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Patents: A Large and Growing Source of Operating Risk

Patent lawsuits filed by non-practicing entities can place a significant drag on innovation. Heres a game plan to minimize your exposure.

By Ned Segal, RPX Corp. | Updated on December 17, 2013
By now, most directors and executives have heard of patent lawsuits being filed by non-practicing entities (NPEs)—more commonly known as “patent trolls.” These are companies that own patents but do not use those patents to produce products or provide services. Instead, these entities are in business solely to collect licensing fees or legal settlements from the patents they own. They pursue these outcomes through litigation or the threat of litigation, against businesses whose products or services allegedly infringe on the patents.

Although the concept of patent trolls may be familiar, few members of the C-suite recognize just how large and costly a problem these businesses have become. In 2012 alone, the cost of NPE-generated litigation was nearly $11 billion, according to a recent study conducted by RPX, in collaboration with the Coalition for Patent Fairness. More than 2,400 unique companies faced at least one NPE assertion of patent infringement last year, and 270 companies fought three or more NPE lawsuits. Clearly, patent risk has become a serious strategic and operational risk.

Nevertheless, most companies continue to treat patents and patent litigation purely as the province of the legal department. They are relying on legal tactics to solve what has become a market problem. For risk managers at all operating companies that sell or use technology products or services, the time is ripe for a radical shift in thinking. It’s time to insist that patents become a more integral part of the company’s overall risk-mitigation planning.  

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