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The study classifies PAEs into two categories: Portfolio PAEs and Litigation PAEs. Portfolio PAEs are strongly capitalized, purchase patents outright, and negotiate broad licenses to very large patent portfolios, typically without litigation. Litigation PAEs frequently rely on revenue sharing agreements to acquire patents and almost always file infringement lawsuits as a precondition to securing licenses. The licenses executed by Litigation PAEs usually cover fewer patents and generate substantially less revenue than those entered into by Portfolio PAEs. The overwhelming majority of PAEs who responded to the study fell into the Litigation PAE category.   

During the study period, Litigation PAEs filed ninety-six percent of all reported patent infringement lawsuits but accounted for only twenty percent of all reported PAE revenues. The vast majority (ninety-three percent) of the patent licenses reported by Litigation PAEs were the product of litigation, whereas only twenty-nine percent of the patent licenses reported by Portfolio PAEs were the product of litigation. And while Portfolio PAEs were found to frequently execute licenses that yield more than $1 million in royalties, most licenses executed by Litigation PAEs were found to generate under $300,000 in royalties. Based on a 2013 American Intellectual Property Law Association study finding of what an accused infringer could expect to spend through initial discovery, the study finds the latter figure to be consistent with “nuisance litigation,” where a defendant opts to settle the case based on the anticipated cost of litigation rather than any assessment of the merits.

According to the study, the overwhelming majority of patents held by PAEs are in the information and communications technology sector, and seventy-five percent of those patents are software-related. The targets of the reported PAE infringement suits spanned a broad range of industries, and included both manufacturers of end-products and the end users of those products.

The study also addresses the extent to which PAEs have acquired patents that are subject to a licensing assurance made to a standard development organization. Some commentators have suggested that owners of such patents, often called “standard essential patents” or “SEPs,” could attempt to exploit the importance of these patents to technical standards but evade any fair, reasonable and non-discriminatory (FRAND) access commitment that was given with respect to the patents, by transferring the patents to a PAE. The study, however, finds no evidence of such exploitation. Less than one percent of the patents in the study sample were identified as subject to a FRAND access assurance to a standard development organization, and none of the PAEs who responded to the study were focused on monetizing standard essential patents. Further, while approximately seventy-five percent of the FRAND-assured patents were licensed, only twenty-five percent of the assured patents had been asserted in litigation.

With regard to whether PAEs have been successful in generating revenue by mass-mailing so-called “demand letters,” the study found an “absence of large demand letter campaigns for low revenue licenses among Study PAEs.” 

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