New risk: how patent trolls misuse property rights

A new phenomenon has blown over from the United States - the so-called patent trolls. Patent trolls are companies that buy patents without actually manufacturing anything themselves. They then approach other players in the market who may be violating their patent. They may claim damages or threaten firms with legal proceedings. These practices are perfectly legal.

New risk: how patent trolls misuse property rights

The phenomenon of patent trolling is on the rise. Over the past decade, the number of European cases has risen by an average 19% a year. In 2017, patent trolls resulted in no less than 173 lawsuits. This is partly due to a change in US law that was approved in 2011 and has made matters more difficult for NPEs over there since 2014.

NPEs are Non-Practising Entities, companies that purchase patents without having any ambition of actually marketing the products. All they are interested in is asserting their intellectual property rights by claiming damages and taking legal action.

Who may be affected by patent trolls?

Almost any company can be affected, from small SMEs to multinationals. However, the big players tend to have armies of lawyers. They are not that easily deterred by the threat of legal action, even though they also have concerns about this practice.

For a small SME, it’s a whole other story. If offered the choice between the proposed compensation of several thousands of euros and the prospect of legal proceedings, they often go for the first option. After all, a lawsuit could mean they have to suspend their activities while they await the decision. They prefer to avoid such risks.

Even firms that do not own any patents themselves may get targeted by patent trolls. The mere suspicion that one player’s patent violates another will suffice.

In principle, patent trolls can occur in any sector. An NPE that holds the patent on a technique for ultra-insulating windows may approach players who are using a very similar technique. In practice, the phenomenon is most prevalent in ICT-related operations, but it can happen in almost every sector, from the automotive industry to agriculture.

Strong differences within Europe

The numbers of initiated legal proceedings are very different in the various geographical areas of Europe. In France, 4% of intellectual property law cases are initiated by NPEs. In the Netherlands, this is 5.5% of cases. Specific figures for Belgium are not known.

Germany is very popular with patent trolls: no less than 19.5% of intellectual property cases there are to do with patent trolling. One reason for this is how such cases are handled there. The validity of a patent is handled by one court and violations are handled by a different court. The court procedure is also very short there. This offers NPEs a high win rate: out of all legal actions taken in the period from 2010 to 2017, 52% of judgements were in favour of the patent trolls.

The risk of patent troll attacks can be covered by insurance

Some players on the Belgian international insurance market have been offering solutions in the area of intellectual property rights for a number of years now. This is an option for firms looking to arm themselves against patent trolls. But, as far as underwriting is concerned, strict restrictions apply.

In certain sectors, patent holders and manufacturers sign contracts to make insurance against patent trolling mandatory. This covers attacks by patent trolls who claim that their property rights are being violated. In some cases, it also covers the consequences of a (temporary) production ban.

Insurance cover for intellectual property rights is still a niche market for now, but there is every chance that the benefits of this insurance solution will reach a broader market in the future.

Christophe Liekens

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