Patent Assertion Entity Activity

Litigation PAEs: Litigation PAEs typically sued potential licensees and settled shortly
afterward by entering into license agreements with defendants covering small portfolios, often
containing fewer than ten patents. 6 The licenses typically yielded total royalties of less than
$300,000. According to one estimate, $300,000 approximates the lower bound of early-stage
litigation costs of defending a patent infringement suit. 7 Given the relatively low dollar
amounts of the licenses, the behavior of Litigation PAEs is consistent with nuisance litigation. 8
For each separate patent portfolio that they acquired, Litigation PAEs characteristically
created a new affiliate entity, which often held ten patents or less. They generally operated with
little or no working capital and relied on agreements to share future revenue with patent sellers to
fund their businesses. Litigation PAEs filed 96% of the cases in the study and accounted for 91%
of the reported licenses, but only 20% of the reported revenue, or approximately $800 million.
Portfolio PAE licenses generated total royalties that were much larger, on average, than
those of Litigation PAE licenses. There was little overlap in the royalties generated by
Litigation PAE and Portfolio PAE licenses. Seventy-seven percent of Litigation PAE licenses
6
Sixty-six percent of Litigation PAE cases settled within 12 months. To provide context, one recent study found that,
between 2010 and 2014, the median time to trial for patent lawsuits was 29 months. PRICEWATERHOUSECOOPERS,
2015 PATENT LITIGATION STUDY: A CHANGE IN PATENTEE FORTUNES 14 (2015), https://www.pwc.com/us/en/forensicservices/publications/assets/2015-pwc-patent-litigation-study.pdf
[hereinafter 2015 PWC PATENT LITIGATION STUDY]. While
cases that proceed to trial are far fewer than those that settle, the 29-month value provides a benchmark for the approximate
length of time that a case would take if it did not settle. Note that, as used in this report, “Case” means the unit of observation
defined as a matter between a particular plaintiff and a particular defendant involving a particular set of asserted patents. See
Appendix A: Glossary of Frequently Used Terms.
7
The American Intellectual Property Law Association (AIPLA), which periodically surveys the costs of patent litigation,
recently reported that the cost of defending an NPE patent litigation through the end of discovery, which litigation budgets
typically use as a milestone for filing any summary judgment motions, is between $300,000 and $2,500,000, depending on
the amount in controversy. AM. INTELLECTUAL PROP. LAW ASS’N, REPORT OF THE ECONOMIC SURVEY 35 (2013) [hereinafter
AIPLA 2013 REPORT OF THE ECONOMIC SURVEY]. Although there are more recent AIPLA reports, the FTC uses the 2013
survey here because 2013 is the last full year for which it collected data.
8
William H.J. Hubbard, Sinking Costs to Force or Deter Settlement, 10 J.L. ECON. & ORG. 1093, 1093–94 (2015) (“The
notion is that the prospect of expensive litigation drives the defendant to pay a settlement despite knowing that, were the case
to go to trial, the defendant would probably or certainly win.”); David Rosenberg & Steven Shavell, A Solution to the
Problem of Nuisance Suits: The Option to Have the Court Bar Settlement, 26 INT’L REV. L. & ECON. 42, 42 (2006) (“By a
nuisance suit we refer to a legal action in which the plaintiff’s case is sufficiently weak that he would be unwilling to pursue
it to trial.”); David Rosenberg & Steven A. Shavell, A Model in Which Suits Are Brought for Their Nuisance Value, 5 INT’L
REV. L. & ECON. 3, 3 (1985) (“By a suit brought for its nuisance value, we mean a suit in which the plaintiff is able to obtain
a positive settlement from the defendant even though the defendant knows the plaintiff’s case is sufficiently weak that he
would be unwilling or unlikely actually to pursue his case to trial.”).
4