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Trolls and their ilk now file majority of patent suits

Study shows manufacturers, start-ups losing out

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A study into the current state of patent litigation has shown that for the first time the majority of disputes have been brought by companies that predominantly hold and license patents rather than producing goods with them.

Research by law professor Colleen Chien at Silicon Valley's Santa Clara University showed that in 2012, patent assertion entities (PAE) – described as "an entity that uses patents primarily to obtain license fees rather than to support the development or transfer of technology" – bought 61 per cent of lawsuits, up from 45 per cent in 2011 and 29 per cent on 2010.

"It's pretty dramatic," Chien told Reuters. "It means more suits are being brought by entities that don't make anything than those that do."

However, she noted that while the number of patent lawsuits rose in 2012, the number of defendants dropped considerably, down to around 3,000 defendants this year compared with around 5,000 last year.

"Both are likely due to the America Invents Act (AIA) misjoinder rules," she said. "It's harder to name more defendants per suit, requiring PAEs to split their suits up and making it 'not worth it' to sue smaller companies. We don't know if total assertions are net up or down, because many demands are made for each suit."

The effect of the lawsuits was noticeably hitting new companies trying to enter the market, she explained. A fifth of start-ups that have raised $20m to $50m in funding have been sued for patent violation, and this rose to over a third for those who have up to $100m in funding.

There's also the question of how many demands were made and settled without going to court. A patent broker told Chien that around 50 claims are settled for every one that comes to court, but she reports the actual figure may be much higher, with over three hundred settlements per legal case being mooted.

Chien stressed that not all PAE suits are started by patent trolls. There are legitimate patent holding groups, where inventors gang together to pool resources and assert their rights. Nevertheless, it's clear that those who produce are not the ones being helped most by the patent system as it stands. ®

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