The European Commission’s science and knowledge service, the Joint Research Centre (JRC) carries out research with the aim of providing independent scientific advice and support to EU policies. The JRC has released a Science for Policy Report that looks at “Patent Assertion Entities in Europe”.

The report notes that there is little current research into patent assertion entities (PAE) in Europe in contrast to the large number of reports and analyses that have been undertaken in the US and the present report is an attempt to fill that particular void.

The report uses the term patent assertion entities (PAEs) throughout but highlights, in the section “What are PAEs?”, that there is no clear consensus in the literature as to what a PAE is or does. A brief tour through other terms such as “patent troll”, “patent extortionists”, “patent sharks” and (a new one on IPcopy) “patent elves” is given before the report notes that it will be looking into entities that assert patents as their key modus operandi. Defensive patent aggregators and patent pools are not considered in the report.

Among the key findings of the report are:

–       There are a number of different business models for PAEs operating in Europe. For example the sources of funding varies greatly and the report suggests that PAEs which are funded by hedge funds/venture capital funds tend to go for aggressive assertion of patents as monetisation assets. Any R&D carried out by such organisations is likely to focus on activities which will improve the monetisation of the patents.

–       Firms in the telecom sector are the main source of licensing revenue for PAEs in Europe and there appears to be an increase in cases (which come mainly from US based PAEs). Telecom operators are often targeted and the majority of cases have been in Germany (large domestic market and bifurcated system). Literature evidence suggests that around 60% of PAE assertions in Germany and the UK is in the telecoms field whereas the bulk of cases relating to practising entities is in the manufacturing and pharma fields.

–       Opinion on the quality of patents that are asserted is mixed but the report cites evidence of revocation rates of over 50% in Germany and nearly three-quarters in the UK for PAE asserted patents. The report cautions about reading too much into this data however and suggests, rather than the invalidity rates alone, it may be a lack of knowledge of EP legal systems that it is keeping PAE successes down. One of the report’s case studies however does suggest that PAEs are becoming more sophisticated in the way that they assert patents.

–       Some types of PAE are in cooperation with universities, research organisations and even may be government funded. These types of PAEs are not necessarily focused on monetisation but providing services to third parties. Litigation is seen as a last resort for such types of PAEs and well know licensing programmes are the mechanism for monetisation.

–       The majority of patents asserted in Europe are thought to have originally come from firms operating in the telecom sector. Changing market events have led such firms to assign patents to PAEs in an effort to recoup R&D and patenting costs. The report also suggests that practising firms may work with PAEs in an effort to avoid reputational costs and to conceal patent assertion against competing firms.

–       Increased inter-operability of computer related technology suggests that the automotive and white goods sectors are likely to see more PAE activity in the coming years.

–       Telecoms operators are the favoured target for PAEs in Europe at present since it is convenient to bring an action against them than a number of manufacturers. There’s also an increased bargaining power to PAEs stemming from the serious downside of being exposed to an injunction (the report notes here that standard essential patents which can be licensed on FRAND terms means that injunctions are not possible unless the alleged infringer is unwilling to licence).

–       European SMEs are not primary targets and may be benefiting from the actions of PAEs that assist them identify potential licensees.

–       The differences between Europe and the US are discussed. Patent granting procedures and the easy access to the Opposition procedure in Europe is seen to provide opportunities to remove low quality patents from the equation which in turn impacts on the ability of PAEs to assert them. Damages awards in the US (which are generally much higher than in Europe) and the loser pays situation in Europe tend to push PAEs towards the US market. The report suggests that the cost of litigation in the US can be 10 times higher than in Europe and this plays into the hands of PAEs who can play the alleged infringer to consider cost of litigation versus cost of settlement.

–       In terms of recent and future developments in Europe and the US, the America Invents Act and recent US court decisions are perceived as making the situation harder for PAEs. The potential implementation of the unified patent court could make assertion in Europe more likely though the chance of invalidation with unitary effect would seem to act as a deterrent. (The Brexit result of course has also thrown the whole unitary patent project into disarray and so the UPC angle may now be purely theoretical.)

–       Maintaining high patent granting procedures and minimising legal uncertainty by, for example, increasing transparency of patent ownership and increasing the clarity of FRAND licensing commitment for SEPs are seen as direct ways in which large scale assertion of low quality patents can be limited.

Mark Richardson  9 November 2016