GHB Intellect is keen on keeping abreast of the latest and the greatest in the intellectual property (IP) industry and the needs of the IP professionals from all perspectives. We strive to stay current and objective in order to provide unbiased, invaluable service to our clients. As such, we attend many industry fora and conferences, including those that address the issues surrounding the patent reforms in the U.S. and around the globe. One such forum is NPE 2016: The Business of Responsible Licensing, which is being held on March 22, 2016, in New York. This prompted us to revisit the origins of the acronym NPE.
What is a Non-Practicing Entity (NPE)?
Non-Practicing Entity (NPE), is a term used to refer to all business and individual entities that do not commercialize their intellectual property assets and instead rely on licensing and litigation to monetize those assets. Another term used to refer to NPEs is Patent Assertion Entities (PAEs). Examples of entities that fall in this category are individual inventors, patent aggregators, as well as universities.
More specifically, an NPE is characterized as an entity that practices one or more of the following:
- holds patents but, unlike practicing entities, does not manufacture products based on the patents.
- asserts patent rights for individual inventors.
- buys patent portfolios and asserts them against practicing entities.
NPEs have been around for a long time. However, their activities have intensified in the past decade. On the behest and lobbying of many of the Practicing Entities (PEs, businesses that actually practice their IP and create and sell products), who had previously been the target of the patent litigation actions of the NPEs, sweeping patent law reforms were passed in the U.S. congress and extraordinary precedences were set by the U.S. supreme court. So much so that the pendulum swung to the opposite side and the NPEs found themselves losing the patent battles left and right.
In the wake of the recent patent reforms in the United States, the NPEs have found themselves losing in the public relations front as well. The term “Patent Troll” was successfully used to characterize all NPEs and their businesses. To be fair, Patent Troll is a term more suitably used to define entities that indiscriminately threaten a large group of businesses (often mom-and-pops) with baseless demand letters.
In their struggle to justify their business models as legitimate, NPEs have had an uphill battle to distance themselves away from the demonizing label of Patent Trolls. Most NPEs would vehemently defend themselves against the implication that they are Patent Trolls. Quite the contrary, NPEs would characterize themselves as an invaluable, or even necessary, part of the innovation ecosystem.
On the other hand, the practicing entities (PEs) have long held the position that their hard work in research and development of real products is unfairly hampered and their profits unjustly diminished by NPEs’ oft-frivolous patent law suits. Hence, practicing entities have been relentlessly pursuing modification of patent laws in favor of leveling the playing field. And, they have been quite successful at it. So much so that it is fair to characterize the current IP legislative and judicial climate as anti-NPE.
Complicating the matters, however, is the blurring of the distinctions between PEs and NPEs. Whereas, a decade ago, a PE was very clearly recognized as an entity pursuing only research and product development in order to generate income, nowadays, PEs are also motivated by the prospect of monetizing their unused patent assets. PEs with large patent portfolios have all realized that leaving unused patent assets to devalue over time is wasteful. As such, the PEs have started to evaluate such assets with an eye towards sale, licensing or even asserting them against other practicing entities.
Although recent strides in normalizing the patent law trends in the U.S. have been welcome by NPEs, there is still much to be desired by the NPE community. They contend that, especially in the United States, the pendulum has swung too far towards the interests of the PEs, threatening the global leadership of the US in innovations.
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Clearly, this tug-of-war between PEs and NPEs is far from over. However, some signs of gradual normalization is beginning to emerge. Even though more patent law reforms are expected, it is still unclear whether this will lead to a long-lasting equilibrium. Keep in tune with our news and insights page to view upcoming recent blog articles and technology papers.