Edison in the Boardroom Revisited: How Leading Companies Realize Value from Their Intellectual Property, Second Edition

The Rise of the NPE (Nonpracticing Entity)

An NPE is an entity (or individual) that is attempting to monetize a patent asset or patent portfolio without making or selling product(s) covered by the patent(s). NPEs can arise for a number of reasons:

• The patented technology is too early for a market.
• The patented technology did not result in a saleable product.
• The patented technology is an alternative to a current or evolving standard.
• The company ran out of money before the product could be completed.
• The company never received sufficient funding to move forward.
• The patent holder is a university.

Although such situations have existed since the era of Edison, they have become more common in recent years due to the rise of a new type of NPE.1 Although at least 11 different types of NPEs have been identified,2 they can be boiled down to two:

1. An NPE that created the patented invention, whether the invention came from an individual inventor or as part of a company or university, and is looking to monetize it.

2. An NPE that did not create the patented invention, but has acquired the patent for monetization purposes.

The first type of NPE is nothing new. Perhaps the most famous NPE in this category is Jerome H. Lemelson (1923–1997), who held more than 600 patents yet never manufactured products. By licensing his patents, he reportedly made over $1 billion from his inventions.

What is new, however, is the concept of firms buying patent assets with the express intent of monetizing ...