Nearly 40% of companies litigated were within two years of announcing their IPO; 52% of companies sued had less than $25 million in annual revenue
A HighTech-Solutions (HTS) study, commissioned by the international, non-profit patent licensing platform LOT Network, analyzed the 6,161 lawsuits filed by non-practicing entities (NPEs) from 2017 through 2022. The analysis identified several key findings.
First, the study found that companies who are preparing for or have just announced an IPO are at a greater risk of being sued by a non-practicing entity (NPE) than other businesses. HTS identified and analyzed 247 companies, among the overall universe of NPE targeted firms, that went public during the period 2012 – 2022, and found 36.9 percent experienced one or more cases of NPE litigation between two years prior to and two years after an IPO.
HTS also found that the most attractive NPE targets were companies that had multiple fundraising rounds, raising at least a Series C round. There is an indication that a most recent funding round of $50 million or more makes a potential target even more attractive to NPEs. While large companies with an annual revenue of $1 billion or more represent 21% of the companies sued, more than 52 percent of companies targeted during 2017 – 2022 had an annual revenue of less than $25 million. Companies of all sizes and industries are at risk of finding themselves targeted by NPEs in today’s environment.
“When companies anticipate an exit, whether it be IPO or acquisition, they are at a heightened risk for lawsuits filed by NPEs,” said Patrick McBride, Senior Director & Assistant General Counsel for Intellectual Property at Red Hat. “Investors and their legal teams consider the risks associated with a business before striking deals, and possible litigation by an NPE can be a showstopper for an exit event. Smart leaders will look for ways to mitigate their risk. With the average cost to defend an NPE lawsuit hovering around $4 million, there is a clear benefit to taking protective measures, like joining a defensive community such as LOT Network, to reduce exposure.”
“We found that more than 61 percent of the companies that were targeted by NPEs during the 2017 – 2022 period (over 3,573 firms) had no patents of their own,” said Jeff Carter, CEO of HighTech-Solutions. “Many small companies have a false sense of security that only large companies can be targets of NPE suits. The truth is that companies of any size need to be proactive in developing a comprehensive IP strategy.” Another 12 percent of companies sued hold fewer than 10 patent families.
HTS also found that the companies most frequently targeted by NPE lawsuits operate in these top industries as defined by their SIC (Standard Industrial Classification) code:
- Business Services
- Retail Trade
- Finance, Insurance, and Real Estate
- Transportation, Communications, Electric, Gas, and Sanitary Services
- Wholesale Trade
- Public Administration
- Agriculture, Forestry, and Fishing
LOT Network is a non-profit organization and is the most cost-effective way to protect against unwanted NPE litigation. For companies earning less than $25 million, LOT Network offers a free, subsidized membership. All LOT Network members agree that if any member’s patent assets fall into the hands of a patent assertion entity (PAE), the company provides a license to all other network members, thereby immunizing the 2,800+ members of LOT Network against PAE litigation from those assets. At the same time, traditional uses of patents are unaffected: members are still free to sell or transfer their patents, participate in patent pools, license them for revenue, or assert them. LOT Network is purely defensive immunization against costly PAE litigation.
HTS is a select team of experienced and credentialed licensing, technical, financial and business executives. We have a core team of highly skilled IP professionals, each with best practice experience in licensing, litigation, patent prosecution, valuation, and reverse engineering. HTS offers technical due diligence like portfolio mining and claim charting; financial due diligence like royalty rate calculations and exposure analysis; and offers subscriptions to the CyberMetric System for patent, portfolio, and industry analysis. HTS has supported and led licensing programs resulting in many multimillion-dollar settlements, and generated several hundred million dollars of incremental revenue for our clients. We work with Fortune 500 technology companies in the United States, Europe, Japan, Korea, Taiwan and China, with a reputation for integrity that is unsurpassed in the industry.
About LOT Network
LOT Network is the world’s largest patent licensing platform and international, non-profit community of leading global companies committed to protecting themselves against costly litigation from patent assertion entities (PAEs). LOT Network currently protects more than 2,800+ members in 56 countries from PAE litigation for more than 3.8 million worldwide patent assets and counting. Members include market leaders such as IBM, Toyota, Visa, Canon, Google, Red Hat, Tesla, Cisco, Amazon, Microsoft, Alibaba and Salesforce, as well as innovative companies across industries. Visit www.lotnet.com to learn more or download LOT Network’s agreement.