Patent trolling in the XR sector — a paper tiger, or virtual nightmare?

In a recent string of lawsuits, US company IngenioSpec LLC has challenged various big names in the XR space on the basis of alleged patent infringement.   In one complaint before the International Trade Commission (337-TA-3777), Meta, Valve, HTC, and others were all named as proposed respondents.  More recently, in June (337-TA-3833), IngenioSpec expanded their aggressive enforcement campaign by targeting less prolific companies in the sector, such as Even Realities and Brilliant Labs.  This will be unwelcome news to most XR technology companies, especially those operating in the US, but should companies in the UK or Europe be worried too?

In this article, I discuss some relevant nuances to patent infringement, consider the extent to which UK or European companies should be concerned, and outline some steps that can be taken to mitigate the risk of litigation.

Background and Non-Practising Entities

InegnioSpec appears to be, primarily, a non-practicing entity (NPE), which are sometimes referred to colloquially as “patent trolls”.  NPEs typically follow a business model based on acquiring patent rights and challenging companies on the basis of patent infringement.  An NPE usually has no intention to manufacture or sell the underlying technology of the patents they enforce, leading to historical accusations of bad-faith infringement claims and the moniker “patent troll”.  

Given that mounting an effective litigation defense in the US can accrue six-figure costs, many companies, especially SMEs, can become pressured into early settlement to the tune of hundreds of thousands of dollars.  

Mainly a US phenomenon?

It is worth stressing that NPE-brought suits overwhelmingly occur in the US — according to a 2024 report on global NPE litigation, these accounted for 97.2% of infringement cases filed by NPEs globally.  Therefore, if your company does not do or intend to do business in the US, the base-level risk posed by NPEs appears to be relatively low.  Germany and China are the next most active regions for NPEs and were found to account for only 1.8% and 0.7% of suits, respectively, by comparison.

One factor that likely discourages NPEs in the UK, Europe and other western states is frequent adherence to the so-called “English Rule”, whereby the loser of litigation pays a proportion of the winning party's legal fees.  This rule, which is not generally followed in the US, more strongly penalises the losing party and discourages frivolous infringement claims.  Despite this, around 10% of actions brought in the UK between 2018 and 2023 were still brought by NPEs, according to the same report.  Germany and The Netherlands reported similar figures.  This shows that, though dwarfed by the number of suits brought in the US, NPE litigation in some European jurisdictions remains a non-negligible proportion of suits.

In view of this, and given that most XR companies will be looking to tap into the US's large share of the XR market (sitting at roughly 37%, as estimated by one report), for many, it would be prudent to consider steps that can be taken to mitigate litigious risk.

(So-called) Freedom to Operate

Minimising the risk of infringement posed by NPEs is similar to avoiding infringement suits more generally, and so performing a general freedom-to-operate (FTO) search is a sensible place to start.  Of course, if a particular NPE is known to be enforcing rights in your technology sector in jurisdictions that you operate in, it may also be wise to monitor for patents filed or acquired by those NPEs.

FTO searching involves looking for patents in commercially relevant jurisdictions that could cover any products or operations of a business, and making assessments as to the level of risk posed by those particular patents.  The term "freedom-to-operate" is, in my opinion, rather misleading, because it suggests that total freedom is an attainable state.  In reality, there are a vast number of patent documents in force at any one time in a given technology field, which means that performing a fully exhaustive search on any sensible budget is not at all practical in most fields.  Companies should therefore view FTO searching as a way of reducing risk, rather than achieving an “all-clear” certificate.  

Nevertheless, there can be other benefits to conducting an FTO search, besides identifying potentially problematic patents.  For start-ups in particular, this can demonstrate prudent leadership, thereby easing the minds of investors and potentially increasing chances of investment.  Additionally, in the UK at least, damages are not awarded against a defendant found guilty of infringement who: “…proves that at the date of the infringement he was not aware, and had no reasonable grounds for supposing, that the patent existed” (Section 62, Patents Act 1977).  Conducting an FTO search can be one way of helping to demonstrate there are no ”reasonable grounds for supposing that the patent existed" to avoid paying damages in the worst-case scenario of losing an infringement case.

Going on the Attack

If an FTO search does reveal a patent or application that seems to be problematic, there are various ways to improve one's position, depending on the circumstances.

At the European Patent Office (EPO), within nine months from grant, an “opposition” can be filed and prosecuted against a patent at a small fraction of the price of full legal proceedings.  Oppositions can lead to complete revocation of the patent in question, or potentially a reduction in scope that could make design-around solutions more feasible.  If the application is not yet granted, third-party observations can, in some circumstances, be a good tactic that is available at the UK Intellectual Property Office (IPO) and the EPO.  This route involves filing comments on the patentability of an application with the intention of encouraging the examiner to either reject the application or else allow grant with a narrower, less problematic scope.  

Both of these options can be carried out anonymously, to help avoid revealing your position to the proprietor or applicant.

Litigation Insurance

As a safety net, companies may also wish to consider litigation insurance.  Such policies can cover various expenses that arise in the infringement claim process, depending on the extent of the cover, such as obtaining an initial infringement opinion, legal fees associated with defence, or payment of damages.  

Some insurance companies may allow public advertisement that a policy has been taken out, which could act as a deterrent to NPEs seeking to pressure smaller firms into early settlement on the assumption that those firms lack sufficient financial backing to mount a defense.  This approach would be most effective for “before-the-event” style policies that need to be obtained before any infringement action is initiated. However, it is also possible to take out “after-the-event” insurance following initiation of infringement proceedings to cover damages and other fees in the eventuality of defeat.

Conclusion

Though one apparent NPE is targeting companies large and small in the XR space, European-based XR firms may be relieved to know such activity is still mainly a US phenomenon.  Performing an early FTO search can provide companies with warning of stormy (patent) weather ahead — providing time to change tack or consider a design-around solution.  FTO searching can even attract investment or reduce the chances of paying damages in a worst-case scenario.  

If it looks like there is no option but to weather the (patent) storm, various cost-effective offensive options are available, such as filing an opposition at the EPO, or submitting third-party observations in the UK or Europe.  Litigation insurance can be a help for companies seeking to factor-in litigation risk into the cost of doing business and, potentially, deter NPEs.  Companies in the XR space should therefore feel equipped with an arsenal of options to steer their firm away from NPE-litigation and on course towards sunnier shores.

If you would like to discuss any of the issues raised in this article, you can contact me at emcneil@marks-clerk.com, or else the wider Glasgow patents team at glasgow@marks-clerk.com.