Non-Practicing Entities: Everything You Need to Know
Non-practicing entities are people who hold patents for a product or process without any intention of developing it.3 min read
2. What is a Patent?
3. What are Monetizing Innovations?
4. Patent Right Cross-Licensing
5. Value Proposition for Non-Practicing Entities
6. Value Proposition or Legal Extortion
7. Patent Trolling: How Does it Affect You?
Non-practicing entities are people who hold patents for a product or process without any intention of developing it.
What are Non-Practicing Entities?
If you hold a patent for a process or product but do not plan to develop it, you are a non-practicing entity (NPE). A patent is a license issued by the government that gives you exclusive rights. You get rights to manufacturing, using, or selling the invention for a certain timeframe. The NPE does not provide any of these.
A type of NPE is patent trolls. These trolls gather a large number of patents and plan patent infringements suits. The suits go against individuals and companies that illegally used some of the patent's elements. To differentiate between trolls and NPE, the Federal Trade Commission uses the term patent assertion entities (PAEs) to describe trolls.
What is a Patent?
A patent doesn't let you use the invention if it's too similar to a previous patent. The patent also has no involvement with a business model or pricing. The government issues a time limit as to how long you can share your invention with the public. This timeframe is typically 20 years starting at the filing date.
A patent system provides incentives to you so that you can put money toward development and research. In exchange, you provide information for exclusivity. Keeping the competition away during that timeframe gives you a chance to get your up-front money back. In addition, you can sell, license, mortgage, transfer, or abandon the patent.
What are Monetizing Innovations?
If you're a single inventor or university researcher, you can opt to manufacture and sell products via your own company. You can also choose to become a licensor of the patent and garner restricted-right status.
Exclusive rights give you a chance to garner capital thanks to licensing. This lets others focus on marketing and manufacturing products. For instance, if you develop pharmaceutical drugs, you can turn around and license them to other companies for commercial sales.
Patent Right Cross-Licensing
On occasion, companies deal with complexities when working with licensing agreements pertaining to one product. As a result, competitors can issue patents to one another through cross-licensing agreements. This lets both parties split the gains obtained by using each other's inventions and reducing the possibility of facing a lawsuit.
Sometimes one party sues the other and the other countersues. Litigation typically involves both parties agreeing via cross-licensing patents and the company with the weaker case pays licensing fees.
Value Proposition for Non-Practicing Entities
When an NPE wants to license rights to others, a value proposition occurs. This refers to rights of an invention regardless of the knowledge on how to conduct the service or operate the product.
Occasionally, the NPE analyzes popular products to find isolated patents and approaches the patent holder to either acquire the patent or obtain a license in order to sue. In some instances, the firms purchase inexpensive patents from technology companies on the brink of bankruptcy with the only reason to sue. Some patent trolls claim they are helping smaller businesses fight against larger companies that have copied their ideas.
Value Proposition or Legal Extortion
Even though it's legal to get income from patent rights, the NPE might encounter difficulty from the producers and sellers. The NPE's patent is often more menacing to those in the industry, especially when compared to a competitor's patent. Sometimes you might encounter businesses that sell NPEs their patents so that the companies are not involved.
As a result, the NPEs hopes that the supposed infringer seeks to pay the money instead of heading to court. However, if the defendant opts to litigate, both sides need to pay costly litigation costs. Successful litigants also must reimburse the court fees, which can cost millions of dollars.
Patent Trolling: How Does it Affect You?
NPEs hoard patents while patent monetization entities (PMEs) usually consist of a law firm that protects patents for NPEs. Some claim that patent trolls interfere with patent protection for those who need it. They tend to lengthen the entire process of obtaining a patent and make the process more expensive for everyone involved.
Patent trolls tend to do one of the following:
- Secure patents to sue
- Gather patents and end up not using them
- Get companies to settle
- Sue businesses for patent infringement
As a result, most companies settle out of court instead of dealing with lengthy and expensive legal issues.
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