NPE Litigation Is Up in Q2 2016—and New Plaintiffs Emerge

In Q2 2016, NPE litigation increased by about 57% from the Q1 lull, continuing the recent pattern of high volatility in quarter-to-quarter litigation activity (see chart below). So far, the first half of 2016 reflects event-driven volatility similar to that of 2010 through 2015, as discussed in “Of Spikes and Means: Q1 2016 Litigation Data”.

Just before the America Invents Act was passed in 2011, we saw a spike in NPE litigation followed by a steep, sequential decline the following quarter. Subsequently, NPE litigation increased for four consecutive quarters to return to pre-spike levels. If the activity levels so far in 2016 continue through the second half of the year, 2016 will see NPE litigation levels comparable to those in 2007 through 2009. If, on the other hand, activity demonstrates a rebound like the 2011 Q3 spike and subsequent lull, 2016 will likely finish consistent with the average from 2010 through 2015.

An on-the-ground view provides additional insight. The top NPE filers so far in 2016 include well-known plaintiffs—some continuing to rack up high, single-campaign defendant counts (e.g. Shipping & Transit, Prognosis IP, Hawk Technology Systems) and others amassing high defendant counts spread across multiple campaigns (e.g. Leigh Rothschild, IP Edge, Nicolas J. Labbit). With over 250 patent infringement suits filed last year by 11 NPEs under his management, Labbit has already formed five new NPEs in 2016, one of which (Pico Byte Systems) has filed just this week more than 20 patent suits targeting a wide range of consumer electronics, including smartphones, tablets, PCs, and wearables.

There are also some prolific new entrants, including SportBrain, T-Rex, and GEMSA, each of which has continued to add defendants to a single, growing campaign. RPX also has seen other new entrants that, while not yet filing litigation against a large number of plaintiffs, appear to have plans to do so. For example, in the last ten months, nearly 20 new NPEs under the management of Michigan attorney Erik Stamell have been formed in Texas. Four of them have filed suit so far (with one, Digital Audio Encoding Systems, expanding its campaign at the end of June to hit 20 defendants). A few others have recorded assignments of patents, and still others have been created as recently as June.

We’ve been cautious about drawing conclusions from short-term trends, and the recent volatility emphasizes why a longer-term view is prudent. In addition, it remains to be seen whether the Supreme Court’s recent decisions in Halo and Cuozzo will have any immediate effect on the behavior of NPEs and operating companies when it comes to licensing—or litigating—patents.