NPEs.

NPE stands for non-practicing entity. Non-practicing entities are changing the landscape of intellectual property management.

NPE companies do not offer services or products for sale. They generate revenue by acquiring a large intellectual property portfolio and pursuing litigation against what they claim to be infringements. For example, if you have a patent for an invention, this does not give you the right to make and sell the invention automatically. In technical terms, you do not have “freedom to operate.”

When you conduct due diligence on your patentable idea, you try to establish whether or not prior art exists. Prior art is any evidence of your invention existing before your priority date, the date you first filed your patent application or provisional application. If you find any prior art, you are obliged to either abandon your patent or invent around the prior art and create something significantly new.

After you have been granted a patent,you have the freedom to operate. If someone else has a patent covering some component of a product or manufacturing process that you want to use, you will need to find out who owns that patent and offer to purchase or license the patent from the owner. Once your product has been created and isready for sale, the patent owner will receivea payment or revenue stream.

You might also be on the other side of this scenario and grant out the rights of your intellectual property to another person or company for mutual benefit. Options include cross-licensing and patent pools. These are  situations where two or more companies allow each other the use of their intellectual property so both can have freedom to operate.

The intellectual property and patenting system isdesigned to allow and encourage companies to work together and form agreements. This pushes society and innovation forward while boosting the economy. Sometimes agreements cannot be reached, and businesses will insist upon litigation to resolve an infringement of their intellectual property rights.

This specifically constructed landscape has been radically altered by the presence of NPEs. These companies are looking to receive a profit or cause financial damage to other companies in order to acquire revenue for themselves. There is almost no situation where they would agree to a licensing arrangement. NPEs are seen in a negative light because they are not operating in the spirit of the provisions of the legal system.

More and more companies are being affected by NPE activity. Their modus operandi is to send demand letters to small businesses asking for settlements. Small companies fear litigation and will usually pay up. The NPE will use many of these settlements to get the resources to challenge a bigger company, and therefore make more money.

A demand letter is typically sent to the small company describing an infringement and demanding restitution. Small companies usually pay this without looking into the legality of the challenge correctly.

To avoid getting into this situation, it is important to carry out patent validity searches on your patents. This will deter NPE companies from targeting you. IP.com offers in-depth patent validity searching services. We can also give you advice on the best way to protect and secure your intellectual property portfolio.