JRC Report on Patent Assertion Entities in Europe

Last month I mentioned on this blog a report issued by the Joint Research Centre (JRC), "the European Commission’s science and knowledge service," and edited by Nikolaus Thumm and Garry Gabison, titled Patent Assertion Entities in Europe. Their impact on innovation and knowledge transfer in ICT markets, available here.  Here is the report's longer abstract:

Patent assertion has become a common practice in shaping the balance between technology creation and technology dissemination in the Information and Communication Industry (ICT). The importance of this practice for the functioning of ICT markets has given rise to new entities that enforce patents but do not utilise the patented technology, commonly referred to as patent assertion entities (PAEs). Overall, views on the role of PAEs in ICT markets and their impact on innovation and knowledge transfer in ICT are polarized.

On the one hand, patent assertion may foster innovation by providing innovators with effective patent monetisation options and by increasing the liquidity of patent markets. On the other hand, additional litigation, the threat of litigation and arbitration efforts may impose additional cost on the innovation ecosystem and obstruct innovative initiatives.

This study provides an overview of patent assertion practices and of PAEs in Europe, taking into consideration their impact on innovation and technology transfer in European ICT markets. Currently, little research on PAEs in Europe is available, in sharp contrast to the wealth of analysis that has been conducted in the United States. This study aims to fill this gap by investigating the specific features of patent assertion in Europe.

Now that I've had a chance to read through it, I'd say the report makes for an interesting comparison with the U.S. Federal Trade Commission's report on PAEs, which I blogged about here and here.  For readers with limited time to spare, the executive summary (pp. 4-10) gives a thorough run-down on the report's main points.  The editors summarize the report's methodology as follows:

We began this study with a literature review to understand PAE dynamics, gather Europe-specific information, and to compare them with US evidence. We also conducted five high-level interviews with a selected group of academic and industry experts in the European IP field, followed by twelve detailed interviews with representatives from PAEs, companies that have been approached by PAEs and companies that have used the services of PAEs. This information has been used to create case studies.

We are aware of the limitations of the study’s methodology. PAEs, wary of the negative publicity that their operations attract, have an incentive to present information in a more positive light by highlighting positive aspects of their behaviour while concealing other less acceptable aspects. On the other hand, critics of PAEs have similar incentives to concentrate on the more negative aspects of their operations and to downplay any positive impacts they may have. By listening to both sides, we have tried to mitigate the risk of coming up with extreme views. We will not be able to provide statistically reliable evidence based on our analysis. However, we are confident that the way we selected our interviewees and case studies has allowed us to provide a fairly comprehensive picture of patent assertion activities in the European ICT market (p.4).

The report then provides what appears to me to be a very balanced presentation of the pros and cons of PAEs and of the role that PAEs have played, so far, in Europe.  Some interesting findings to compare and contrast with the FTC report:

1.  "Assertion claims [in Europe] tend to refer to alleged infringements of standards" (p.4), in contrast with the relatively small role such claims have played so far in the U.S.  See also p.21 (citing a paper by Jorge Contreras for the proposition that "PAEs have initiated 64% of all SEP litigation cases").

2.  "Assertions are primarily targeted at the more vulnerable (and often lower) segment of the supply chain, e.g. Telecoms operators" (p.5), or as of the interviewees puts it, "the soft underbelly of the supply chain" (p.51).  As in the U.S., ICT-related patents make up a large portion of those asserted by PAEs, but "[c]ompared to telecom-related patents, other ICT sectors may not be as attractive from a monetisation viewpoint . . . " (p. 28).

3.  "The majority of assertions in Europe have been initiated in Germany" (p.5).

4.  "Findings from the literature claim that litigated patents are generally of relatively low quality.  However, views across stakeholders . . . are polarised.  Data that would allow us to test the validity of these claims is lacking" (p.5).

5.  "With these caveats in mind, evidence from our interviews suggests that, when challenged in European courts, many of the patents asserted by PAEs are invalidated.  However, stakeholders have suggested that PAEs have also asserted high quality patents in Europe.  Further research in this area would be beneficial . . ." (p.5; see also pp. 21-24).

6.  "The majority of patents asserted in Europe originated from large practicing firms operating in the Telecoms sector" (p.6).

7.  Similar to what the FTC study reported, "most PAE assertions concern technologies that have been commercialised already. . . .  In this respect, the activities of PAEs are not likely to benefit technology transfer where it is most needed, i.e., with un-commercialized patented technologies from SMEs and Universities" (p.8; see also pp. 36-38).

8.  PAE activity in Europe "appears to be on the rise" (p.27), though opinions differ as to whether or not the UPC will increase such activity. 

9.  The editors cite various possible reasons why there is more PAE activity in the U.S., including lower patent quality, the size of damages awards, the "American rule" regarding the recovery of attorneys' fees, and the comparatively high cost of litigation in the U.S., which may put more pressure on defendants to settle and encourage more accusations against small firms and end users (pp. 39-44).  On the other hand, Germany's proclivity to award injunctions and its bifurcated proceedings could give PAEs an advantage, though the editors seem to think that other features of the German system "limit[ ] significantly the number of assertion cases based on low quality patents" (p.41).

10.  Appendix 4 aims "to provide a mapping of the PAE landscape in Europe" by "develop[ing] business model classifications that cover the full spectrum of activities related to PAEs" and by "conduct[ing] desk-based research aimed at identifying PAEs operating in Europe and classifying them within the developed business model categories. It is important to stress that, relying on desk-based research, the result of this mapping exercise is intrinsically tentative in nature. More specifically: the information we have gathered on PAEs is not homogenous across all the relevant characteristics of a developed business model; and some additional characteristics that may be of particular importance in describing PAEs’ activities may not have been included due to lack of available information" (p.130).  This "qualitative analysis indicates the presence of 32 firms actively engaging in the assertion of patent rights in Europe," the majority of them however based in the U.S. (p.141).

The report's main recommendations are for Europe to continue ensuring the issuance of high-quality patents, and to minimize uncertainty by, for example, increasing patent owner transparency (the lack of which the editors cite as a factor that might embolden privateering).