The Guest Blog

Guest blog post by Patrick Oliver, Executive Director Intellectual Property 2 Innovate (IP2Innovate)

IP2I member companies have direct experience of being attacked by Patent Assertion Entities (PAEs), also known as patent trolls, and are concerned about their increasing litigation activity in Europe and its harmful effect on Europe’s digital economy.

PAEs are financial vehicles that buy patents for the sole purpose of asserting them against Europe’s innovators to obtain the highest possible payment.

The concerns of IP2I member companies were recently confirmed by a report published in February 2018 by Darts-ip, the world’s leading authority in intellectual property case law data. The report reveals an alarming 19% year-on-year jump in PAE litigation from 2007 through 2017. The ICT-industry, central to growth and innovation across many industries, is particularly targeted by PAEs making up some 75% of all cases. The report also shows that it is not just large companies that are affected – almost a quarter of all unique defendants are SMEs.

Patent troll activity is detrimental to Europe’s innovators and to Europe’s digital economy

Attacks by PAEs tax and harm the innovative activities of productive companies without supporting the incorporation of new technologies into products. The increased cost and uncertainty generated by PAEs creates disincentives for investment by Europe’s innovators in the R&D necessary to bring the next generation of digital products to market. Thus, PAEs hijack the patent system to harm rather than support innovation, in contradiction to the very purpose of the system. This result, and the abusive litigation tactics that PAEs engage to obtain it, erode public confidence in and support for the patent system.

Europe needs to learn from the US experience and act urgently to prevent an escalation of the problem in Europe

PAE lawsuits in Europe have begun to follow the same trajectory as experienced in the United States over the last 15 years. From the early 2000’s to 2015, the number of defendants sued by PAEs in the US increased eightfold, with PAE cases hitting historic highs in the period 2010-2016. Recent changes in US law that led to introduction of safeguards have moderated this PAE activity in subsequent years in the US; and these changes are also likely a catalyst for PAEs turning their attention to Europe. Indeed, US-based PAEs currently account for 60% of PAE litigation in the EU.

If Europe wishes to avoid the fate of skyrocketing PAE litigation that drains precious resources from R&D as experienced in the US, it must act now to remedy the imbalances in the European patent legal system that PAEs exploit.

The European Commission’s current approach of monitoring patent troll activity is insufficient given the risks to Europe’s innovators

Although the European Commission acknowledges the increase in PAE activity in Europe, the announced position of Vice-President Ansip and Commissioner Bie?kowska is to “monitor the situation”. This approach is insufficient to protect Europe’s innovators and prevent Europe’s patent legal system from being exploited to the detriment of Europe’s digital economy. At a time when Europe wants to focus innovation on artificial intelligence, connected cars, and the broader internet of things, Europe’s innovators should not be undermined by trolling PAEs.

The European Commission should act urgently to implement safeguards to ensure Europe’s patent legal system supports innovation

PAEs are increasingly drawn to Europe because they have discovered that they can profitably exploit imbalances in the European patent legal system, such as: injunctions automatically awarded upon a finding of infringement, the injunction gap in which an injunction follows a finding of infringement even though a validity challenge is on-going, low quality patents, ineffective fee shifting provisions and lack of transparency in court proceedings.

However, each of these imbalances can be corrected through reasonable safeguards that the European Commission should support, such as: applying the principles of proportionality and equity to injunctions; bridging the injunction gap; improving patent quality; eliminating low caps on fee-shifting and requiring that underfunded PAEs post a bond; and increasing the transparency of patent litigation data.

A balanced European patent legal system is essential to support innovation

Europe needs to support, nurture and safeguard its patent ecosystem to achieve its digital and growth ambitions. The rise of PAE litigation in Europe is a clear sign of imbalance in Europe’s patent legal system. The Commission’s announced position to simply monitor the situation risks Europe having to take much more significant corrective action later on at great cost to European innovation. Europe must learn from the US experience with PAEs and act now to avoid further damage to Europe’s innovators.

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