In question is Europe's new unified patent court system. Traditionally, companies have generally supported a pan-European approach to protecting intellectual property. Europe's patent system is currently a jungle of national rules, making it expensive to file patents and defend against infringements. Under the new system, companies can use any court in Europe to start a case and it will all be decided under the one body of law, with one verdict to cover the 28 Member States. As details of the new system have emerged, however, the technology industry has become concerned that it could be vulnerable to the patent entites that have cost firms billions in the United States.

Technology companies are worried that Europe may become a battle ground for patent lawsuits. In the United States, the number of patent cases, particularly in the information technology sector, has exploded in recent years. This phenomenon has largely been driven by entities that amass large portfolios of patents and attempt to enforce patent rights against accused infringers to collect licensing fees. Fourteen leading IT companies, including giants such as Google and Microsoft, addressed a letter . to European officials last week (26 September) warning of this danger.

These entities are called patent assertion entities (PAE) or Patent Holding Companies (PHC), but are more commonly known by the pejorative term `patent trolls', coined by Intel lawyer Peter Detkin in 1999. PAEs build up huge portfolios of patents that they then use to demand licensing fees from products that use technologies similar to those covered by their patents. Patents are purchased from a number of sources: firms going out of business, companies that have developed technologies or even individuals that don't have the resources to develop their patented ideas. PAEs themselves don't actually invent or develop technologies, they are merely vehicles for attempting to extract licensing fees.

In theory, these types of entities play a valuable role protecting innovators and the billions that are poured into R&D by companies around the world. In the entertainment business, for example, copyright holding companies have long helped individual artists and multimedia conglomerates alike monetise and protect their copyrights, which is an expensive and time consuming endeavour. In the technology sector, however, patent suits are often predatory and frivolous, filed by PAEs with the sole purpose of extorting as much money as possible. PAEs most often operate by filing large numbers of writs, hoping to scare companies into settling rather than take the case to court. Most profits are derived from out of court settlements.

Much of the abuses committed by patent trolls arise from overly broad and vague patents that should not have been issued in the first place. Most of the patents that end up in court are actually found to be of dubious quality or to have been improperly granted. The United States Patent and Trademark Office (USPTO) is issuing more patents than at any other time in history. In May 2012, cumulatively 8.1 million patents had been issued by the USPTO and around two-thirds of patents that are currently active are in the technology field. This is almost a remarkable 100% increase from just 30 years ago, when just over 4 million had been issues by the USPTO since it began operations in 1790. With thousands of patents issues every week, on average, less than a couple of days in reviewing the merits of each patent application.

The number of patent cases commenced in the United States almost doubled between 2006 and 2012 from just under 2,500 to over 5,000 according to a report by the President's Council of Economic Advisors. Much of this growth can be attributed to patent trolls. The total number of non-PAE cases has actually decreased slightly in absolute terms, as well as significantly in terms of percentage of total cases. In 2006, 19% of patent cases were brought by patent trolls compared with a staggering 62% in 2012.

To defend themselves against PAEs, IT companies have in turn begun to build up portfolios of patents with which to defend themselves, referred to as defensive patent aggregation. Industry titans such as Google, Microsoft and Apple have spent tens of billions amassing patents to defend themselves against patent-infringement suits. Large IT companies have more patents individually than do entire industries. Smaller companies are exposed to even greater risk, without the resources to purchase defensive portfolios or even defend themselves in court.

With the new European court system, IT companies have two major concerns as the details of the new patent system become more clear. First, companies worry that the new system is being too heavily influenced by the German model, which separates the legal question of whether a patent itself is valid from the issue of whether one patent infringes on another.

Patent cases often involve the related issues of whether a particular patent is valid and, if so, whether it has been infringed. The UPC [Unified Patent Court] Agreement allows these questions to be decided by different courts in the same case, but gives little guidance as to when or how this should or should not be done. This could, in some cases, allow plaintiffs to obtain a quick infringement ruling, along with an injunction barring products from most of the European market, before any determination of whether the patent in question is actually valid.

In the United States, many of the patents that make their way to court in suits brought by PAEs are eventually found to be invalid. By breaking apart the case, companies worry, may enable litigants to quickly obtain a ruling on an infringement suit before another court has even determined if the patent is valid. This may not seem so far-fetched as cases could actually take place in different courts in different countries.

The other issue is the use of injunctions to stop the sale of infringing products. Injunctions essentially permit patent holders to bar unlicensed products containing their technology from the market.

[R]igid application of an injunction rule could enable unprincipled litigants to "hold up" manufacturers by making unreasonable royalty demands for even a single trivial patent on a complex product. A rule that does not offer sufficient guidelines on when to grant injunctions will create strong incentives for abusive behaviors and harm the innovation that the patent system is designed to promote. This will be particularly true with injunctions under the UPC because the UPC injunction power will extend beyond a single country to most of Europe, and it could be used with the intended effect of impeding product sales across the region.

The system isn't all worries for IT companies though. For instance, according to Forbes , the new courts will all operate on the English system of allocating legal costs instead of the American one. This is something that makes American-style patent trolling much less profitable. Overall, the system will save European businesses hundred of millions annually by creating a one-stop shop for registering and protecting patents within the EU.