Seeking financial gain, patent assertion entities (PAEs) acquire patents to enforce against others. PAEs are entities that derive the majority of their revenue from the licensing or enforcement of patents.
Litigation by PAEs using acquired patents has been increasing at 33% compound annual growth rate in recent years.
More than 10,000 companies have been sued at least once by a PAE (in more than 14,000 litigations against more than 33,000 defendants). Will you be the next target?
It doesn’t matter what you make or sell – PAEs will target any operating company.
Since 2010, PAEs filed suits that impacted companies from a broad variety of industries.
It doesn’t matter how large or small you are. PAEs are equal opportunity enforcers.
More than 50% of all companies that have been a defendant in PAE litigation had less than $10 million in annual revenue. However, because larger companies are sued many times by PAEs, they are even more exposed to the problem.
Estimates suggest that PAE litigation costs operating companies more than $29 billion in direct expenses per year. The cost of defense through trial can range from $500,000 to $5 million or more. Needless to say, it can be profoundly disruptive to the business and distracting to senior management, engineers, and other essential staff.
Such litigation is a lose-lose proposition for companies. Defendants must retain outside counsel to defend themselves. Too frequently, they may even pay the PAE to obtain a license to settle, even though fewer than 1% of all defendants in PAE suits are ultimately found to have infringed a valid patent. But the cost of defense is so high that nearly 80% of defendants choose to settle before trial.
For large companies, the constant stream of PAE litigation is expensive, distracting and a nuisance. For smaller companies, these lawsuits can be life-threatening.
Companies are not only victims of PAE litigation. Some companies are enablers of PAE Litigation by selling patents to the PAEs.
More than 80% of patents litigated by PAEs are acquired from operating companies. Nearly 1,000 companies have transferred patents directly to PAEs in recent years.
PAEs obtain revenue enforcing acquired patents. Then, they reinvest the funds obtained to purchase additional patents, fueling more lawsuits against companies. In this way, PAEs maintain a dangerous cycle leading to significant cost and disruption for targeted companies.
PAEs clearly seek to generate a return by enforcing patent rights against operating companies. They acquire patents from other companies and are motivated by profit.
Perpetuating a vicious cycle, operating companies are selling patents to PAEs in increasing numbers.
Unquestionably, operating companies have far more to lose from PAE litigation than they have to gain from selling their patents to PAEs. Operating companies receive pennies on the dollar of what PAEs seek to obtain from their operating company targets. In exchange for proportionally modest income, operating companies pay the total cost of defense against an endless stream of PAE litigations made possible by other operating companies selling patents to PAEs. The balance of revenue obtained by operating companies versus costs expended to defend against PAEs is orders of magnitude in favor of costs. We owe it to our shareholders, our customers and our employees to put a stop to this vicious cycle.