November 1, 2011, 3:36 PM

E-commerce patent suits nearly double in 2011

However, the number of e-commerce defendants per infringement case drops, RPX says.

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So-called patent trolls have filed more than 200 cases against e-commerce and software companies so far in 2011, eclipsing the total for the whole of 2010, according to figures released today by RPX Corp., the latest reminder that patent infringement remains a costly risk for online retailers. RPX buys up patents to protect its clients from getting sued, and charges its clients annual fees that range from $60,000 to $6.6 million, depending on company size.

The number of patent-infringement cases filed by patent trolls—or, more officially and kindly, non-practicing entities that hold patents on technology developed by others—reached 211 by the end of this year’s third quarter. That’s more than the 160 cases for all of 2010, RPX says, and 90% more than the 111 filed though the third quarter of 2010. By comparison, the number of total patent cases originating with non-practicing entities increased 64%, to 784 by the end of the third quarter from 479 for the same period in 2010, in route to 716 for the entire year.

While other technology sectors, such as mobile handsets, often are perceived as being the most lawsuit-prone when it comes to patents, that is not true, says Michael Kallus, RPX director. “It’s e-commerce,” he says.

Non-practicing entities typically try to collect licensing fees or similar payouts for patents they buy from other companies, such as bankrupt firms. The patents can cover specific technology and software, or broader systems commonly used by e-commerce operators; e-commerce patent infringement cases have involved such functions as site search, Internet connectivity, caching  and web browsing, to name only a few.

RPX, drawing upon lawsuit-filing data, also says the number of e-commerce-related defendants in patent cases for 2011 stood at 1,378 as of the end of the third quarter, up nearly 50% from 922 defendants for the same time last year. For all of 2010, the number of e-commerce related defendants reached 1,500.  

There are several reasons for the growth in these patent infringement cases, according to RPX and other experts. One factor is the strong appeal of online retail. Its increasing revenue represents a growing potential treasure chest to non-practicing entities. And the creation of new technologies for e-commerce, along with the ongoing availability of patents from failed companies, keeps the number of disputed patents high.

There seems to one potential bright spot for e-commerce operators worried about seeing their names on costly patent-infringement claims: The number of defendants per case has dropped, to 6.5 through the third quarter, down from 8.3 for the same period last year. RPX could not offer a reason for that drop, but says it could be due to the growing number of lawsuits. Non-practicing entities, or NPEs, typically target a large number of e-commerce defendants, and e-retailers often settle rather than go through an expensive trial.

The new federal patent law signed by Pres. Obama in September, the America Invents Act, would, among other things, make it more difficult to aim a single infringement suit at large collections of e-retailers, according to patent experts. “It makes it more difficult for NPEs to take a shotgun blast,” says Paul Reidy, RPX’s senior vice president for client development, “but they will still sue large numbers of defendants. I don’t think the new law will have hugely detrimental effect (on such cases), but it may slow the tide.” (RPX says the pending America Invents Act might have led some patent holders to rush to court with their claims, but otherwise doubted it had any significant effect on the new numbers.)

E-retailers seeking good patent news also might look to a judgment handed down last month that said neither Newegg.com nor Overstock.com Inc. violated e-commerce patents held by Alcatel-Lucent USA. Newegg is No. 12 in the Internet Retailer Top 500 Guide, and Overstock, No. 27. But even with the example of last month’s ruling—which Alcatel says it plans to appeal— Kallus says he doubts more e-retailers will decide to fight patent claims through the courts. “I’ve not seen a greater taste for fighting,” he says. “The economics are not there. It’s cheaper to settle.”

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