Canada: Watch Out: NPEs Are Coming To Canada!

NPEs, otherwise known as non-practicing entities, or pejoratively referred to by some as "patent trolls", have seen a significant negative impact on their business model south of the border. NPEs are analogous to private equity businesses–their business model is to acquire undervalued patent assets and turn around and sell or license them to others, which often leads to expensive patent litigation. If their assets are depreciating in value, the model becomes significantly less attractive. This is exactly what is happening in the US.

Recent US Supreme Court decisions including Alice, which restricted the scope of patent-eligible subject matter, and eBay, which limited the ability of NPEs to obtain injunctions, along with the post-grant review processes introduced under the America Invents Act, have significantly depreciated the value of some US patent portfolios held by trolls. On average, there have been about eleven Section 101 decisions per month in the US federal courts post-Alice, with the overall rate of patent invalidation in the low 70% range.

Not many people will feel sympathy for the potential demise of the NPE business model in the US. However, they should be concerned about the broader implications of a weakened patent system for American innovation and entrepreneurship. In addition, innovative Canadian companies should be worried about the implications of NPEs shifting their focus north of the border, where litigations costs are a fraction of those in the US, where there is no analogous post-grant review process and where we have yet to see a judicial impediment against trolls obtaining permanent injunctions.

Canada can best avoid the problems experienced in the US from the assertion of patents of questionable inventive value, not by weakening the patent system, but rather by strengthening it. A better pre-grant review process, with highly-trained legal experts in the patent office, will increase the quality of issued patents in Canada. A stronger patent system will attract significantly greater innovation investment in the country and reward innovative businesses.

At a recent conference, NPE 2016 – The Business of Responsible Licensing, some representatives from NPEs indicated that the recent hit to their bottom lines in the US is causing them to turn to other markets. An entire panel discussion was devoted to shifting focus outside of the United States. One executive from a major NPE player said that the spotlight is now on Canada, Germany, and China. Key factors making Canada an attractive jurisdiction are the availability of injunctive relief and the relatively broad legislative definition of patent-eligible subject matter. The lower cost of litigation and the lack of jury trials are also considered to be helpful to plaintiffs. Furthermore, the absence of a post-grant review processes in Canada is a positive for NPEs. One CEO confirmed that his NPE company is increasing activity in the Canadian market, particularly in the technology space. Our patent litigators have already observed an apparent increase in NPE activity in Canada.

Unlike Canada, the NPE business model in the US has become high risk with low finality. In some technology areas, an issued patent is considered to be no more valuable than a pending patent application because of the increased availability of post-grant attacks. As a practical matter, NPEs presume a US patent to be invalid until it has survived inter partes review (IPR). The fight to secure royalty payments has become a never-ending struggle as "efficient infringement" is developing into a favourite sport among potential licensees. This dynamic has decreased the ability to obtain sufficient capital to fund the necessary litigation costs to "out-fight the licensees". In the past, NPEs only needed to go to court to compel an infringer to pay a license fee 1 out of 5 times. Now, NPEs need to go to court on a much greater frequency.

The landscape for buying US patent portfolios is also significantly changing. The participants in the conference generally agreed that NPEs now avoid paying up-front money and postpone payment for US patent portfolios until the patents have withstood IPR challenge. Most of the participants strive to maintain pending continuations on their base specifications so that claims can continue to be revised in the wake of post-grant reviews. In some cases, they pay nothing for the patent and share in the upside 50:50, but in other cases they occasionally pay some "seed money" if the invention seems particularly valuable. Many Fortune 100 companies are divesting their underutilized patent portfolios on a no-money-down, revenue-sharing basis, because they want to get these depreciating assets off the books.

Some of the conference participants anticipate that there will be continued reluctance on the part of potential patent licensees to pay a royalty fee until there is an actual negative impact. One of the speakers expressed hope that the US Supreme Court rulings in Halo and Stryker will lower the bar on willful infringement, thereby raising the spectre of up to treble damages as a deterrent to "efficient infringement". Other speakers believe that judicial history of infrequent enhanced damages awards will still govern despite the decision. Of course, a patent must first survive in order to move this far in the litigation process, so most participants were skeptical that the decision will have a significant impact.

The panel participants were asked whether the pendulum will swing back and US technology patents will become valuable again. Most participants said they do not expect the pendulum to swing back in the next 5-7 years, and some suggested the pendulum no longer exists.

Notwithstanding the seismic shift in the economics of patents, some of the NPEs said that they are still making money. It just means they need to amass larger portfolios of patents to obtain the same licensing revenue stream. Industry consolidation is anticipated as the scale of patent holdings and ability to fund litigation can only be successfully executed by larger NPE players.

It seems surprising that, as the land of entrepreneurship and innovation, the US would allow its patent system to be devalued so significantly. Certainly, some of the invalidated patents were not meritorious, but many valuable inventions are being arbitrarily deprived of protection as well. The American public does not seem to be overly concerned about this development—it is certainly not on the radar of the presidential candidates to any significant extent. This may also help explain why China is now dwarfing the US and Japan in terms of patent filings.

In addition to raising concerns for the future of the US innovation economy, this trend has consequences for Canada with the potential for NPEs to move north. We should learn a lesson from the US that weakening patent protection is the wrong solution; increasing patent quality through a stronger Canadian patent system is the better approach. In Canada, through skillful drafting and advocacy, we have been able to help companies receive the benefit of the more favourable Canadian patent system to obtain computer-implemented invention patents for their valuable inventions in Canada. We help our clients take a strategic portfolio approach, utilizing offensive and defensive commercial, patent prosecution, licensing and litigation tactics, to better protect themselves from third party patent infringement while gaining competitive advantage in the marketplace.

The weakening US patent regime provides a cautionary tale for Canada and presents an opportunity to strengthen the Canadian patent system to attract innovation dollars northward. In the meantime, companies should be reviewing their defensive and offensive intellectual property strategies to prepare for the potential arrival of infringement claims by NPEs in Canada. This should include developing a plan for litigation readiness in key business areas where IP threats have been identified, as well as a litigation review of key patent filings. This is also something we help our clients with regularly.

To view original article, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.