Dennis Crouch's Patently-O: Non Practicing Entities in Europe |  |
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Posted: 11 Jan 2015 06:00 PM PST
Guest Post by Peter Arrowsmith. Arrowsmith is a patent attorney and partner at the London based firm Cleveland IP.
Non practicing entities (NPEs) are a familiar part of the IP landscape in Europe, just as they are in the US. However, NPE activity has historically been lower in Europe. This article analyses the present situation in Europe compared to the US. In addition, we analyse how NPE activity might develop in Europe with the anticipated arrival of the Unified Patents Court (UPC). Factors that encourage NPE activity There are various factors in a patent system that might influence or encourage activity by a NPE. A non-exhaustive list of possible factors is outlined below, and Europe is compared against the US. 1. Low cost risk in litigation A NPE is likely to be encouraged to litigate if they can initiate infringement proceedings without incurring a significant cost risk. In the US this is often possible because the losing side does not typically pay the winner's legal costs. Additionally, NPEs can often find a law firm willing to take the case on a conditional fee basis. In Europe, by contrast, the losing side is typically required to pay at least a portion of the winner's legal costs. Conditional fee arrangements are also less common. Verdict: US more favourable to NPEs 2. High costs in litigation for the other side A NPE is likely to benefit in a system where the opposing side will incur high costs in defending themselves. In such a system the pressure to settle will be significant, simply to avoid the costs involved in litigation. In Europe the cost of multi-jurisdictional litigation is likely to be high, but not necessarily higher than the costs involved in US litigation. Verdict: Dead heat 3. 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 that they are statistically likely to register some wins. In turn, this will increase pressure to settle before trial. Europe may be considered more predictable than the US in this comparison, simply because decisions are made by experienced patent judges, rather than lay juries. Verdict: US more favourable to NPEs 4. 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. Verdict: US more favourable to NPEs 5. Bifurcation A system in which the issues of infringement and validity are considered separately is also likely to favour a NPE. In such a system the NPE can obtain a favourable decision on infringement before validity is even considered. This may increase pressure on the other side to settle following an initial decision, even in cases where the validity of the patent is questionable. Europe may be more attractive to NPEs in this comparison since certain countries (notably Germany) permit bifurcation. Verdict: Europe more favourable to NPEs 6. Speed A fast system can allow a NPE to exert pressure on the other side, which can encourage early settlement. These systems are likely to favour NPEs. In this comparison there is little to choose between Europe and the US, since fast or slow decisions are possible in both systems, depending on the forum chosen to commence proceedings. Verdict: Dead heat Overall this analysis suggests that the US patent system is more attractive than Europe for NPEs, which is consistent with the reality that we see. The European system is, however, still viable for NPEs, although they may need to be more selective about the cases and targets they pursue. The Unified Patents Court – a new opportunity for NPEs NPEs have registered a number of recent successes in European Courts (see, for instance, Vringo vs. ZTE in the UK), demonstrating that the European patent system can support this business model. All of the factors above would need to be considered by a NPE to decide whether litigation would be worthwhile in each case. Of course, the patent system in Europe is on the verge of significant change, and the Unified Patents Court (UPC) is close to becoming a reality. The introduction of this Court will significantly alter the litigation landscape, meaning that a change in NPE activity can be expected. In the current European system only national courts of individual countries are competent to decide on the infringement of European patents. Once it is established, the UPC will be competent to decide on validity and infringement of patents across the cooperating states, which covers most of Europe. A significant motivation in the development of this Court has been the desire to increase simplicity and decrease the cost of pan-Europe patent litigation. If successful, the new Court is likely to have many advantages for conventional business. However, a side effect is that the new Court may increase the attractiveness of Europe from the perspective of a NPE. In particular, the UPC would appear to present a number of potential advantages from the perspective of a NPE. 1. Size of Market The UPC will issue decisions that are effective across most of the European continent. Thus, the economic impact of individual decisions is likely to be high for the losing party – much higher than in the present system. 2. Bifurcation The UPC is likely to permit bifurcation in certain instances. This is likely to favour NPEs, since they may be able to obtain a favourable decision on infringement before validity is considered. This is likely to increase the pressure to settle, even in situations where a patent has questionable validity. 3. Uncertainty There is currently a great deal of uncertainty about how the new Court will operate, especially in the early days, in the absence of a body of case law. This initial uncertainty is likely to favour NPEs, since it will be harder to predict how a case will be decided, increasing the pressure to settle before trial. Once the UPC is established there will be a period during which patent owners can 'opt out' of the exclusive jurisdiction of the Court. During the early years, this will allow patent owners to continue to use national courts, while there is uncertainty over how the UPC will operate. Many European practitioners anticipate that conventional applicants are likely to exercise this opt out, provided the fee for doing so is not exorbitant. For a NPE there are likely to be more advantages in the UPC than the current system, meaning that few are likely to opt out of the Court's jurisdiction. This means that a significant number of early cases in the UPC may involve NPEs.  |
