As the world reels from the impact of the current Covid-19 pandemic, Unified Patents decided to examine the past to see if it could be any indicator of the future. Though no two economic cycles are the same, Unified Patents surprisingly found that the results showed (controlling for changes in measurement) that the number of Non-Practicing Entities (NPEs) and Patent Assertion Entities (PAEs) nearly doubled. There could be a number of reasons, but some factors could be investors looking for alternative or non-cyclical vehicles to get a return, cheaper and higher quality portfolios available, and more attorneys willing to take contingency or lower fees. One takeaway is that if the economy weakens further, NPE assertions will likely increase significantly if the previous pattern repeats.

Using the Unified Patents litigation and NPE data with the Stanford NPE Litigation Database for pre-2013 data, Unified Patents examined the number of lawsuits brought by NPEs and PAEs. The Stanford database accounts for the America Inventors Act (AIA) joinder rules, by using the total number of defendants rather than lawsuits. Using this method, researchers were able to detect a spike of NPE activity in 2011 that other studies simply missed.  By missing this spike in 2011, most attributed the jump in assertions to the AIA joinder rules. However, with this spike in NPE activity, before the AIA was enacted, would mean NPE activity was on the rise despite the joinder rules. In general, the Stanford NPE Litigation Database found that the number of distinct patent disputes nearly doubled between 2000 and 2015. 21 Stan. Tech. L. Rev. 235 (2018).

Unified Patents specifically looked at three distinct categories: (1) Non-NPE Assertions, (2) Other NPE Assertions, and (3) NPE Assertions by Acquiring Patents. Category three, NPE Assertions by Acquiring Patents, has skyrocketed by 2000% from 2000 (61) to 2017 (1281). The highest being in 2013, in which NPE Assertions by Acquiring Patents accounted for 2,475 assertions or about 41% of all patent assertions. 

When mapping against the S&P 500 Index, the Great Recession (December 2007-June 2009) becomes an indication of how NPEs or PAEs respond. NPE Assertions by Acquiring Patents remained flat, until roughly 2010. Between 2004-2008 there were only 1,089 total NPE Assertions by Acquiring Patents. Post recession saw 3,398 assertions, a 212% increase, for the years of 2009-2012. From 2009 to 2010, there was only a 18.4% increase in NPE Assertions by Acquiring Patents. However, as companies began the recovery process, 2010 to 2011 saw a 111.8% increase. Then the largest jump happened from 2011 to 2012 and saw a 174% increase in NPE Assertions by Acquiring Patents.

After the post-recession recovery, litigation began to decline starting in 2016. However, Unified’s Portal showed that in 2018 and 2019, NPE assertions accounted for 51% and 55% respectively, of all patent litigation. This means despite the decline in litigation, NPE activity has remained consistent since the Great Recession. 

It should be noted that while the non-joinder rules in 2011 increased the number of individual parties sued, even the rule change can't explain the overall rise in defendants sued, new NPE campaigns, and other activity being driven (at the time) by publicly traded PAEs and defensive patent aggregators like RPX, Acacia, Intellectual Ventures, IP Val, and Marathon, not to mention early Uniloc cases and Rothschild filings which often initially targeted SMEs (small and medium sized enterprises). Post-AIA, assertions have come down, but they are still above pre-Great Recession numbers. The question is whether this will continue during this cycle.

Using this data as a reference point, NPE activity over the next few years will not stop. As companies look for ways to trim and as companies go under, NPEs will continue to buy patents to be later asserted in various campaigns. This in combination with investor groups turning to litigation finance of patents, due to their non-cynical nature, is leading to a new breed of NPEs. One that based on the last recession will only continue to grow and assert more patents than before. 

Copyright © 2020, Unified Patents, LLC. All rights reserved.