Eastern District of Texas (EDTX) routinely return damage verdicts in the tens (if not hundreds) of millions of dollars, most defendants will settle relatively quickly for significant sums of money. For this reason, contingency relationships for even a single, seemingly weak patent are almost always worthwhile for law firms. Whether or not the patent is invalidated years down the road by one of a multitude of defendants does not detract from the easy, short term profits.
But the NPE landscape will forever change on September 16, 2012 Read the rest of this entry »