Week 7 Blog #3: Factors that Encourage NPE Activity

There are various factors in a patent system that might influence or encourage activity by a NPE. Peter Arrowsmith, a patent attorney and partner at London based firm Cleveland IP put together a comprehensive list of possible factors and comparing the strength of these factors in both Europe and the US.

     1. Low cost risk in litigation

In the US, NPEs can initiate infringement proceedings without incurring a significant cost risk as the losing side does not typically pay the winner’s legal costs and NPEs can often find a law firm willing to take the case on a conditional fee basis. In Europe, the losing side is typically required to pay at least a portion of the winner’s legal costs and conditional fee arrangements are also less common.

           2.  Uncertainty

A NPE is likely to benefit in a patent system where the outcome of a case is difficult to predict, especially if this is coupled with high costs in litigation. This is likely to encourage a NPE to bring more cases on the basis they are statistically likely to register wins which will increase the pressure to settle before trial. Europe may be considered more predictable than the US simply because decisions are made by experienced patent judges, rather than lay juries.

            3.   Size of Market

A NPE is likely to benefit if their patent has a wide geographical scope in an important market because a single adverse decision could have a large economic impact on the other side. In the US a single decision can be effective across the entire country, whereas in Europe it is necessary to enforce patents country-by-country.

            4.  Bifurcation

A system in which the issues of infringement and validity are considered separately are also likely to favor a NPE because the NPE can obtain a favorable decision on infringement before validity is even considered. Europe is considered more attractive to NPEs in this comparison as certain countries permit bifurcation.

            5.  Speed

A fast system can allow a NPE to exert pressure on the other side, which can encourage early settlement, as these systems are likely to favor NPEs. In this comparison, there is little to choose between Europe and the US, since fast or slow decisions are possible in both systems.

Overall, it seems that the US patent system is more attractive than Europe for NPEs. However, the European system is still viable for NPEs, although they may need to be more selective about the cases and targets they pursue.