NPE: A shield and a sword 

When you or your business comes up with a good idea for a product, service, or process, you may seek out patents in order to protect the information while the idea is being developed, as well as after it is implemented.

These ideas may take years before they fully come to light, as well as quite a few dollars. You might not have the resources to produce a product right away or at all, and may form companies for the sake of protecting the intellectual property. These are referred to as non-practicing entities (NPEs) – a type of entity that can be used as a shield or a sword.

The shield versus the sword: Are all NPEs patent trolls?

NPEs can be legitimate businesses, having patents on their ideas theoretically protects those with not as much cash flow from bigger business with deeper pockets who might catch on to the idea and have their own team develop it and beat the smaller company to the marketplace, in a David vs. Goliath type of confrontation.

In these situations, the “little guy” is not always necessarily right or the guy you want to cheer for in the fight. Recent research has revealed that many NPEs do act as patent trolls. They dangle just enough of their ideas to temp larger companies to pursue the idea, and then sue for a patent violation.

If you are a large company unjustly accused of a patent violation, patent trolls are a pain, since patent litigation can be lengthy, expensive and even a drain on public relations, if they are publicly accused of “stealing” ideas.

When these cases make it to trial, the court finds many of them to be frivolous, but this is only after a good deal of money is spent. As a large company, it is very tempting to settle early for an amount far lower than what the NPE is asking for, even when the lawsuit is not fair. While the sum may not be much to a big company in the grand scheme of things, it could be a small fortune to an NPE that is not generating profits from commercial sales.

Frivolous vs. legitimate lawsuits

Any time there is a sharp rise in one type of litigation, it is important to look at the possibility of frivolous lawsuits, and intellectual property and patent lawsuits have definitely seen such a rise.

In 2015, patent lawsuits were at some of their highest levels ever. Patent trolls give NPEs a bad name by using a business that is supposed to work to defend innovative ideas during the development stage, and uses them offensively against larger businesses.

This not only hurts the large businesses, who may have come up with a similar idea coincidentally, but it also takes the courts time and makes it more difficult for those who have a legitimate complaint about a patent violation to defend their own ideas. It can even have the opposite effect of stifling innovation.

Since 2010, the Unites States Congress has considered more than a dozen bills that aim to reduce the amount of frivolous patent lawsuits. The current effort is referred to as the “Innovation Act” that would shift fees for lawsuits when the courts do not deem them to be “reasonably justified.”

Delaying legal fees will not necessarily help when it comes to unfounded lawsuits. A better alternative, the study authors suggest, is to have better pre-screening methods that could stop patent trolls in their tracks.

Patents exist because good ideas need to be protected. Emerson Thomson Bennet, LLC is a firm based in Akron, Ohio, that helps defend a variety of intellectual property disputes for clients around the country. We represent those who need to protect a patent as well as those who are accused of an infringement.