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7 May 2015AmericasJay Nuttall

The patent ‘troll’ tide is turning

Patent litigation has been on the rise for decades, with the number of cases filed increasing six times since the 1980s. Most of the growth in the last decade can be attributed to a class of litigants who file lawsuits for a living.

These plaintiffs call themselves patent aggregators or non-practising entities (NPEs), but are sometimes referred to as patent ‘trolls’. They acquire patents with no intention of using the underlying technology. They never manufacture or sell anything.

Instead, many monetise their patents by aggressively filing infringement lawsuits. Because they don’t manufacture anything, they have no need to worry about infringing any competitor’s patents, and have no fear of countersuits. It’s actually the more the merrier: as they pile on cases, they create economies of scale that enable them to bring legal actions at a relatively low cost.

The patent troll’s signature move is to acquire a vague patent covering some widely used technology (such as adding a flash drive to an implantable medical device), and then wait silently until there has been widespread use. Only then will the patent troll send out a batch of infringement notices: letters demanding settlements that the trolls disguise as licensing fees. Those fees are sometimes set far below the prospective cost of a court battle in order to entice companies to pay up.

It’s easy to see why the patent troll business has seen explosive growth. It’s a shakedown that works. According to RPX Corporation,which provides patent risk managementservices, patent trolls filed 63% of all new patent infringement cases in 2014—more than double their share of cases in 2009.

The bulk of this litigation has been aimed at e-commerce companies, software developers, and computer hardware manufacturers. Medical devices currently represent only 3% of NPE litigation, whereas they make up around 10% of overall patent litigation.

Although the biotech and pharmaceutical industries are the second highest sector in overall number of patent lawsuits, they have so far been the subject of very few NPE cases. RPX counted only four NPE cases in biotech or pharma last year. In a 2013 survey, Santa Clara Law School professor Colleen Chien found that while 90% of venture capitalists in the technology sector had fielded a demand from a patent troll, only 13% of pharmaceutical and medical device investors had been hit.

But that tide is turning. In 2009, plaintiffs filed nine medical device patent infringement cases. In 2014, they filed 93. In the coming years I believe the number of filings may increase by around 15% to 20% every year. The number of infringement cases closely corresponds to the number of new patents: RPX’s research found a 96% correlation. There has been a 15 to 25% increase in medical device patents issued in the past few years.

Many NPEs have been using their well-stocked war chests to build massive patent portfolios in the medical technology industry.

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