Five Reasons Why Non-Practicing Entities Are The Best Client

Lightbulb ideas

by: Patrick Anderson | May 12, 2017

Among the functions of my day-to-day life, I often get the opportunity to vet potential law firms on behalf of our clients who are seeking partners in their patent licensing efforts. A recently received response includes the curious notation that the firm in question has a policy of not representing non-practicing entities (NPEs).

What?

First, I’ve always found the term NPE, in itself, curious. Because a patent represents, in large part, the right to exclude others, the question of whether the patent owner themselves actually produces the claimed product or performs the claimed method is largely irrelevant to an infringement claim. Indeed, so-called “NPEs” should more appropriately be referred to as patent licensing specialists in that they have decided to specialize and focus their business practices solely on licensing as a means of using their patents.

Such exclusion would be akin to a real estate firm saying, “Sorry, we only represent homeowners who are owner-occupiers. Homeowners who lease property should go elsewhere.”  Further, given the specialization that NPEs bring to the table, that same firm might as well say, “We only represent owners that personally manage and service their tenants, but not those who hire management companies to fulfill this need on their behalf.” I find it odd that an IP firm, presumably dedicated to defending the rights of IP owners, would universally discriminate against a particular class of such owners.

With that in mind, I’d like to make the argument that patent licensing specialists are, in fact, an ideal client for a law firm to represent for the following five reasons.

1) IP Experts – they understand patents

The patenting world is unique, arcane, and quite often maddening. Few things about the patent system follow any semblance of logic or meets with an outsider’s most reasonable explanations. How many inventors and CEOs honestly understand how to parse patent claims and how the claim language relates back to what the inventor accomplished? How much time have practitioners spent over their career explaining the disconnect between what an inventor believes to have invented, and what falls within the scope of the claims reached as the result of a compromise between patent agent and bureaucrat?

On the other hand, experienced licensing specialists understand patents and, more importantly, they understand claim language. They understand interpretation involved in studying how the claims came to be in their final form, and the process involved to construe those claims by the court. In this respect, licensing specialists are much easier than other types of clients for practitioners to communicate with and their involvement can often create efficiencies not otherwise possible.

2) Not My Baby – it’s not personal; it’s business

An inventor fighting for the respect of her accomplishments. A CEO struggling against a competitor to keep a fledgling business alive. These are both very emotional states of mind that you’ll not find with licensing specialists. In contrast, a specialist takes a business-like approach to the litigation process and is willing to consider all reasonable options to make the best possible decision given the expectations and information available at the time.

3) Diversified – don’t have all their eggs in one basket (or shouldn’t…)

With a limited amount of time, an inventor can only do so much. Similarly, a small business has to focus and will often trade time for money. Portfolios will be smaller and even if multiple patents are involved, they may typically be centered around a single product or technology area. Suppose a motion is filed that, if granted, would invalidate all of the asserted patents, and suppose also that, as their attorney, you believe the motion has only a 25% chance of actually being granted. It’s tempting to always want to roll the proverbial dice in these situations since, three out of every four times, it’s the right decision. However, your client may not have four rolls of the dice. If a single roll comes up ‘snake eyes,’ your client may be out of luck, out of patents, and out of money. In those situations, the prospect of a low-ball settlement offer might look just attractive enough, and you miss out on your chance at a bigger payday by making (and winning) an argument for your client.

Experienced licensing specialists, on the other hand, can more easily create multiple opportunities through acquisition, allowing them to consider a long-term approach. Even the mere knowledge that it won’t be your only trip to the batters box can give a client the confidence to take moderate risks, enabling the attorney to turn down a bad deal, and make an argument instead.

4) Pragmatic – know when they’re beat

To an inventor an appeal of a bad decision may seem like a no-brainer (while you pull out your engagement agreement to check if you’re still on the hook for contingent fee representation). Even accepting a bad claim construction, or being denied their day in court due to a technicality, can be tough to accept.  However, licensing specialists are loathe to “throw good money after bad” and are more willing to accept defeat, even when they know they’re right, if the costs of victory are simply going to be too high. If getting stuck fighting a losing battle is something you wish to avoid, here again you’re better off with a licensing specialist for a client.

5) No “I” in Team – give credit where credit is due

Lawyers, agents, and managers all have in common that they receive too little credit for good outcomes and too much blame for bad ones. Experienced licensing specialists, on the other hand, know that it takes a team effort to produce a positive outcome. Great patents combined with optimal strategy and effective advocacy are the ideal combination for a great outcome. But, as the attorney, you’re only directly in control of one of those things with some influence over strategy. Add to that the realization that truly great patents are hard to come by. Strategy may end up being the least bad of a series of bad options. (A mentor of mine was fond of saying, given the choice of litigation or a sharp stick in the eye, choose the latter.) On the other hand, every inventor thinks their patents are great. But if the end result of the agent-examiner negotiation is sub-optimal, good luck breaking it to your client that their baby is ugly.

The licensing specialists, however, recognize that all parties involved have to do the best job they can with what they have in hand. A breakthrough invention may have marred claim language due to an idiosyncratic examiner who insists on adopting byzantine terminology. A confusing claim creates more risk, which creates more uncertainty, which reduces confidence and can lead to a worse outcome. Having been exposed to lots of claims of varying quality over the years, the licensing specialist is more likely to understand the limitations involved and less likely to place all the blame of a poor outcome onto the lawyer.

Conclusion

Given these (and likely other) reasons, does your firm nevertheless refuse to represent licensing specialists? If you have a counterpoint I’d like to hear from you. Better yet, write post and I’ll make sure it gets published here.

2 Comments

  1. True statements, but you forget that sophisticated NPEs can be quite savvy at cheating their law firms out of well-earned contingent fees.

    Reply
    • Since the anonymity of your comment prevents me from evaluating the veracity if your claim, all I can say in response is that law firms perfected the art of cheating their vendors out of well-earned fees for years.

      Reply

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