We all know about the patent wars that have dominated the mobile industry over the last couple of years.
Apple and Samsung, Motorola and Microsoft, Oracle and Google–to name just a few. But there are also the patent disputes that you never hear about.
Many of these lawsuits are filed by little known companies whose sole purpose in being is to bring patent actions and collect money for their owners. Often dubbed patent trolls, such non-practicing entities now make up the bulk of patent suits.
Within the broader category of non-practicing entities are different types of firms, including defensive patent collectors, start-ups as well as companies whose sole business is suing companies with products in the market. That last category now accounts for more than three-fifths of all patent action, according to a study by Santa Clara University Law School professor Colleen V. Chien.
Chien, who presented her findings at a Department of Justice/Federal Trade Commission event on Monday, said that while the economics of bringing suit help keep overall patent actions in check, the economies of scale have made patent trolling into a profitable business.
First of all, while companies that make goods are typically countersued for infringing on their target’s patents, non-practicing entities don’t make anything and therefore can’t be countersued.
Secondly, while big companies like Apple, Samsung and Google rack up huge legal fees in their battles, non-practicing entities have found a more cost-effective option. Much like injury victims, the patent firms often find lawyers willing to work on a contingency basis.
That leaves the companies with only the direct expenses related to their lawsuits, which are themselves often minimized by filing multiple similar suits against different companies. That spreads out the costs and lessens the impact of losing any one case.
As a result, the incentives that may be forcing deals such as Apple’s recent settlement with HTC aren’t having the same effect on the non-practicing entities.
“The assumption is that companies will eventually tire of the smartphone wars between operating companies,” Chien told AllThingsD. “Suits invite countersuits and are expensive, disruptive, and messy. These restraints don’t apply to companies that assert patents as a business model.”
And for every suit brought, there are dozens more that get settled before a court action is filed, in large part because the targets know it is cheaper to settle in many cases than to fight things out.
While many of these non-practicing entities have names few people have ever heard of, the field has spawned some big players, perhaps most notably Nathan Myhrvold’s Intellectual Ventures. (Several spin-off businesses have come out of Myhrvold’s firm, which touts its in-house invention capabilities in addition to its collection of acquired patents.)
Even startups, particularly well-funded ones, are finding themselves in the crosshairs, Chien said.
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