The Growing Threat to Operating Companies

The growing operational risk from technology patents has been spurred in large part by the growing numbers of patents themselves. Today, there are more than 2.6 million valid technology patents in circulation, and the US Patent and Trademark Office (USPTO) has issued an average of 150,000 new technology patents every year since 2000. Because many claims in approved patents are vaguely worded or not clearly defined, there is a growing pool of issued patents that read on the same underlying technologies.

This overlapping of valid, legally defensible claims creates a high-risk environment that has been exacerbated by several broader trends, including increasing competition for market share (leading manufacturers to aggressively protect technology differentiation in their products) and growing pressure on managers to maximize corporate profitability (and extract value from all assets on the balance sheet, including patents).
 
The single most destabilizing trend, however, has been the emergence of non-practicing entities (NPEs). Company-versus-company patent litigation still remains relatively rare because most companies maintain large, broadly-diversified patent portfolios. Operating companies have long understood that almost any patent lawsuit can and will be met with a countersuit alleging infringement. As a result, most patent disputes between companies are resolved with a cross-license or negotiated settlement.
 
NPEs have destroyed this balance of power. Because NPEs have no products or services against which to countersue, they have no reason to avoid litigation. Indeed, NPEs have made litigation their primary tool to monetize the patents they own, and NPE-driven lawsuits have soared from 626 in 2008 to more than 3,054 in 2012. In the process they have dramatically increased the operating risk that companies face and transformed a previously stable patent ecosystem into a highly inefficient and irrational market.