How to Confront an NPE

In the vocabulary of intellectual property practice, a non-practicing entity (NPE) is a company whose business model consists of acquiring and enforcing patents through cease and desist demands, licensing schemes or lawsuits. NPEs generally have no interest in developing or selling products or services. They generate revenue by threatening legal action and extracting settlements from companies that allegedly infringe their patents.

The 2011 America Invents Act addresses NPEs with provisions intended to discourage the NPE strategy of filing lawsuits against multiple but unrelated defendants. The flow of lawsuits, however, has yet to subside. As a result a company confronting an NPE must continue to evaluate the comparative risks of litigating or settling.

Moreover, settlement and knock-out litigation are not the only alternatives. A new industry has emerged, through which companies can  buy and license patents in particularly NPE-heavy fields (such as e-commerce and wireless telecom) in order to gain some control and leverage. Companies within this industry differ in their modus operandi. Some, such as Intellectual Ventures or Acacia Research, aggregate patents and seek to offensively monetize them through licensing or even litigation. Others, such as RPX Corporation, offer defensive alternatives.

Legislative efforts have focused on statutory amendments that would require plaintiffs (including NPEs) to pay defendant legal costs if the suit is unsuccessful, and not just in exceptional cases. Working with legal counsel to develop pre-emptive strategies, including potential relationships with patent aggregators, is a cost effective approach to mitigating risk.