Patent Monetization: NPE, Litigation & Business Model

The term ‘patent monetization’ covers how patent holders, including non-practicing entities (NPEs), profit from patents. Intellectual Ventures, InterDigital, Acacia Research Corporation, and the Wisconsin Alumni Research Foundation are big names in this area. They mainly use licensing or enforcement strategies. For example, Brad Close is well-known for his patent work, which includes negotiating and using patents in court.

When startups face competition, their patents could become very valuable. Especially when the startup has to close. Then, NPEs step in to help make money from these patents. This way, the original inventors can see a return on their investment. It also supports more innovation. Yet, turning patents into cash is not easy. It takes a lot of know-how and planning to make it work.

Key Takeaways

‘Patent monetization’ strategies are vital for generating revenue from patents.
NPEs such as Intellectual Ventures and Acacia Research Corporation play a notable role.
Licensing and enforcement campaigns are integral aspects of IP commercialisation.
Startups often rely on NPEs to monetise their patent portfolios during liquidation.
Effective patent monetization requires a deep understanding of IP commercialisation.

Introduction to Patent Monetization

Patent monetization allows patent owners to make money from their ideas. It’s a growing field, especially for companies that profit from patents. These companies often make deals to let others use their patents, which can bring in lots of money. Yet, some people argue that these deals can slow down new innovative ideas.

About half of small and medium-sized businesses use patents to make money. They do this through several ways, like selling or sharing their patents. One big way is through licensing, allowing others to use their patents for a fee. This can lead to significant income.

With a sole license, only one company can use a patent in a particular area. The patent owner can still use it, too. The “carrot” approach involves offering benefits to increase sales. The “stick” approach prevents others from using the technology without permission.

Patent licensing can help inventors get their products to the market quicker and safer. It also allows for more income without the high cost of lawsuits. Big companies benefit, too. By using patents that others have, they can start selling new products faster and with less risk.

Statistic	Data
LIEs in the U.S. (2021)	$13 billion
Increase in new deal commitments (2021)	61%
Third-party capital provider commitments (2021)	29%
Third-party capital provider commitments (2022)	21%
Patent litigation financed by third parties (2020)	30%
Top five most litigious venues	Western and Eastern Districts of Texas, Delaware, North and Central Districts of California
Patent observations (2000-2021)	79,541
Number of lawsuits in dataset (2000-2015)	54,000+
Reviewed lawsuits (2000-2015)	10,800 (20%)

Understanding Non-Practicing Entities (NPEs)

Non-practising entities, known as ‘patent trolls’ or, originally, ‘patent sharks,’ hold patents. They do not make products or offer services based on these patents. Instead, they aim to make money through licensing or suing others.

Definition and Background

Non-practicing entities have become key figures in patent matters. Without creating products, they use intellectual property for profit. This method has dramatically increased patent lawsuits, with NPEs behind most cases.

Industries like IT, and electronics see a lot of these lawsuits. Meanwhile, the pharmaceutical industry faces fewer claims.

Arguments For and Against NPEs

The role of NPEs has led to mixed opinions. Some say they harm innovation by causing expensive legal troubles. Others, like Brad Close, believe they can actually help innovation grow. He compares owning patents with owning property.

This view suggests that NPE strategies can push new technologies forward through intelligent licensing.

NPE Influence on Innovation

The impact of NPEs on innovation is complex. Some believe their actions can slow down innovation. They do this by pushing for expensive settlements. This could make companies less willing to create new things for fear of getting sued.

However, NPEs and their investors carefully choose which patents are worth supporting. This selection could actually promote the development of new technology and encourage innovation.

Aspect	Critics’ View	Proponents’ View
Impact on Innovation	Stifles innovation by creating legal entanglements	Encourages technology transfer and rewards patent holders
Litigation Rates	Constitutes 73% of patent litigation, increasing legal costs	Enforces strong patent rights, ensuring valuable patents are pursued

IP Licensing and Technology Transfer

IP licensing plays a key role in patent monetization. It allows patent owners to share their inventions with others for a fee, which generates significant income and helps new technologies spread.

Generating Revenue Through Licensing

IP licensing is a smart way for patent owners to earn money from their ideas. They can earn cash without having to make and sell products themselves. Meanwhile, companies that use these patents can improve their products with the latest tech.

This method is even more important with limited R&D funds. It lets companies that focus on patents and licenses keep the innovation wheel turning, using such deals to spark new ideas.

The IT industry often turns to IP licensing to avoid legal battles and promote innovation. By collaborating through licenses, companies can try to lower their risk of being sued. This is especially true in the fast-moving mobile market.

Aspect	Benefit	Example
IP Licensing	Revenue Generation	Microsoft earns billions through licensing its patents.
Technology Transfer	Innovation Extension	Universities license biotech patents to pharmaceutical firms.
Patent Portfolio Management	Strategic Value	Google’s acquisition of Motorola’s patents for defensive purposes.
IP Commercialisation	Market Entry	Startups utilising licensed patents for new product launches.

Benefits of Technology Transfer

Thanks to IP licensing, technology moves from the lab to the market. Academic and research institutions can commercialise their discoveries, which helps economies grow and industries flourish.

It also means patents get used more widely. This can make new ideas available to a bigger audience. In some cases, this sharing can even encourage more innovation.

But this isn’t always the case. In high-tech fields, some use transfers for strategic reasons, not just to boost innovation.

Patent Litigation Strategies

Having strong patent litigation strategies is key in defending intellectual property, especially against those who solely assert patents (PAEs). In early 2022, we saw a high activity level by these entities, the second highest since 2015. This shows how serious patent disputes have become. Entities like IP Edge added 144 defendants in just the first part of 2022, pointing to a challenging situation.

Entities that focus on patent assertions look to make money from their patents through licensing or by going to court. They may sue after negotiations fall through. Courts in the U.S., like those in Texas, have become known for their friendlier rules towards these entities. Due to this, some businesses have even moved away to avoid lawsuits from these entities.

Conversely, companies are getting better at defending against these lawsuits by refusing to settle with such entities. A company named Newegg has been particularly strong in defending itself against these lawsuits from the mid-2010s onward. They aim to predict the outcomes of settlements and trials, combining smart legal and tactical moves.

Litigation Investment Entities (LIEs) play a big part in the financial side of these cases. They help big-time investors enter the patent legal game, anticipating a share of the wins. This funding model has critics who worry it could incentivise unnecessary lawsuits. But, it also helps level the playing field for patent holders, no matter their size.

Patent Litigation Data	Statistics
1st Quarter of 2022 NPE Activity	Second-highest since 2015
Defendants added by IP Edge	144 out of 525
NPE Litigation in Texas Districts	Approximately 50%
Western District’s Waco Division	Popular due to Judge Alan Albright
Companies relocating to avoid litigation	Reported occurrences

In the end, solid patent litigation strategies are crucial for dealing with the challenging world of PAEs and NPE litigation. They involve knowing how to use financial support, improved legal methods, and an understanding of where court cases might go. These are at the heart of today’s strategies for defending intellectual property.

The Role of Patent Assertion Entities

Patent Assertion Entities (PAEs) are key players in the world of intellectual property. They are a subset of non-practising entities (NPEs). PAEs enforce patent rights against those they believe are infringing. Their methods impact the individuals they target and the wider innovation world.

High-Volume Versus High-Value NPEs

There are two types of PAEs: high-volume and high-value. High-volume PAEs, like IP Edge, focus on lots of lawsuits for tiny settlements. On the other hand, high-value PAEs take on fewer cases but aim for bigger wins. Knowing this helps companies build strategies to defend against lawsuits depending on the PAE they are up against.

Case Studies and Examples

Studies show that PAEs differ in how they approach lawsuits. For instance, from 2010 to 2012, the number of lawsuits by high-volume PAEs increased from 29% to 62%. However, a report from the Executive Office found no significant increase in litigants during that time. Also, a study of over 7,500 patent holders showed little change in their lawsuit numbers, raising questions about the harm caused by PAEs.

Last year, PAEs threatened over 100,000 companies with infringement suits. IPNav, for instance, earned over $600 million through licensing. These results highlight the profit potential for those who monetise patents well. They also signal the importance of policymakers using all available data when making laws to deal with PAEs.