Disquiet on the XR Front — Strategies for an Increasingly Litigious Sector

With one report predicting the extended-reality (XR) industry will grow at around 30% year-on-year over the next few years, it is no surprise that new patent litigation fronts are opening up in the US by companies seeking to safeguard their share of XR's largest market. 

In January, video-display glasses maker XREAL extended its patent enforcement campaign against Viture in the US, acting through a subsidiary, following a successful infringement ruling in Germany.  This comes soon after a string of actions by an apparent non-practising entity (sometimes referred to colloquially as “patent trolls”) targeting various XR firms in the International Trade Commission.  All this gives the impression of an increasingly litigious sector indicative of a maturing market.

Previously, I outlined some defensive steps parties can take to minimise risks posed by patent trolls and other litigious entities.  Here, I discuss other relevant strategies companies in the XR sector may wish to consider that account for an evolving patent litigation landscape.

“The best defence…”

In nature, many animals use vibrant colors as a warning signal — a biological advertisement that they are dangerous, toxic, or otherwise not worth the hunt. Whether it’s the neon skin of a poison dart frog or the bold stripes of a wasp, these visual cues tell predators that an attack will carry a heavy price. A robust patent portfolio can function in the same way, serving as a strategic deterrent against both would-be infringers and potential litigators. Competitors may be less likely to instigate an infringement case against a company that is well-positioned to launch a retaliatory countersuit.  Even for companies that prefer to avoid the courtroom at all costs, doubling down on patent filings is hence a wise move to strengthen a defensive portfolio. 

As the probability of legal conflict intensifies within a specific industry, the value of a defensive patent portfolio grows proportionally.   A strong portfolio can therefore enhance a company's valuation even more so in high-stakes sectors.  For SMEs in particular, upping the rate of patent filings serves the dual purposes of safeguarding research and development and facilitating a successful exit strategy.   XR companies large and small should consider regular “innovation stock-taking” sessions to ensure no hidden wells of innovation are left untapped.

Playmaking with the Unitary Patent System

One aspect of European patent law that allows for strategising is the Unitary Patent (UP) system.

Upon grant of a European patent, proprietors have the option to request “unitary effect”, providing a “Unitary Patent” establishing protection over a wide geographical area (currently, 18 EU member states, including France and Germany).  Over the whole lifetime of a patent, requesting and maintaining a unitary patent costs notably less than it would to validate and maintain the patent in each UP-covered country individually.  Requesting a unitary patent can therefore be a cost-effective way to increase the aggressive potential of a European patent, compared to the traditional route of individual validation in specific countries.

There is (of course) a catch: UPs are revoked centrally.  This means that if the patent is found to be invalid by the Unified Patent Court, which has exclusive jurisdiction over UPs, it would not be possible to pursue a separate infringement action in a specific UP member state in the hope that a different validity outcome would be reached.

With this in mind, how should XR firms approach the unitary patent system, given the recent uptick in litigation?  One approach could be to make selective use of the system according to the relative importance of the underlying subject matter.  

For key patents directed to core technology of a business, the risk of central revocation may not be worth the increased coverage offered by a unitary patent.  This is especially the case in a sector becoming increasingly litigious, in which a possibly disastrous central revocation action could be more likely.  For such cases, the traditional validation route of obtaining national rights by individual validations may be safer for XR firms.  On the other hand, for patents covering non-business-critical technology, the extra coverage could provide increased offensive or defensive utility without the accompanying risk.

Empowering smaller entities through litigation funding

Sound patent strategy should adapt along with the evolution of the corresponding industry.  As the litigation landscape in the XR space changes, so too should organisations' patent strategies.  Increasing the number of applications filed cultivates a visible “warning signal” against would-be infringers and litigators alike.  The Unitary Patent system can be leveraged to increase the utility of less important patent applications in a cost-effective way.  However, in an increasingly litigious sector, taking the traditional validation route may be safer for core technology due to an increased risk of central revocation.  Small and medium-sized companies interested in asserting their patent rights may consider litigation funding to level the playing field against larger entities.

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.