PPP Data Shows 'Stark' Cost Of NPE Litigation On Small Cos.

By Dani Kass
Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our daily newsletters. Signing up for any of our section newsletters will opt you in to the daily Coronavirus briefing.

Sign up for our Banking newsletter

You must correct or enter the following before you can sign up:

Select more newsletters to receive for free [+] Show less [-]

Thank You!



Law360 (August 28, 2020, 9:35 PM EDT) -- Public data on Paycheck Protection Program loans provides "a very stark example" of the cost of fighting nonpracticing entity litigation, Computer & Communications Industry Association patent counsel told Law360 after looking at which loan recipients were sued by NPEs during the pandemic.

Between March 13 and July 29, 36 companies that received PPP loans were sued by NPEs, meaning company costs for litigation are spiking as they're fighting to keep employees on the payroll, CCIA's Josh Landau said in a post on the organization's Patent Progress blog Wednesday.

"When I can look and say this company has 70 employees, and it would cost them 11 jobs a year to fight a patent litigation, and they've been sued, it makes it a very stark example of the cost of NPE litigation," he told Law360.

NPEs, often called patent trolls, are companies that make their money off asserting and licensing patents rather than commercializing them.

The PPP was established under the CARES Act to help small businesses pay their employees during the pandemic. As part of the application process, the companies had to disclose how many jobs they'd save by receiving the loans.

The data shows the range of approved loans, and Landau said taking an average of those, companies sued by NPEs needed a little less than $82,000 a year to save an employee.

Then pointing to data from the American Intellectual Property Law Association, he said the average cost of taking patent litigation to trial is about $1.9 million per patent, plus about $900,000 a year in legal fees, usually for two years.

"That means that for each patent litigation one of these companies takes to trial, that company has to pay 11 jobs per year worth of money in legal fees alone," Landau wrote Wednesday. "That doesn't sound like much, but for a company that makes construction survey and mapping hardware and software and only has 70 employees, or an enterprise cooling solutions company with 100 employees, that's 10-15% of the company's workforce at risk. That's money that could have gone to hiring new employees, building out the business, or researching and developing new products."

He added that it's no surprise companies give in and take licenses for patents they may not actually infringe if it means they can save multiple employees' jobs.

Landau told Law360 that five NPEs identified by RPX Corp. — which tracks NPE activity — received their own PPP funds, even though it appears that the pandemic hasn't negatively affected their businesses. He pointed to data from Unified Patents to back up that claim.

"NPEs have been filing more lawsuits and not fewer," Landau said. "It was really unclear to me what the justification is, why they were saying we won't be able to pay [their] people, when that business model does not appear to have been affected by COVID."

He added that the companies being sued on average ended up needing about $18,000 per job for a 2½-month period, whereas NPEs receiving PPP loans requested twice as much on average. One of the NPEs was cleared for a loan of $150,000 to $350,000 to save a single job, he said.

Landau said he cross-referenced RPX's list of NPEs and the PPP data made public by ProPublica.

"One of the things I've done a lot of over the last few years is turn the cost of litigation into something more directly relevant," he said. "It's one thing to say the average patent litigation with $1-10 million at risk is going to cost about $1.9 million ... but what does that actually mean to a company?"

This was the first time a large set of data was available that made it possible to correlate individual jobs at risk for smaller companies trying to fight NPE patent suits, he said.

--Editing by Adam LoBelia.

For a reprint of this article, please contact reprints@law360.com.

Hello! I'm Law360's automated support bot.

How can I help you today?

For example, you can type:
  • I forgot my password
  • I took a free trial but didn't get a verification email
  • How do I sign up for a newsletter?
Beta
Ask a question!