25 June 2013

US Patent Litigation Statistics and Trolls

From the brief PwC report on US patent litigation for 2012 [PDF], featuring observations to "help executives, legislators, and litigators assess their patent enforcement or defense strategies, as well as the impact"
  • The number of patent lawsuits filed spiked by almost 30% in 2012 to over 5,000, with some of that increase attributed to the AIA’s ‘anti-joinder’ provision. 
  • Annual median damages awards (in 2012 dollars) ranged from US$1.9 million to US$16.5 million between 1995 and 2012. The median damages award was approximately US$4.9 million over 2007 to 2012. 
  • The median damages award in the telecommunications sector was significantly higher than that of other industries. 
  • Biotechnology/ pharma, medical devices, and computer hardware/electronics also had higher relative median damages awards than did other industries.
  • Damages awards for nonpracticing entity (NPEs) averaged more than double those for practicing entities over the last decade. 
  • the median jury award amounted to nearly 45 times the median bench award between 2007 and 2012. 
  • 'Reasonable royalties' remain the predominant measure of patent damages awards, representing more than 80% of awards over the last six years. 
  • NPEs have been successful 24% of the time overall versus 34% for practicing entities, due to the relative lack of success for NPEs at summary judgment. Both have about a two-thirds success rate at trial. 
  • "While the median time-to-trial has remained fairly constant, averaging 2.3 years since 1995, we see significant variations among jurisdictions". Some federal district courts (particularly Delaware, Virginia Eastern,, and Texas Eastern) continue to be more favorable to patent holders, with shorter time-to-trial durations, higher success rates, and larger median damages awards.
  • The top five federal district courts (out of a total of 94) accounted for 39% of all identified decisions involving an NPE as the patent holder. The Eastern District of Texas accounted for 12% of NPE decisions. 
  • University/non-profit NPEs have the highest success rate among NPE litigants. 
  • Of currently-active judges, the ten most active on patent infringement cases generally have higher median damages and lower time to trial than the overall study medians.
The report comments that
Prior to 2012, only three patent infringement damages awards eclipsed the $1 billion mark. But last year alone, three cases, tried before juries in separate districts, resulted in awards of $1 billion or greater: Monsanto v. DuPont, Apple v. Samsung, and Carnegie Mellon University v. Marvell. The outcomes of these matters have varied so far. Monsanto v. DuPont settled for a ten-year $1.75 billion license; the $1.05 billion award in Apple v. Samsung was reduced by $450 million and likely will be modified further; and Carnegie Mellon v. Marvell remains in the post-trial phase. Similarly, two ‘stent wars’ verdicts of more than $500 million were overturned or settled for short dollars in 2013.
The 'Patent Assertion and US Innovation' report [PDF] from the White House  meanwhile states that
Some firms that own patents but do not make products with them play an important role in U.S. innovation ecosystem, for example by connecting manufacturers with inventors, thereby allowing inventors to focus on what they do best.
However, Patent Assertion Entities (PAEs, also known as “patent trolls”) do not play such roles. Instead they focus on aggressive litigation, using such tactics as: threatening to sue thousands of companies at once, without specific evidence of infringement against any of them; creating shell companies that make it difficult for defendants to know who is suing them; and asserting that their patents cover inventions not imagined at the time they were granted.
Suits brought by PAEs have tripled in just the last two years, rising from 29 percent of all infringement suits to 62 percent of all infringement suits. Estimates suggest that PAEs may have threatened over 100,000 companies with patent infringement last year alone.
While aggressive litigation tactics are a hallmark of PAEs, some practicing firms are beginning to use them as well. (“Practicing” firms use their patents to design or manufacture products or processes.)
PAE activities hurt firms of all sizes. Although many significant settlements are from large companies, the majority of PAE suits target small and inventor-driven companies. In addition, PAEs are increasingly targeting end users of products, including many small businesses.
PAEs take advantage of uncertainty about the scope or validity of patent claims, especially in software-related patents because of the relative novelty of the technology and because it has been difficult to separate the “function” of the software (e.g. to produce a medical image) from the “means” by which that function is accomplished.
A range of studies have documented the cost of PAE activity to innovation and economic growth. For example:
  • One study found that during the years they were being sued for patent infringement by a PAE, health information technology companies ceased all innovation in that technology, causing sales to fall by one-third compared to the same firm’s sales of similar products not subject to the PAE-owned patent. 
  • Another study found that the financial reward received by winning PAEs amounted to less than 10% of the share value lost by defendant firms, suggesting that the suits result in considerable lost value to society from forgone technology transfer and commercialization of patented technology.
History suggests that it should be possible to address these challenges. Similar cases occurred with patents for agricultural equipment and for railroad equipment in the late 19th century, in which there was great uncertainty about whether a valid patent had been infringed. Once these underlying conditions were changed, this business model was no longer profitable and litigation of this type fell dramatically.
Policies such as the following: fostering clearer patents with a high standard of novelty and non-obviousness; reducing disparity in the costs of litigation for patent owners and technology users; and increasing the adaptability of the innovation system to challenges posed by new technologies and new business models; would likely have a similar effect today.
Very similar statistics are provided in  the RPX report [PDF] -
1. NPEs sued nearly 2,500 different companies in 2012. NPEs filed 3,054 patent infringement cases against 4,351 defendants, which was over 80% more than the number of defendants in 2008. 2,465 unique companies were affected.
2. NPEs filed more than half (61%) of new patent litigation (measured by total defendants). This is the third straight year that NPEs were responsible for the majority of all new patent litigation.
3. Most companies sued by NPEs were small/private companies. Over half (63%) of unique defendants added in NPE cases in 2012 earn less than $100M in revenue, and 76% of unique defendants added in NPE cases in 2012 were private companies.  However, data collected in RPX’s separately released 2012 NPE Cost Study: High-Level Findings suggests that large companies still bear most of the economic burden of NPE activity.
4. NPE activity affected many industries not commonly thought to have an NPE problem. While companies were most commonly sued in E-commerce and Software cases (34% of total defendants added in NPE cases in 2012), NPE litigations targeted a diverse set of industries including Financial Services, Automotive, and Medical.
5. At the end of 2012, companies faced more than double the NPE litigation than they did only four years ago. The backlog of active NPE defendants, a proxy for the overall size of NPE activity, increased once again in 2012 and has grown 110% from year-end 2008 to year-end 2012.
6. Enactment of the America Invents Act (the AIA) in September 2011 affected the rate and timing of NPE assertions in 2012. While there was an increase in total cases filed (1,551 to 3,054), total defendants added—a better proxy for the volume of NPE litigation—decreased (5,329 to 4,351) from 2011 to 2012.
7. By year-end 2012, NPE assertions appear to have returned to a long-term growth trend, as the fourth quarter was one of the most active quarters in history with 1,069 cases filed and 1,445 total defendants added.
8. In 2012, NPEs targeted companies with significant activities in the mobile and consumer electronics sectors most frequently. Apple was sued almost once per week (51 new cases in 2012) and Samsung was targeted in more than 10 new suits per quarter (42 new cases in 2012).
9. NPE litigation was often carried out in the ordinary course of business as well-known and serial NPEs, Acacia and IP Navigation, topped the charts for 2012 NPE activity. Acacia filed 222 cases and added 317 defendants in 2012. IP Navigation filed 305 cases and added 357 defendants in 2012. The top 10 NPEs by cases filed accounted for 36% of all NPE cases filed in 2012.
10. More than half of NPE cases were filed in Eastern Texas and Delaware district courts with 985 and 740 cases filed in 2012 and 1,105 and 771 cases pending at year-end 2012 respectively, providing credence to industry perception that those venues are favorable for plaintiffs and/or NPEs. The Northern District of California was the most common venue for declaratory judgment actions against NPEs with 24 declaratory judgment cases filed in 2012.
11. The International Trade Commission (ITC) was a relatively popular venue for NPE activity for the second straight year. The ITC initiated 14 investigations in NPE cases in 2012 compared to five in each year from 2008 to 2010. While the ITC’s overall share of NPE litigation remains very small (less than 1% of cases filed), this suggests that NPEs may increasingly view the ITC as a strategic venue for assertions.
12. Patents asserted by NPEs in 2012 most frequently claim priority to the late ’90s technology boom. The four most common priority years for patents asserted in cases filed in 2012 were 1998 through 2001. The mean and median priority year was 1999.
13. The average NPE case ending in 2012 lasted less than a year. Cases ending in 2012 had a relatively short average duration as 53% completed within six months and 74% completed within a year. Terminated defendants in 2012 had similarly short periods of active litigation with 37% terminating within six months and 62% terminating within a year.
RPX has made a conscious effort to present the subject data in the most straightforward and objective manner and has withheld its own potentially subjective views and analyses. However, to the extent the reader is interested in an additional level of analysis, we encourage the reader to browse RPX’s website (www.rpxcorp.com) or reach out directly to RPX.