Patent Assertion Entity Activity

Portfolio PAEs wrote relatively few licenses, but these licenses generated relatively large revenues.
Figure 3.9 shows that more than 65% of Portfolio PAE license agreements generated royalties of more
than $1 million, and roughly 10% of these licenses generated royalties of more than $50 million.
Litigation PAEs granted far more licenses than Portfolio PAEs did, but their licenses typically generated
much lower revenues. More than 30% of Litigation PAE licenses generated less than $50,000 in revenue
and more than 77% of their licenses generated less than $300,000 in revenue. Thus, while the majority
of licenses (65%) written by Portfolio PAEs generated more than $1 million in revenues, almost all
(94%) of the licenses written by Litigation PAEs generated royalties of less than $1 million.
The Influence of Settlement on Royalty Amount
As noted above, the vast majority of reported licenses for Litigation PAEs settled pending litigation.
This fact may have affected the ultimate royalty amount paid to the PAE. As recognized by the Federal
Circuit and others, the royalty paid as part of a litigation settlement may reflect both the license value
and the parties’ desire to avoid continued litigation. The Federal Circuit has recognized that “license fees
negotiated in the face of a threat of high litigation costs may be strongly influenced by a desire to avoid
full litigation.” 246 The Supreme Court has reasoned that a “payment of any sum in settlement of a claim
for an alleged infringement cannot be taken as a standard to measure the value of the improvements
patented.” 247
Many Study PAE licenses explicitly recited that they were made in settlement of pending lawsuits, often
stating that the license payment was not intended to reflect a reasonable royalty for alleged use of the
patented technology, but instead was payment to resolve the litigation. 248 For the PAE, this provision
246
LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 77 (Fed. Cir. 2012) (quoting Hanson v. Alpine Valley Ski
Area, Inc., 718 F.2d 1075, 1078–79 (Fed Cir. 1983); see also Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d
1152, 1164 n.11 (6th Cir.1978)).
247
Rude v. Westcott, 130 U.S. 152, 164 (1889).
248
Often, the licenses specified the dispute by docket number. In addition to identifying litigation, many agreements included
terms that required the licensor to dismiss the pending litigation as a condition for royalty payment. Many licenses included
language disclaiming the royalty amount as evidence of a negotiated royalty rate. Several agreements explicitly stated that the
royalty was set by a desire to avoid the costs of litigation. Other agreements provided a “negotiated” royalty amount and then
showed a discount that was applied to reach the actual amount paid. Many licenses also included recitals for both a settlement
and a release. In contrast to a license payment, which is for future infringement, a settlement amount may reflect damages
owed for past infringement.
90