NPEs Have Broader Impact Than GAO Headlines Suggest

Quantifiable, accurate data is the key to understanding the true economic impact of NPE litigation, and the US General Accounting Office’s recent data-based analysis of NPE activity is a welcome step toward that goal.  Media reports have emphasized one topline conclusion from the report – that NPEs accounted for only 20% of patent litigations from 2007 to 2011 – and some have cited this as evidence that NPE activity is less prevalent than previously believed.

We took a closer look at the data in the GAO study and concluded that NPEs actually represent far more than one-fifth of the patent infringement assertions in the United States.  The 20% figure being cited in news reports is based on the number of lawsuits filed, rather than the number of defendants named.  While company-versus-company lawsuits are usually bilateral or have just a few defendants, NPE lawsuits – especially in the pre-AIA periods assessed in the GAO report – are typically multi-lateral, often with dozens of named defendants.  Consequently, the NPE share of defendants is much higher than the NPE share of cases filed.  And because each defendant incurs its own costs, including legal expenses, the number of defendants, not cases, drives the economic impact of NPE assertions.

Further, the GAO’s definition of an NPE did not include individuals, companies that file for patents but do not sell products, research institutions, and operating companies that file suits against other companies that are not competitors – all entities that are traditionally considered NPEs. Inclusion of these entities also results in a much higher NPE share of patent litigation activity.