Cloud software patent claims will likely increase as more users migrate to the cloud.

As the public cloud services market continues to mature and grow – up from $178bn in 2015 to $209bn in 2016 according to research company Gartner – the concentration of computing resources into cloud data centres is increasingly attracting the attention of Non-Practising Entities (NPEs) as a target for patent litigation. At a time when data security and privacy risks are front of mind for cloud service providers (CSPs) and their users, the intellectual property (IP) risks to cloud service availability posed by NPE patent claims are rising up the business agenda.

NPEs are businesses that assert patents through litigation to achieve revenues from alleged infringers without practising or commercialising the technology covered by the patents they hold. NPEs are uniquely well placed to monetise their patents at each stage of the litigation cycle. They have access to capital and all necessary forensic and legal resources; and an NPE doesn’t practise its patents so is immune to a counterclaim that a defendant might otherwise be able to bring against a competitor, or a cross-licence that the defendant could otherwise offer.

NPEs’ activities may attract attention as arbitraging the patent system, but that is to miss the point: the defendant in a patent claim brought by an NPE generally has an unattractive real-world choice between the cost and distraction of litigation and the cost of settlement which, whilst low in relation to likely litigation costs, is high relative to the perceived merits of the claim.

According to the PwC  2016 Patent Litigation Study, software ranks in the top 5 US industries for patent claims, with NPE claims accounting for half the total. Whilst recent US cases have made it more difficult to patent and enforce computer-implemented inventions, cloud-based software patent litigation is increasing: NPEs appear to have doubled down over the last five years, acquiring more cloud patents for their armoury as well as filing more patent cases.

From the NPE’s standpoint this makes sense. Claiming that software in the CSP’s PaaS (Platform as a Service) or IaaS (Infrastructure as a Service) infringes the NPE’s patents can be an efficient way to threaten alternative objectives: the CSP risks an injunction stopping it from using the software that embodies the patented technology; and the CSP’s customers using that software also face disruption as they may be liable both for their own workloads and for their CSP’s infringing code that they use.

In fact, there is anecdotal evidence to suggest that claimants may prefer to claim against a CSP’s customers rather than the CSP itself. Australian patent holder Global Equity Management SA (GEMSA) was reported in February and June 2016 to have sued a number of Amazon Web Services (AWS) customers for infringement of GEMSA’s patents. The CSP customers in the GEMSA litigation are large, IP sophisticated companies, but most CSP customers usually will have less experience of cloud IP, will be eager to settle to make the claim go away and (unlike the CSP itself) will have little interest in solving the problem for others.

This last point is borne out in the GEMSA litigation where AWS is reported to have claimed against GEMSA in July 2016 seeking invalidity of two of GEMSA’s patents, noting in its claim that “GEMSA has specifically targeted technology of AWS” and that AWS has “a direct and substantial interest in defeating any patent infringement claims relating to AWS services identified by GEMSA in its complaints and infringement contentions.”