Patent Trolls and the New EU Patent Regime

November 26, 2014

‘Patent troll’ litigation made the headlines in the US again recently when Apple was successful in defending an infringement action by GPNE Corp. A jury in the District Court of California found that Apple had not infringed two patents owned by GPNE. GPNE had sought almost $100m in damages, alleging Apple used patented technology in several of its major devices, including the iPhone 5, iPad 2, 3 and Mini. Commenting on the outcome, Apple said: 

We are pleased the jury in California saw through GPNE’s attempt to extort money from Apple for 20 year old pager patents that have expired, wasting time for everyone involved. GPNE is a patent troll with no active business other than patent litigation‘. 

Robust words indeed (commercial civil trials do not often give rise to allegations of extortion), but what is a ‘patent troll’? It is a company which acquires patents from third parties but does not exploit the patents itself (such as by licensing them) nor manufactures or invents anything at all. Rather, it exists only to instigate litigation seeking damages for patent infringement. Often, its employees are primarily lawyers. The perception is that such organisations deserve to be branded pejoratively as trolls because they undermine the whole purpose of patent protection; patents exist to foster innovation and technical advance by offering inventors a 20 year monopoly on their inventions. That monopoly encourages the inventor not only to invent but to manufacture the invention. The patent system is supposed to ensure the invention’s availability to the market when otherwise it might not happen at all. The inventor’s side of the bargain with the state is that the detail of the invention will be disclosed in the patent specification and part of the body of technical knowledge.  For trolls, only the patent itself and damages for its infringement are of value. 

The US courts’ approach to costs and their recoverability or otherwise offers little disincentive to patent trolls. In most US courts, both parties will have to bear their own costs regardless of the outcome, and the successful party will not be able to get any of those costs back from the loser. It follows that patent trolls have little to lose in the US by bringing infringement actions. If they lose, they will not have to pay anything other than their own lawyers’ fees. In practice, they may not even have to pay those as, in many cases, those lawyers will have been acting on a contingency fee basis so would only expect to be paid out of damages recovered in the event of success at trial or earlier settlement. The calculation, of course, is that many defendants will have little option but to seek a deal and pay off the claim, both so as to be able to restrict their financial exposure and reduce the risk of a jury delivering an unfavourable verdict; US juries are always unpredictable, particularly in highly technical intellectual property cases, and juries decide cases in the US civil courts.  

In the UK, the defendant’s position is very different. Costs are recoverable from the unsuccessful party, or 60-70% of them. Insurance cover for claimants seeking to instruct lawyers on a conditional fee basis is expensive, and the decision ultimately is in the hands of a judge, often one with significant intellectual property experience. This all represents a major disincentive to patent troll litigation in the UK. Arguably, the patent owner is disadvantaged in the UK unless it has very significant resources, and especially when faced with suing a larger and well financed infringer. The result is that patent troll litigation is far less common in the UK (albeit not unknown) and likely to remain so. 

At EU level, patents remain an intellectual property right for which there is no pan-EU regime, unlike Community Trade Marks and Registered Designs, and there has long been an ambition to remedy this situation. The aim, therefore, of the establishment of the Unified Patent Court (UPC) and Unitary Patent (UP) is, as the UK Intellectual Property Office puts it, ‘…to offer a more streamlined and easy to use system with the aim of unifying the European patent system as much as possible‘. When up and running, the UPC and UP will provide a means of both securing pan-EU patent protection (at least in those states who sign up to it) and enforcing that patent across Member States. Some concerns have been raised as to the implications under the new system for patent troll litigation in the EU.  

The reality is that the position remains far from clear. The possibility of the UPC being able ultimately to grant an injunction taking effect in all EU member states is both appealing to an aggressive patent troll and potentially ruinous to the alleged infringer (a contributory factor in US patent troll litigation is thought to be the power of a regional US court to grant a pan-US injunction). However, what will be the case in the UPC is that the UK principle of ‘loser pays’ will apply, so that there will be a costs risk inherent in litigation before the UPC. Whilst matters remain uncertain until the UPC is actually up and running, particularly in this context as to what level of costs the court is likely to award successful litigants, the fact that that principle is in place provides room for optimism that patent troll litigation on the scale suffered in the US will not be replicated on this side of the Atlantic. Furthermore, UPC judges will be experienced in intellectual property issues and will decide cases, thereby avoiding what is often perceived as a casino-style gamble on a US jury’s decision. The pressure on defendants to settle and make pay-outs purely because of that uncertainty will be significantly less.  

Patent trolls make good headlines; it is no surprise that it is a term which has become familiar. They are an unwelcome problem for any innovation-focussed business with a significant US presence. Whilst the UK and wider Europe will have its trolls, they are unlikely to be on a similar scale. 

Tom Phipps is an Intellectual Property Partner at Ashfords LLP.