SPLENDOR IN THE GRASS: PATENT OWNING AFFILIATES AND TARGETED COMPANIES [1]

For the next installment in this series, I address the Report’s discussion about (i) patent owning company corporate structure and (ii) targets of their patent infringement assertion letters.[2]  To begin, the Report describes some organizational structures as holding companies with subsidiaries in the classic corporate model.[3] Other entities comprised decentralized affiliate companies connected by common investor ownership of each related affiliate.[4]

These two models are completely legitimate and provide benefits for long term business survival. For example, an affiliate may ‘wind down’ after completion of a patent infringement litigation campaign. Other related affiliates may then remain active to protect from countersuit, creditors, or other claims should one affiliate entity fail.[5] These two models are acceptable corporate structures in other industries, and there is no exception for companies merely because they transact patent enforcement. These beneficial corporate organizations also do not affect infringement, patent validity or damage analysis.[6] Finally, these particular corporate structures greatly benefit independent inventors who transferred their patents to these affiliates, because they more likely will receive their contractual financial benefit from a viable company.

Unfortunately, companies which do not practice their patents are constantly accused of sending demand letters to exhort licensing fees, but the reality directly contradicts this assertion. First, sending demand letters is appropriate practice for all patent owners, and not merely those who practice patents.[7] Secondly, of the Report’s patent owning companies only 10% sent over one hundred demand letters; even the most active patent owning companies sent less than five hundred demand letters during the relevant study period.[8]  In fact, over 80% of targeted companies received only one demand letter from any one patent owning company, and only a few targeted companies received several demand letters.[9] Most significantly, according to the Report targeted companies rarely received a demand letter from more than one affiliate of the same holding company.[10]

The premise underlying the popular media image is that no demand letter from these particular patent owning companies is legitimate. But, has anyone examined whether the demand letters are bona fide on the merits of their assertions? Under the U.S. patent statute consumers, manufacturers, retailers and distributors are responsible, even if they are unaware of infringement. To contact all these parties numerous demand letters may be necessary in a particular instance.

© 2021 Adrienne B. Naumann, Esq. All rights reserved. Ms. Naumann does not sponsor or endorse the advertisements at adriennebnaumann@wordpress.com.


[1] Patent Assertion Entity Activity, FTC Study, Federal Trade Commission, October 2016 [hereinafter ‘the Report’ and ‘FTC’].

[2] Hereinafter ‘demand letters.’

[3] For definitions of terms please refer to previous articles in this series at adriennebnaumann@wordpress.com . I this article ‘patent owning company’ refers to the Report’s studied entities which do not necessarily practice the patents which they own.

[4] The Report at 52.

[5] Id. at 53.

[6] Id.

[7] Id. at 9 and 18. Patent infringement is a civil offense. 35 U.S.C. section 271(a). The basic statutory remedy, including for those who do not practice their patents, is a civil lawsuit for patent infringement. 35 U.S.C. 281.

[8] The Report at 62.

[9] Id.

[10]Id. at 63.

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