A Wake Up Call for Operating Companies: More Expensive IP Litigations Might Be Coming Your Way

By Russell W. Binns, Jr., CEO of AST

Just last month Morrison & Foerster, LLP (MoFo) released an illuminating study on trends in the cost of IP litigation that should be a wake-up call for operating companies. Of note are the following conclusions:

1. Annual spend on IP litigation matters continues to increase, growing from $1.7 billion in 2005 to $3.3 billion in 2019; growth rates have recently slowed, but continue at double-digit rates.
2. While spending has increased, the number of matters that companies are managing is down significantly – 27%.
3. That said, matters are more complex and riskier, with nearly 1 out of 5 being classified as “bet-the-Company (4%) or High Risk (15.1%); an additional 48% are reported as Complex or Significant
4. 7 out of 10 new matters are being filed outside the U.S. and 17% of IP litigation decision-makers expect that to increase over the next three years.

So what do these trends really mean for operating companies?

The study shows that while the quantity of litigations has decreased since 2014/2015, the reduction has primarily been with frivolous cases, leaving more serious and more expensive litigations for companies to handle. MoFo’s finding about the geographic shift to the large majority of litigations starting outside the U.S. represents a massive change in the global litigation landscape, making it more critical than ever for companies to be keeping up on IP transactions on a global scale.

The bottom line: the threat of IP litigation in cost and potential liability has increased since 2015, even though the number of litigations has decreased, with the total cost for companies on IP litigation increasing 12% a year to 3.33 billion forecasted for 2019, and average exposure increasing to $1B to $2B. This makes addressing litigation risk more important that it has ever been.

In terms of asset prices, we have not yet seen this trend towards more significant litigations affect pricing. But our view is that there is typically a lag in pricing, and that the increased costs of litigation and the increased risks of exposure will likely cause an uptick in prices for good quality assets.

AST’s own data reveals that 80% of litigations involve transacted assets (assets that have already changed hands) and about 55% of these are transacted three or more years before the litigation occurred. What this means is that asset owners have a long lead time to assess the risk of litigation before it occurs – all they need to do this is gain access to better data and intelligence about the IP transaction marketplace.

AST is proud to lead the industry in IP data and marketplace analytics solutions. Just this past spring AST reached the incredible industry-leading milestone of having reviewed and published more than 10,000 patent portfolio lots. This represents more than 250,000 assets (U.S. patents or other patents, all their foreign counterparts, and applications) seen for sale since 2007 by AST and its Members. No other entity operating in the patent markets can make such a claim.

Also, because we operate across the patent marketplace covering many different industries and market segments, we have an established network of more than 4,500 relationships with patent sellers, so we simply see more than anyone else.

Companies that become Members of AST receive access to all of this valuable data via our proprietary fAST IP platform.

But don’t just take my word for it. With nearly 40 Members, AST is growing faster than it ever has in its history and we believe this is directly corelated to the recognition among operating companies of the increased risks of more significant litigation and that there’s no better way to address this risk than to acquire patent rights before they can be used against you.

For more information on how to become an AST Member, please visit us at https://ast.com/about-us/be-a-member/ or feel free to email me directly at binns@ast.com or our VP of Corporate Development & Global Strategy, Ray Strimaitis at ray@ast.com.