With the passing of time, it becomes increasingly difficult to meet someone who has not been impacted, directly or indirectly, by this insidious virus, whether health or work wise. With summer firmly in place, this is no time to let our guard down; we all are in this together as “covidians”, and we sure don’t have the luxury of being “covidiots” about it…
On more mundane matters, we are pleased to share that we have recently announced the closing of the Sale of 20 Interactive Music & AR/VR Patents. See the full details here. We also just closed no fewer than 4 voluntary licensing agreements, all with Fortune 500 companies on a portfolio pertaining to video processing, encoding and streaming solutions which originated from a world leader in this space. A formal announcement will follow shortly. And with at least 4 other portfolios in various states of closing, we can definitely attest to the renewed vitality of the patent market.
As I am trying to focus on the macro picture, I want to remind everyone that we track everything that is going on in this world and for those who need their daily dose of news, once again you can follow me on either LinkedIn or Twitter where I post regularly.
I hope all of our readers and their loved ones are staying safe.
In our last column a few weeks ago, we pointed to the fact that patents are generally seen as “recession proof,” which seemed to be reflected in an upward trend in patent litigation, as reported by Bloomberg.
Indeed, if you look at historical data from the 2008-2012 recession, you can see that patent litigation literally exploded starting in 2010 and that it was mostly driven by NPEs, since the number of cases files by operating companies remained fairly stable. (A quick note of thanks to our good friends at RPX for letting us use some of their slides).
We now see the same phenomenon at work again, although cases have ironically spiked BEFORE the economy has broadly sunk in a state of recession. (Note that the economy officially peaked in February according to the NBER). This means that the uptick in NPE activity had already started at least a year ago, as we regularly discussed in previous columns. This recent trend and its relationship with the current economic uncertainties is thus far more coincidental than causal in my view. Still, the number of new defendants added in the last quarter alone is rather impressive as per below. (Note that Opco number of cases below is somehow skewed by one case where the Plaintiff added 127 defendants).
It is also interesting to note that while the overall increase in NPE initiated patent cases across the board in the first half of 2020 over the same period in 2019 was at 16%, some areas, such as automotive and biotech are seeing some increased activity levels while other more traditional categories such as consumer electronics are becoming less popular (while still counting for a healthy percentage of the overall cases though).
Meanwhile, OpCos initiated 41% more patent cases than in the same period last year. So whoever is telling the world that the “patent trolls” are back and the end of the world is near should read this chart first. Of further interest, since OpCos are more directly driven by competitive considerations than by the legal environment surrounding patent validity and tactical decisions made by NPEs, we see a very different picture in terms of where patent assertion is taking place.
Ultimately, the bottom line remains the same; no matter who initiates a patent infringement lawsuit, only the best patents will survive as any assertion claim with the slightest flaw as to validity or infringement will be dwarfed in no time by skilled and deep-pocketed defendants, in today’s environment.
By then though, the price of a license might be an order of magnitude greater than it could have been when the alleged infringer was initially approached. The alleged infringer would have had the opportunity, not only to license the same patents, but in the case of the portfolios we broker, to acquire all rights to the assets, while in many cases eliminating a significant business risk as well. This is why I cannot truly understand why most operating companies devote no budget whatsoever for patent acquisitions (or pre litigation licenses) but have almost unlimited budgets to defend the many cases that this very approach is bound to attract. This is such a short sighted approach. To my point, a vast majority of patents that we have sold these past years were later asserted by the new owner (and no, we do not sell only to NPEs). This is a reflection of the very high pedigree for the portfolios we select, by the way. In addition, where a sale could not be consummated because infringers preferred to stay on the sidelines, our clients frequently retain law firms directly to assert their patents. Either way, the main targets will have to defend themselves against these patents and will pay a lot more doing so than what they would have when we first knocked at their door, not with a threat, but with a smile and a great business opportunity…
I believe this is about to change as new cases increase rapidly. And just as we see with COVID, it is much better to prevent than to wait until you have to fight a costly battle, no matter the outcome.