Markets and Patent Enforcement: A Comparative Investigation of Non-Practicing Entities in the UnitedStates and Europe

Is it true that non-practicing entities (NPEs) are primarily a U.S. phenomenon? Over time, several definitions of NPEs have been presented. They range from research institutions that hold patent portfolios for their inventions but do not develop and commercialize any products, to IP asset management firms whose exclusive business is asserting patent claims to collect significant fees from companies operating in certain industries. The latter are also referred to as “patent trolls” and have been the subject of significant debate as to their role in the innovative process in different fields. NPEs are a relatively new phenomenon. Studies have shown that their activity has only become prominent in the United States during the last decade. And these studies have suggested that NPEs are not nearly as active in other countries, namely European countries. Nevertheless, no prior research has attempted to quantify the extent of the international NPE problem nor find possible explanations for the difference. This article investigates whether NPEs are indeed less active in Europe. Interestingly, the findings indicate that NPEs are present in Europe, but their operations there are minimal compared to their operations in the United States. This Article discusses possible explanations for this finding, including a comparative analysis of key differences between European and U.S. industries, remedy systems, and judicial cultures. This Article demonstrates that NPE activity in Europe is more depressed than in the United States because the affected industries– electronics, machinery and computer equipment, software and communication–are smaller in Europe than on the other side of the Atlantic Ocean. It also shows that NPEs operate in Europe despite the presence of certain features of local legal systems—such as fee-shifting— that advocates of patent reform have recommended for adoption to control NPE activity in the United States. Consequently, this Article questions the supposed effects of those proposed reforms. Finally, this Article cautions against reforming the current U.S. patent system to make it more similar to European ones, as the European industries targeted by NPEs are less prosperous than their U.S. equivalents. The impact of these proposed reforms on the activities of practicing entities has not yet been adequately questioned. Even the question of whether NPE activity is in fact harming innovation has not been conclusively answered. Thus, much more investigation is necessary in this field before it would be wise to reform the patent system