Operating Company Divestments Fueled Patent Litigation in 2020

Patent marketplace activity in the fourth quarter of 2020 showed that the acquisition and assertion of operating company patents by NPEs remained a key driver of patent litigation.

Indeed, RPX data on the origins of asserted patents reveal that NPE litigation is far more often based on patents originating with operating companies (shown below in light blue) than on homegrown NPE assets (shown in orange). Combined with litigation filed by operating companies (in dark blue), which comprises about 30-40% of defendants added in recent years, the data indicate that about 85% of the patent litigation filed in any given year from 2005 onward has concerned at least some operating company patents.

The reasons for the large share of NPE litigation over former operating company patents are not unexpected. Most NPEs have neither the resources nor the strategic inclination to develop patents in-house; further, some of the most notable plaintiffs in this category started out as operating companies in the first place (such as Finjan, Inc., an NPE recently acquired by Fortress Investment Group LLC).

This trend may accelerate as a result of the COVID-19 recession. 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.

See RPX’s fourth-quarter review for a deep dive on the NPE assertion of former operating company patents.