Patent troll activity in the medical device and medical software industries, traditionally a smaller fraction of activity, is on the rise, according to several researchers. Certain trolls including IPNav and Intellectual Ventures have amassed portfolios of device patents and have been top plaintiffs in cases against device manufacturers in the last year.
To shed some light on this, I recently caught up with Jay Nuttall, an IP litigator from Steptoe & Johnson LLP with a special focus on the medical device industry. According to Nuttall, medical device patent litigation has traditionally had one of the highest damage award averages for many reasons, including the fact that the profit margins and the accused sales revenues are typically much higher than other industries. The royalty rates for medical device patents have traditionally been higher and non-practicing entities (NPE’s) may attempt to use those traditional rates to establish higher rates in the NPE cases.
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Currently, Nutall is tracking this increase in activity and its unique characteristics. For instance, Nuttal said, the patent holder that brings a claim against a medical device firm tends to be more successful than trolls in other industries; and the medical device industry is among the industries with the highest damage awards in patent litigation.
The rise in activity in the device industry and the patterns that exist in past litigation are potentially important to device industry executives. Patent troll activity in the medical device and medical software industries used to be a much smaller fraction of activity. Why? According to Nutall, first, medical device companies have only recently entered patent transactions with NPE’s. Second, the number of medical device patent applications has grown over the last several years and there is a strong correlation between the number of patents granted and the number of patent infringement lawsuits filed.
“It’s on the rise because medical device companies likely realized from other NPE transactions and litigation that they can try to derive value from existing patents and file more patent applications than in the past,” he explained.
The patent holder that brings a claim against a medical device firm tends to be more successful than trolls in other industries. Nuttall said that there are fewer defenses in medical device cases than software. For example, certain abstract ideas such as business methods are not patentable subject matter and cases relating to such subjects are subject to additional invalidity defenses. In addition, the NPE medical device patents in litigation may have been more selectively chosen than other areas given that there are fewer transactions and lawsuits.
Nuttall shared some key advice about strategies executives should consider when facing litigation. “Do your homework early including non-infringement and invalidity analysis, ownership of the patents, NPE’s size, value and history, prior litigation history, etc. Evaluate potential counterclaims and causes of action against the NPE and other parties in interest. If a company has strong defenses, seek an early claim construction and summary judgment ruling. Seek review of the patents validity through inter partes review before the Patent Trial and Appeal Board.”