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The blur between practicing and non-practicing entities

The term "non-practicing entity (NPE)" is often used to describe an entity that owns a patented invention, does not transform and will not transform the patented invention into an innovation, and has not abandoned the right to exclude others from transforming the patented invention into an innovation. Conversely, the term "practicing entity (PE)" can be used to describe an entity that owns a patented invention, has transformed or will transform the patented invention into an innovation, and has not abandoned the right to exclude others from transforming the patented invention into an innovation. To ensure that we're speaking the same language, an "innovation" is an invention, patented or not, that is engineered (tailored or adapted) for the marketplace and is new or introduced newly into the marketplace.

PEs typically do not like NPEs because NPEs can sue PEs for infringement of patented inventions but PEs cannot sue NPEs for infringement of patented inventions. NPEs cannot be sued because NPEs do not transform anything into innovations. One could argue that patents are tradable and are therefore commodities for the marketplace, likes shoes, for example. Based on this argument, one could conclude that patents are innovations. However, such a conclusion would be erroneous because patents are not inventions, nor can they be engineered.

Even though PEs typically do not like NPEs, it turns out that many PEs are not pure PEs, which makes their negative reaction to NPEs rather hypocritical. Let me explain this further.

PEs acquire patents for a myriad of inventions. Not all of these patented inventions are transformed into innovations. Yet the PEs, as part of their business strategies, hold on to the rights to exclude others from transforming these dormant patented inventions into innovations. Here, patented inventions that are not and will not be transformed into innovations by their owners are dormant patented inventions.

From the definitions above, an entity that owns a dormant patented invention and has not given up the right to exclude others from transforming the dormant patented invention into an innovation is an NPE. If this same entity has other patented inventions that have been or will be transformed into innovations by the entity, then the entity is also a PE. Thus, the entity is an NPE with respect to the dormant patented invention and a PE with respect to the patented inventions that have been or will be transformed into innovations. Here, patented inventions that have been or will be transformed into innovations are active patented inventions. If an entity has a patent portfolio with 50% dormant patented inventions and 50% active patented inventions, then the entity is 50% PE and 50% NPE.

Thus, an entity may be from 0 to 100% NPE, or from 0 to 100% PE. Many entities - those most likely to dislike pure NPEs - are x% NPE, or (100-x)% PE, where x is some number between 0 and 100. Now, one might think that the degree to which an entity is an NPE or PE is just mere semantics. However, this exercise gives one of the reasons why patent reform is difficult. PEs who don't like pure NPEs might prefer that pure NPEs are banished. However, an egalitarian or fair policy that banishes pure NPEs will necessarily require that impure PEs be exorcised of their dormant patented inventions, which would not bode well with these PEs. So, we see an alternative strategy where some entities would like to see patent infringement damages considerably lessened so that infringing is not so painful and other strategies where so-called PEs are banding together against the pure NPEs.