Non-practicing entity (NPE)

There is no single definition. Two US government studies use the words differently, so a figure about NPEs from one source cannot be assumed to cover the same owners as a figure from another^1,2.

The FTC uses the term PAE to distinguish patent assertion firms from other types of NPEs, which include firms that primarily seek to develop and transfer patented technology even if they do not practice the patents themselves. It gives universities and semiconductor design houses as examples². GAO notes that the FTC's related term focuses on entities whose business model solely focuses on asserting typically purchased patents, while GAO's PME term also covers entities that might use third-party NPEs to assert patents for them¹.

GAO adds two cautions. Experts agree that NPEs have a variety of business models, which makes it difficult to fit them neatly into categories, and companies that make products sometimes assert patents unrelated to those products, which further complicates defining an NPE¹. GAO also found it difficult to reliably identify the type of NPE from court records because, among other things, firms do not identify themselves as such in those records¹.

GAO analyzed a sample of US district court patent infringement lawsuits filed from 2007 to 2011, with litigants classified using data from Lex Machina. It estimated that operating companies and related entities brought 68 percent of all lawsuits, PMEs and likely PMEs 19 percent, individual inventors about 8 percent, and research firms and universities less than 3 percent. In about 3 percent of the lawsuits there was insufficient evidence to determine the type of plaintiff¹. GAO notes that the litigants were not contacted to verify their classification¹. Its analysis of RPX data gave different figures: operating companies 69 percent and firms RPX classified as PAEs 25 percent¹.

The FTC studied 22 PAEs, together with over 2,500 of their affiliates and other related entities, for the period 1 January 2009 to 15 September 2014. It observed two business models among them. The figures below describe that study group².

In the US, a patent gives its owner the right to exclude others from making, using, offering for sale or selling the invention throughout the United States or importing it (35 U.S.C. 154(a)(1))³. A patentee has a remedy by civil action for infringement (35 U.S.C. 281)⁴. The FTC identifies four Patent Act provisions that underlie PAE business models: Section 261 (patents have the attributes of personal property), Section 154, Section 271 (the definition of infringement) and Section 281². It says a PAE, no differently than any other patent holder, has the right to try to exclude by asserting its patent in court². It also notes that, notwithstanding rights granted by the Patent Act, the antitrust laws may forbid patent acquisitions or patent assertions that harm competition².

The FTC has said that a label like "patent troll" is unhelpful because it invites pre-judgment about the societal impact of patent assertion activity without an understanding of the underlying business model². This page uses the descriptive terms NPE and PAE and does not characterize any company.

• Concern: cost to product companies. Some legal commentators, technology companies, the FTC and Congress have raised concerns that patent infringement litigation by NPEs is increasing and that, in some cases, it has imposed high costs on firms that are developing and manufacturing products, especially in the software and technology sectors¹.
• Concern: litigation cost asymmetry. Some technology companies and legal commentators say that NPEs generally face lower litigation costs than those they accuse and are likely to use the threat of imposing these costs as leverage¹. GAO explains that because NPEs do not make products they generally have less information to disclose and lower discovery costs, and they cannot be countersued for patent infringement¹. GAO also notes that asymmetrical discovery demands, burdens and costs are not unique to NPE patent infringement litigation¹.
• Counterpoint: technology transfer. Some NPEs, such as universities, license their patents to companies that use them in their products, and some private firms license patents to fund further research¹.

The study below is the FTC's 2016 report on patent assertion entities. It is an example of a government study that uses the term, and says nothing about any firm beyond what the report states.

Published October 2016. The FTC analyzed information from 22 Responding PAEs and over 2,500 of their affiliates and other related entities, and observed two PAE business models, Portfolio PAEs and Litigation PAEs2.