Are PAEs a Threat to Europe?
This article (an updated version of a 2018 paper) analyses Patent Assertions Entities (PAEs) to determine whether they are a threat to Europe. It takes into account recent developments related to PAEs, such as legislative changes, relevant case-law, academic literature and studies, and assesses whether the conclusions reached in 2018 still stand the test of time. They do.
While there is no consensus on the concept of PAEs, they are frequently defined as companies that are solely or primarily active to acquire patents from others and license them to third parties. PAEs have no product business of their own, and do not manufacture, distribute, or sell products. PAEs have often been said to engage in opportunistic patent litigation and impose excessive licensing costs on manufacturing companies. During the last decade it has been repeatedly suggested that PAEs are on the rise in Europe and that PAE litigation may have negative consequences for Europe’s innovativeness.
However, upon closer analysis, PAEs are a complex phenomenon and litigation involving PAEs should not be considered per se bad. They are in the legitimate business of patent licensing and use different business strategies in monetising their patent portfolios. In past studies, only one type of PAEs was identified in potentially engaging in opportunistic litigation by bringing nuisance suits, called Litigation PAEs. Other PAE business models, however, may play a beneficial role in the market as intermediaries between technology developers and users and ensure liquidity in patent markets. Thus, labelling all PAEs as harmful predators is factually incorrect.
Moreover, PAEs do not have greater incentives to engage in abusive litigation than practising companies. If anything, practising companies might have strategic motives to harm their competitors in patent litigation and are more likely to obtain an injunction than PAEs. Whether the patent litigation is abusive depends on the facts of the case, and not whether the patent holder practices the patent or not. Furthermore, as this paper will show, the concern that small-medium sized enterprises (SMEs) would be negatively impacted is also unfounded, since European SMEs are not the primary targets of PAE assertions, and even benefit from the presence of certain types of PAEs.
There is also no empirical evidence to support the conclusion that PAEs are becoming a problem in Europe. The available data actually shows that PAEs, as a whole, are responsible for a very small amount of patent litigation in Europe and that the majority of patent litigation is between practising entities. We also do not have relevant data about the presence of harmful Litigation PAEs in Europe from all other PAE cases, which would be interesting to observe in future studies. Different market-based solutions are being created to alleviate the risks of companies being targeted for patent infringement by PAEs. They include defensive patent aggregators, cross-licensing societies, defensive patent litigation insurances and special entities formed to invalidate patents. Thus, companies may choose between different market-based options to mitigate the chance of being sued by a PAE.
In conclusion, all the evidence suggests that Europe’s patent and litigation system is functioning well, with proper safeguards in place to prevent any potential litigation abuses. A combination of 1) experienced judges deciding a case; 2) lower costs for defendants in patent cases than the US; 3) proportionality in granting injunctions, 4) fee-shifting rules and 5) high success rate of European patents disincentivises the alleged strategy of bringing mass and/or speculative patent litigation by Litigation PAEs. This is highly unlikely to change with the introduction of the Unified Patent Court, which has incorporated safeguards against abusive litigation by any entity.