One of the new developments in the intellectual property (IP) marketplace that has had an impact on patent valuation is the rise of nonpracticing entities (NPEs). The pejorative term is “patent trolls,” and they have a brilliant, yet controversial, monetization strategy, says Mike Pellegrino (Pellegrino & Associates).
“These companies have an interesting business model,” he says. “They buy a patent from somebody else, but they are not making a product that uses the patent directly in the market. They have the rights to the patent, and then they go to companies and say, ‘You are using our invention without authorization, so we want a license fee.’ It might be based on historic damages plus future royalties and/or one-time payments.”
Pellegrino, speaking during a recent BVR webinar, gave several examples of NPEs: WiLAN, Mosaid Technologies, Rambus, InterDigital, Round Rock Research, and Intellectual Ventures.
No countersuits: An interesting aspect with NPEs is that there is no risk of a countersuit. That is, the companies they sue can’t turn around and claim the NPE is infringing on one of their patents. That’s because the NPEs don’t sell any infringing products. “In the old days, if IBM were suing Sun for patent infringement, Sun would go into their portfolio and look for things that IBM is doing where they are using Sun’s patents without authorization,” Pellegrino says. “At the end of the day, the large companies basically execute a cross license, but there are no damages that move one way or the other between the companies.” But cross-licensing isn’t an option when an NPE is involved, so the damages are still an issue.
“We find this creates a new avenue for interest in patents and the valuation of those patents,” he says.
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