European Patent Litigation and Non-Practicing Entities: A Large and Looming Threat

It is a common misconception that patent assertion entities (PAEs)[1] are inactive in Europe. But while the US accounted for 97.2% of NPE infringement cases between 2012 and 2023, over 500 NPE cases were filed in Europe, with most, perhaps unsurprisingly, being tried in Germany.[2] Indeed, one in every seven infringement actions is brought by an NPE in Germany; similar rates can be seen in the Netherlands.[3] And even though the UK is seen as one of the most expensive jurisdictions in which to litigate,[4] it is still the second-most affected European country. In short, NPEs are a large and growing part of the European landscape and are poised to increase with the introduction of the UPC.

Indeed, PAEs from the U.S are spreading to Europe, with eight out of the top ten most active NPEs in Europe being US-based companies.[5]

Why PAEs are a concern for Europe

 As Orsatti and Sterzi have identified, before enacting policies related to PAEs, one must answer “whether patent enforcement pursued by these entities is an efficient mechanism for technology transfer and the creation of new products or whether it is simply a means of collecting money for avoiding litigation (constituting a hidden cost for innovators, thus reducing incentives to perform R&D).”[6]

Studies on European patent data have concluded that PAEs are harmful to innovation. Initially, a 2018 study[7] suggested that European NPEs tend to acquire older and better quality patents than practicing entities.[8] But further review revealed that the type of NPE matters. NPEs that own high-quality patents were not PAEs, but less litigious R&D companies.[9] The quality of patents acquired by Litigation NPEs—traditional PAEs—is about equal to those of practicing entities.[10] And patents acquired by Portfolio NPEs—PAEs that acquire patents to create licensing portfolios—tend to have the lowest quality.[11]

Once NPEs—and particularly Portfolio NPEs—own the patents, there is a sharp decline in forward-citations, suggesting that patents owned by NPEs do not contribute to the development of new technologies.[12] The “follow-on use of the protected technology is negative and significant.”[13] Thus, even if a practicing entity is not sued by a PAE, their research and development efforts may change to avoid such patents.[14] Indeed, technologies acquired by Portfolio NPEs are less used than similar technologies acquired by practicing entities.[15]

NPEs have argued that they allow individual inventors and small and medium entities to profit from their inventions and transfer technology to producers. But in reality, most patents acquired by NPEs in Europe come from large product companies.[16] Indeed, there is no evidence that PAEs act as a bridge between inventor and producer. Instead, PAEs sue on technologies independently brought to market, notwithstanding the patent.[17]

Indeed, this issue of “intermediate transactions” is a common paradox in economics. While it is often argued that creating a market facilitates sales and, thus, makes economic activity more efficient, that is offset by increased inefficiencies of the intermediate transactions themselves. In short, the benefits sometimes, but not always, outweigh the costs of transactions. That is, intermediaries’ inefficiencies may outweigh any gains they provide, and they are only positive for the economy if they do not extract more transaction costs than they facilitate in growth. And while data on this point is scarce, PAEs appear to be a rather inefficient middleman.

In sum, evidence specific to Europe indicates that at least Portfolio NPEs and PAEs burden the European market.

PAEs already in Europe

So if PAEs are a problem, how big of a problem are they? As noted above, even though the number of PAE lawsuits may appear small, that is only in comparison to the U.S. PAE litigation accounts for a substantial portion of European patent litigation: over 10% of infringement actions in Europe were filed by NPEs between 2014 and 2017.[18] In fact, European companies have a greater chance of being sued in Germany than in the US.[19]

To determine how big of a problem PAEs pose, one would need to know who the PAEs are. The numerous patent jurisdictions in Europe, the lack of public patent reassignment data from the EPO, and the tendency for PAEs to intentionally obfuscate ownership with numerous subsidiaries, make it impossible to know the exact scope of the patents held by NPEs. But some clever research has been done to track some of the largest European patent holdings by NPEs.[20]

From 2010-2020, approximately 3% of transferred EPO patents were acquired by NPEs. European NPE activity is particularly strong in the electrical fields, with 8.7% of transacted patents being acquired by NPEs over the same time period.[21] In 2019, NPEs were involved in over 25% of EPO electrical engineering patent transactions.[22]

As for the identification of NPEs, the top three companies with the largest EPO patent portfolios appear to be, based on the data available, InterDigital, Dolby Laboratories[23], and Xperi.[24]

InterDigital is often categorized as a Portfolio NPE, and it does seek to acquire a large set of patents to leverage in licensing deals, recently acquiring the Technicolor’s patent licensing business in 2019.[25] In the past five years, InterDigital has asserted patents declared essential to the 3G, 4G, and 5G standards against mobile device manufacturers (1) Lenovo in UK courts[26]; and (2) Oppo and OnePlus in German courts.[27]

Dolby Laboratories is often categorized as a Technology NPE,[28] and it has a long-established brand and licensing practices demonstrating technology transfer and implementation. Its recent activities indicate that it may be transitioning into a Portfolio NPE. Dolby recently announced agreeing to acquire over 5,000 patents worldwide from GE Licensing.[29] In the last five years, Dolby has (1) sued MAS Electronik AG in German courts over patents it has declared essential to the HEVC standard;[30] (2) sued Hewlett Packard and Asustek in the Unified Patent Court (UPC) over patents it has declared essential to the HEVC standard;[31] and (3) sued Turkish manufacturer Arçelik AŞ in the UPC over patents it has declared essential to the Opus audio codec.[32]

Xperi is considered a Technology NPE, at least with respect to its European portfolio.[33] But Xperi and its subsidiaries are historically litigious. It made waves in its 2017 litigation in Germany that ended with injunctions against Broadcom.[34] Also in 2017, Xperi subsidiaries sued Samsung in the US, German, and the Netherlands.[35] Xperi has been aggressively licensing its portfolio.[36] Xperi has tried to distance itself from this reputation, stating to its investors that “Xperi Inc.” is a “consumer technology company.”[37] But its IP licensing spin-off business, Adeia,[38] is still pursuing licenses.

Several more PAEs are making strides into European patent acquisitions. In the last five years, Sisvel[39] has litigated against Xiaomi in Germany, Italy, the Netherlands, and the UK.[40] And it filed the notorious case against Haier in Germany.[41] IPcom[42], considered Europe’s first patent troll with its suit against Nokia demanding 12 billion euros in 2008,[43] is still active with recent suits against Lenovo[44] and HTC.[45] Intellectual Ventures has sued ten mobile network companies, including Bouygues Telecom and Orange in France[46] and three network operators in Germany[47].

Several companies that are familiar PAEs in the US have also acquired significant European portfolios[48] including Acacia Research[49], PanOptis[50], Seven Networks (a Fortress entity)[51], and Key Patent (which controls Valtrus Innovations Limited and with funding from CenterBridge Capital)[52].

Accordingly, there are significant and identifiable concerns with PAEs in Europe. It is wrong to suggest that there are no PAEs in Europe—they are and will be a feature driving European litigation for years to come.

[1] The term patent assertion entity is used in this article to refer to entities that are commonly referred to as patent trolls, e.g., for-profit companies whose business is the acquisition and assertion of patent assets to collect fees from operating companies that allegedly infringe those patents. This is to distinguish PAEs as a subset of non-practicing entities (NPEs), which is a broader term that may include research institutes, universities, or other entities that may not practice their patented technologies or develop them into products.

[2] 2024 Non-Practicing Entity Global Litigation Report, Clarivate, 2024, at p. 8, Fig. 1C, available at https://clarivate.com/lp/2024-non-practicing-entity-global-litigation-report/, hereinafter 2024 Clarivate Report.

[3] Id. at pp. 9-10, Fig. 2B.

[4] McDonagh, Luke et al., Patent Litigation in England and Wales and the Issue-Based Approach to Costs, Civil Justice Quarterly 32(3), Sept. 9, 2013, pp. 369-384., available at https://ssrn.com/abstract=2521078; The UK: Can a High-Cost Country Change Its Ways, WIPO Magazine, Feb. 2010, pp. 6-8, available at https://www.wipo.int/edocs/pubdocs/en/wipo_pub_121_2010_01.pdf. Indeed, proposals to reduce costs in the UK are currently being considered. Konstanze Richter, UK to Cost-Cap Civile Actions as Number of Patent cases Declines, JUVE Patent, April 3, 2023, https://www.juve-patent.com/people-and-business/patent-cases-decline-in-uk-high-court/

[5] 2024 Clarivate Report at p. 11, Fig. 3B.

[6] Orsatti, Gianluca et al., Do Patent Assertion Entities Harm Innovation? Evidence from Patent Transfers in Europe, Cahiers Du GREThA, Aug. 2018, at p. 3, available at https://ideas.repec.org/p/grt/wpegrt/2018-08.html.

[7] Id. at p. 7.

[8] Id. at pp. 12-13, 19-20.

[9] Sterzi, Valerio et al., Non-Practicing Entities in Europe: An Empirical Analysis of Patent Acquisitions at the European Patent Office, Bordeaux Economics Working Papers, Nov. 2021, at p. 4, available at https://bordeauxeconomicswp.u-bordeaux.fr/2021/2021-23.pdf.

[10] Id. at p. 5.

[11] Id.

[12] Orsatti at p. 23 (to reduce biases (e.g., of other owners avoiding citations to PAE patents or of PAE owners inflating citations to their own patents), only citations by examiners were considered).

[13] Id. at p. 24.

[14] Id. at p. 26.

[15] Sterzi, at p. 5.

[16] Id. at p. 3.

[17] Id. at p. 9.

[18] Id. at p. 16, Fig. 2.

[19] Id. at p. 16, Fig. 3.

[20] E.g., id., generally.

[21] Id. at pp. 10, 28, Fig. 1.

[22] Id. at pp. 28, Fig. 1. This figure is likely largely attributable to the acquisition of a large portfolio of Technicolor’s patents by Interdigital, a well-known US-based NPE. InterDigital Press Release: InterDigital Completes Acquisition of Technicolor R&I Unit, June 4, 2019, https://ir.interdigital.com/news-events/press-releases/news-details/2019/InterDigital-Completes-Acquisition-of-Technicolor-RI-Unit/default.aspx; see also Sterzi at p. 33, Table 4 (showing 2,002 Technicolor patents sold to Interdigital).

[23] Dolby’s European portfolio is expected to expand with its recent acquisition GE Licensing’s portfolio of over 5,000 patents worldwide. Dolby Press Release: Dolby Laboratories Announces Agreement to Acquire GE Licensing from GE Aerospace, June 6, 2024, https://investor.dolby.com/news-events/financial-news/news-details/2024/Dolby-Laboratories-Announces-Agreement-to-Acquire-GE-Licensing-from-GE-Aerospace/default.aspx.

[24] Sterzi at p. 32, Table 2.

[25] Id. at p. 34, Figure 8.

[26] Sandys, Amy, InterDigital vs. Lenovo: High Court Cements UK as Centre for FRAND-Rate Setting, JUVE Patent, Mar. 16, 2023, https://www.juve-patent.com/cases/high-court-cements-uk-as-centre-for-frand-rate-setting/.

[27] Richter, Konstanze, InterDigital Prevails Against Oppo and OnePlus over SEPs in Munich, JUVE Patent, Jan. 5, 2024, https://www.juve-patent.com/cases/interdigital-prevails-against-oppo-and-oneplus-over-seps-in-munich/.

[28] Sterzi at p. 34, Table 8.

[29] Dolby Press Release.

[30] HEVC (Dolby) v. MAS Electronik, Regional Court (Landgericht) of Dusseldorf, 4iPCounsel, May 7, 2020, https://caselaw.4ipcouncil.com/german-court-decisions/lg-dusseldorf/hevc-dolby-v-mas-elektronik.

[31] Houldsworth, Adam, Dolby Files UPC SEP Suits against Hewlett-Packard and Asus, IAM, Jan. 10, 2024, https://www.iam-media.com/article/dolby-files-upc-sep-suits-against-hewlett-packard-and-asus.

[32] Morris, Angela, Dolby Sues Turkish TV Maker in UPC Alleging Audio SEP Infringement, IAM, Apr. 19, 2024, https://www.iam-media.com/article/dolby-sues-turkish-tv-maker-in-upc-alleging-audio-sep-infringement.

[33] Sterzi at p. 34, Fig. 8.

[34] Xperi Press Release: Invensas Wins German Patent Infringement Cases Against Broadcom, Mar. 2017, https://investor.xperi.com/news/news-details/2017/Invensas-Wins-German-Patent-Infringement-Cases-Against-Broadcom/default.aspx. As noted in the press release, Invensas is a subsidiary of Xperi.

[35] Xperi Launches International Semiconductor Litigation Against Samsung, RPX, Sept. 30, 2017, https://insight.rpxcorp.com/news/8204-xperi-launches-international-semiconductor-litigation-against-samsung.

[36] Lloyd, Richard, Sony Court Filing Highlights Challenges for Xperi After Comcast Settlement, IAM, Nov. 16, 2020, https://www.iam-media.com/article/sony-court-filing-highlights-challenges-xperi-after-comcast-settlement (discussing licenses with Comcast and the breakdown of talks with Sony).

[37] Xperi Press Release: Xperi Mails Definitive Proxy Statement and Issues Letter to Stockholders Highlighting the Company’s Transformation, Strategy and Business Progress, Apr. 17, 2024, https://investor.xperi.com/news/news-details/2024/Xperi-Mails-Definitive-Proxy-Statement-and-Issues-Letter-to-Stockholders-Highlighting-the-Companys-Transformation-Strategy-and-Business-Progress/default.aspx.

[38] Adeia Press Release: Xperi Announces Details for Completion of Separation, Sept. 8, 2022, https://investors.adeia.com/news-releases/news-release-details/xperi-announces-details-completion-separation.

[39] Sterzi at p. 34, Table 8.

[40] Klos, Mathieu, Game over in Sisvel and Xiaomi’s Global SEP Dispute, JUVE Patent, July 2, 2021, https://www.juve-patent.com/cases/game-over-in-sisvel-and-xiaomis-global-sep-dispute/.

[41] Wild, Joff, Germany’s Supreme Court Releases Full Judgment in Key FRAND Licensing Case, IAM, July 3, 2020, https://www.iam-media.com/article/sisvel-v-haier-supreme-court-germany-judgment.

[42] Sterzi at p. 34, Table 8.

[43] Klos, Mathieu, How IPCom Kept the Mobile Phone Industry on Tenterhooks for 13 Years, JUVE Patent, Feb. 19, 2020, https://www.juve-patent.com/people-and-business/how-ipcom-kept-the-mobile-phone-industry-on-tenterhooks-for-13-years/.

[44] Klos, Mathieu, IPCom and Lenovo Settle Global Dispute Before French Court Delivers Verdict, JUVE Patent, Apr. 11, 2023, https://www.juve-patent.com/cases/ipcom-and-lenovo-settle-global-dispute-before-french-court-delivers-verdict/.

[45] IPCom vs. HTC: Worldwide Damages Not Available Based on UK Patent Infringement, JA Kemp, Nov. 16, 2020, https://jakemp.com/en/news/ipcom-vs-htc-worldwide-damages-not-available-based-on-uk-patent-infringement/

[46] Richter, Konstanze, Intellectual Ventures Brings Multi-Party Telecom Fight to Paris Court of Appeal, JUVE Patent, Mar. 21, 2024, https://www.juve-patent.com/cases/intellectual-ventures-brings-multi-party-telecom-fight-to-paris-court-of-appeal/.

[47] Klos, Mathieu, Intellectual Ventures Ends Biggest Patent Battle in Germany Without a Win, JUVE Patent, Apr. 19, 2024, https://www.juve-patent.com/cases/intellectual-ventures-ends-biggest-patent-battle-in-germany-without-a-win/.

[48] Sterzi at p. 32, Table 2.

[49] Quinn, Gene, Mother of All Patent Trolls, Acacia Research, Gets More Funding, IP Watchdog, Aug. 10, 2010, https://ipwatchdog.com/2010/08/10/patent-trolls-acacia-research-funding/id=12017/.

[50] See, e.g., Brittain, Blake, Apple Hit with $300 Million Patent Verdict After New Optis Trial, Reuters, Aug. 13, 2021, https://www.reuters.com/legal/transactional/apple-hit-with-300-million-patent-verdict-after-new-optis-trial-2021-08-13/.

[51] Fortress’s Seven Networks Asserts More Patents Against Google and Samsung, RPX, Nov. 8, 2018, https://insight.rpxcorp.com/news/9764-fortress-s-seven-networks-asserts-more-patents-against-google-and-samsung.

[52] Valtrus Sues the Big Three Wireless Carriers, RPX, Oct. 1, 2023, https://insight.rpxcorp.com/news/77186-valtrus-sues-the-big-three-wireless-carriers; Our Portfolio, Key Patent Innovations, https://www.keypatentinnovations.ie/our-portfolio; Two Well-Heeled NPEs, Both Holding Large OpCo Portfolios, Open up March with Fresh Suits, RPX, Mar. 5, 2021, https://insight.rpxcorp.com/news/65626-two-well-heeled-npes-both-holding-large-opco-portfolios-open-up-march-with-fresh-suits (noting that the team backed by CenterBridge acquired over 1,400 worldwide patents from Osram and at that time, had moved the portfolio from Key Patent to Pictiva).