Operating Company Patent Sales and Recessions: Breaking Down Litigation by Divestment Time
March 31, 2021
One of the key drivers of NPE litigation in the past few years has been the divestment of patents from operating companies, and this trend is likely to accelerate as the economic effects of the COVID-19 recession ripple throughout the patent marketplace.
As recently reported by RPX, if past is prologue, the current financial crisis will likely be followed by years of increased patent divestments by operating companies—including to NPEs—as those patent owners face pressure to preserve and augment balance sheet cash. Many operating companies may turn in the coming year to their patent portfolios as a source of revenue, including by selling patent assets to NPEs as well as entering into privateering partnerships with NPEs and/or monetizing their own assets directly through licensing or litigation. One result of that activity could very well be a further rise in NPE litigation.
The analysis below shows the temporal relationship between operating company divestments and NPE litigation subsequently asserting such assets. In the graph below, the Y axis shows NPE litigation asserting former operating company patents by defendants added per year, and each bar is color-coded to show the year that the litigated patents were divested.
This visual breakdown illustrates how patents divested during periods of recession impact litigation for years after those assets first fell into NPE hands. Note, for example, the patents shown in orange, dark orange, and brown, which represent patents divested in the years immediately following the dot-com crash. NPE lawsuits asserting those assets accounts for a significant portion of the litigation filed over the next 10-12 years. Similarly, NPE cases asserting patents divested during and shortly after the Great Recession of 2008—shown below in dark blue and turquoise—were also responsible for a large share of litigation filed since, not beginning to trail off until 2014.
As economic pressure leads companies to divest more patents, current market conditions favor a resulting surge in NPE litigation even more than in the past two recessions—and the reason is litigation finance, which has been picking up steam in recent years but hit new heights in 2020. In partnership with litigation funders, NPEs may begin picking up larger patent portfolios, possibly of higher pedigree and of operating company origin—portfolios that prior to the COVID-19 recession may have been out of their reach.
