Patent Litigation Expected to Soar in 2017

There has been a surge in patent litigation in the past five years, fueled by the accumulation of patents by Non-Practicing-Entities (NPEs) or Patent-Assertion-Entities (PAEs), commonly known as “patent trolls.” Of the over 7,500 patent trials and appeals filed in 2015, patent trolls filed 66.9% of all patent lawsuits.

Except for a small decline on 2014, due to the White House initiative to fight patent trolls, patent litigation has been growing constantly over the past ten years. Most of the patent litigation in 2015 (44%) was filed in the Eastern District of Texas, and most those cases were assigned to the same judge, Marshall-based U.S. District Judge Rodney Gilstrap.  Of all cases on that court, 95% were initiated by NPEs.

The new Trump administration could be an important factor bringing more patent holders and patent trolls to initiate litigation. While the Obama administration was determined to boost innovation by fighting NPEs and getting access to essential patents to startups and competition, the new administration will likely leave patent litigation as a form of protectionism, part of the “America First” policy.

During the presidential campaign, on Trump’s website, in the trade section, there are calls for the U.S. to go after China and others for stealing American IP: Trump promised to “Use every lawful presidential power to remedy trade disputes if China does not stop its illegal activities, including its theft of American trade secrets.” The statement continued “[…]improved protection of America’s intellectual property in China would produce more than two million more jobs right here in the United States.”

Despite the unlikely claims of job production, it is clear that President Trump has decided to take a more confrontational approach regarding intellectual property and access to American technology. That will probably fuel new litigation by US corporations against foreign competitors in the U.S. market.

Patent trolls won’t be the only ones initiating litigation. Companies such as Apple, Cisco, Motorola, Qualcomm, and other hardware manufacturers, holding hundreds of thousands of patents, could stop Asian companies to sell in the U.S. market by denying access to basic technologies.

Qualcomm, which makes as much as a third of its revenues on IP licensing, was recently fined nearly $1 billion by the Korea Fair Trade Commission (KFTC) for unfair patent licensing practices. According to the ruling, obtained by EE Times, Qualcomm “coerced mobile phone makers to sign unfair license agreements by linking the chipset supply with patent license contracts, using its market position as a leveraging tool.”

The recent purchasing agreement between Qualcomm and NXP, if completed, will bring more than 9,000 patent families held by NXP to the Qualcomm portfolio, many of them related to automobile electronics and IoT security. If Qualcomm decides to raise the licensing fees, or limit access to those technologies, it could impact the supply chain of many components and devices in those industries.

One thing the U.S. system lacks is the mandatory licensing of essential patents, something required in the European Union. European Standard Patents often require a “Fair” Reasonable and Non-Discriminatory (FRAND) licensing commitment, making it easier for technology companies to get access to essential patents at a reasonable cost, without worrying about future litigation. Once the European Commission determines that certain patents are essential developing commonly used technologies, requires the patent holder to offer FRAND terms for its license.

For example, back in 2014, the European Commission prohibited Motorola from seeking an injunction against Apple for using some of its GSM patents, because Apple has explicitly declared its willingness to enter a license agreement under FRAND terms, with the compensation being determined by the court.

Some companies are taking a different approach to fuel innovation and disrupt the market. In 2014, Telsa announced that it would make its electric car battery patents “open source”; it will provide access to all of the “several hundred” patents it has filed and won’t sue anyone who uses them in “good faith.” The idea is to lure more automakers into developing “serious electric cars” and making EVs widely available.

If American companies start denying licensing agreements and bring more patent litigation against foreign competitors, it could mean a significant blow to competition and will impact the supply chain in most manufacturing countries, especially in Asia. While China and Korea could continue to build products for their local markets, their products could be subject to be stopped at customs if patent litigation is taking place.

While industries such as biotech and pharmaceuticals are less affected by patent litigation many other sectors are, especially in mobile hardware and software, and communications. While strong IP protection is desired, a reasonable licensing system should be in place, and the cost of litigation, especially for small startups, should be also considered. 

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