A Company Filing an IPO Faces Elevated NPE Litigation Risk

An RPX analysis shows that litigation against a company going public increases around the date of its initial public offering (IPO) and that NPE plaintiffs file over 75% of the cases brought against those companies. RPX has derived this correlation from a comparison of patent litigation filing activity with data on IPOs launched since January 1, 2009 through the New York Stock Exchange (NYSE) or the NASDAQ stock exchange.

The publicity surrounding a company’s IPO leads to more vulnerability when it comes to patent assertion—especially from NPEs. Figure 1 shows the number of newly public company defendants added to US patent litigation campaigns by the year in which they were added and compares this to the number of defendants added overall.

Figure 1: District Court Litigation by Defendants Added (Defendants with an IPO in 2009-2019)

Note: Public company defendants include only those companies that filed an IPO through the NYSE or NASDAQ after January 1, 2009.

The plaintiffs that have filed the most litigation against public companies with an IPO from 2009 to 2019 (shown below in Figure 2) are all NPEs, with IP Edge LLC in first place (163 defendants added), followed by Acacia Research Corporation (67 defendants added), IPNav (42 defendants added), and Leigh M. Rothschild (42 defendants added).

RPX has achieved dismissals for defendants in at least one campaign waged by the top ten NPE plaintiffs that have sued such companies (shown below in Figure 2). Moreover, RPX has cleared risk by acquiring portfolio rights to more than 25% of litigation campaigns that involve two or more companies that went public since 2009.

Figure 2: Top Plaintiffs by Defendants Added (Defendants with an IPO in 2009-2019)

Note: The blue diamonds indicate where RPX has acquired portfolio rights in at least one litigation campaign. “Defendants Added” includes only companies that priced an IPO through the NYSE or NASDAQ after January 1, 2009. Some NPEs listed on the left have filed litigation across multiple campaigns through subsidiaries or affiliates, so litigating plaintiffs are rolled up to their parent entities.

As shown in Figure 3 below, patent litigation, and especially NPE litigation, increases around the listing date of a company’s IPO. More specifically, the percentage of litigation filed by NPE plaintiffs against companies going public hovers at 60% (of all cases filed against companies going public) around three to four years before an IPO event but reaches approximately 80% around the date of IPO, remaining close to that level for three to four years thereafter.

While this trend is robust at the annual level, there is no discernible spike around the IPO date at the level of weeks or months, indicating that much of the litigation appears to be generally timed to coincide with IPOs rather than targeting a specific date relative to the IPO timeline. Some of the heightened risk observed here may come from the greater media exposure that companies experience from an IPO, a variable for which it is difficult to control. Litigation fluctuation is normalized by looking at the difference between a company’s IPO date to the filing of litigation in Figure 3.

Figure 3: Defendants Added by Year Relative to IPO Event (Companies with an IPO in 2009-2016)

Note: IPO age is calculated by subtracting the litigation filing date from the date when the company was listed by the stock exchange. Data are limited to companies with an IPO between January 1, 2009 and December 31, 2016 and have been sued at least once. This figure excludes companies that went public in 2017 or later to avoid biasing the dataset towards pre-IPO litigation. The figure also excludes de-listed companies, which are defined here as entities with stocks that are no longer trading as of June 20, 2020.

An increase in NPE litigation around an IPO event is consistent across all market sectors. Figure 4 breaks down NPE litigation from Figure 3 by market sector. The E-Commerce and Software sector has the largest volume of NPE litigation against public companies, with the Networking sector having the second largest. All market sectors show an increase in litigation closer to an IPO event.

Figure 4: Defendants Added by Year Relative to IPO Event (Companies with an IPO in 2009-2016)

Note: IPO age is calculated by subtracting the litigation filing date from the date when the defendant went public. Data are limited to companies that launched an IPO between January 1, 2009 and December 31, 2016 and have been sued at least once. This figure excludes companies that went public in 2017 or later to avoid biasing the dataset towards pre-IPO litigation. Market sectors in “Other” include Automotive, Energy, Industrial, Logistics, Manufacturing, Medical, Semiconductors, and Financial Services.

For questions on this analysis, please contact reports@rpxcorp.com.