Patent Litigation Plummets by 20% in 2016
A few years ago, the general press was full of stories about an “explosion” in patent litigation.
A 2012 article in the NYTimes reported,
The number of patent lawsuits filed in United States district courts each year has almost tripled in the last two decades to 3,260 in 2010, the last year for which federal data is available.
Never mind that the growth in patent lawsuits was because of growth in the number of patents. It’s obvious that more patents mean more patent litigation.
In the meanwhile, for the last few years patent litigation has been dropping.
A recent report from Patexia shows that last year patent litigation dropped by 20%. How come we don’t see headlines in the general press “Patent Litigation Collapses?”
More to the point, why are there people still calling for “patent reform” when it’s clear that changes in the patent system over the last few years have already stopped the supposed “explosion” in litigation, and have, in fact, done serious harm to America’s patent system?
The number of patent lawsuits in 2016 dropped to 5,086, the lowest level seen since 2011. Other measures of patent litigation show even greater declines. The main reason there was a spike in patent cases in 2013 is that the America Invents Act (AIA), which came into effect in 2012, changed the rules regarding joinder. In most circumstances, it was no longer possible to sue multiple defendants in one case. The number of unique defendants has dropped more than the number of cases. Another measure is “unique assertions,” how many patents are being asserted against one or more entities. Another report from Patexia shows that the number of unique patents being asserted has been consistently DROPPING since 2010, from 5,285 to 4,016 in 2016. Considering that there are more active patents every year, the decrease in patent litigation intensity as measured by lawsuits per active, valid patent, is even more dramatic.
This raises two questions:
- Why is patent litigation on the decline?
- Why is there ongoing clamor about “out of control” patent litigation?
Reasons for the decline in patent litigation
There are several reasons for the decline in patent litigation over the last few years:
- The AIA created several new ways to challenge patents at the patent office, especially inter partes review (IPR) and covered business method patent review (CBM) that have increased costs and uncertainty for patent owners wishing to assert their patents. The bar to invalidate a patent in these proceedings is much lower than it is in court.
- Several Supreme Court cases, most especially Alice v. CLS, have put a damper on patent litigation. The Alice case alone put the validity of tens of thousands of software patents in doubt. In Alice, the Supreme Court said abstract ideas “implemented on a computer” are not patentable. No one knows how to interpret what’s a not-patentable abstract idea versus a patentable invention under Alice: not district courts hearing patent cases, not the Patent Trial and Appeal Board hearing administrative challenges to patents, not patent examiners, and certainly not patent owners who aren’t certain whether their software patents will survive an Alice-based challenge. Every invention starts out as an abstract idea. Alice provides no clear guidelines for what it takes to become a valid invention.
- All the press around patent litigation and patent trolls may be causing some companies to shy away from enforcing their patents, lest they be labeled a “patent troll.”
- Patent litigation is wildly expensive. As a result, it’s a business that’s often done on a contingency basis, but law firms are increasingly uninterested in contingency-based patent litigation because of the above factors that have weakened the patent enforcement system and increased risk and uncertainty.
Patent Owners are Adapting to the New Realities
Taking a deeper look at the numbers shows that patent owners are adapting to the changes in the rules – which is one reason changing the rules doesn’t always work out the way the rule changers envision.
We were a little surprised that the number of IPRs filed (around 150/month for the second half of 2016 after being lower the first half) has held relatively steady despite the decline in number of patent litigation cases. Looking at the data on unique patents asserted explains why: there’s been virtually no change in the number of patents being asserted from 2015 to 2016 (4048 in 2015 to 4016 in 2016). What’s dropped in the number of times each patent is being asserted. Patent owners are getting more cautious. It could be they are filing against fewer infringers to start with, to see if the patent survive validity challenges before taking on additional infringers, or perhaps they are focusing on stronger cases. Either way, the numbers show the behavior of patent owners changing in response to the changing environment.
Why Does the Myth of “Out of Control” Patent Litigation Persist?
There are a couple of reasons for the persistence of the myth of out of control patent litigation. One reason is that an occasional large award in a big patent case that grabs headlines; last month it was Merck’s record-setting $2.5 billion verdict against Gilead for infringement of a patent on hepatitis C drugs. Earlier in 2016 VirnetX won a $625 million verdict against Apple.
More importantly, however, is “big tech’s” discovery of, and enamor with, “efficient infringement.” Between IPRs and Alice, large corporation are increasingly willing to take their chances in court rather than pay a reasonable royalty. This promotes litigation, as patent owners have no recourse but to sue. The infringing company then makes a stink about “patent trolls,” regardless of whether the company suing them is an operating company or not. Refusing to pay a reasonable royalty, and then complaining about being sued, is sort of like killing your parents and expecting mercy because you’re an orphan.
The big tech coalition, led by companies such as Google and Cisco, continue to make noise and lobby for “patent reform” that would facilitate efficient infringement, even when by any objective measure patent litigation is on the decline.
With the changes in the Executive Branch (MAGA)—and the anticipated changes in the judiciary—we hope that the pendulum will begin to swing back toward property owners in general and patent owners in particular. A correction was expected and probably needed—but it’s gone far enough.