Guest Post by Prof. Risch: A Generation of Patent Litigation: Outcomes and Patent Quality

By Michael Risch, Professor of Law, Villanova University School of Law.

Full article available here.

Almost three years ago, I guest posted here about Patent Troll Myths, my study of the ten most litigious NPEs at that time. One of my great regrets in that study was that I did not have a control set—a randomly matched sample to compare against the studied NPEs. Thus, in that paper, I tried to compare with other people’s outcome data. In the years since much has happened. First, most of the cases I studied came to resolution. Second, I collected data on nonNPE litigation to compare with my NPE litigation. I gathered data on 1313 cases distributed over a 25 year period in roughly the same proportion as the 917 cases filed by NPEs over that time. The numbers grow substantially starting in 2004. This led to 792 nonNPE patents versus 352 NPE patents, which indicates that the NPEs asserted the same patents in more cases.

The result is my new paper, A Generation of Patent Litigation: Outcomes and Patent Quality, which is forthcoming in San Diego Law Review. This is the first of at least two papers; the next one will focus on innovation and markets. The paper is full of comparative data about number of defendants, number of patents, choice of districts, complexity of litigation, etc. I don’t have enough room here to describe all of it, so I want to point out some of the key takeaways.

First, the data confirms the conventional wisdom: that NPEs prefer to settle earlier. There were more settlements among NPEs, many fewer trials, and durations were shorter even when holding things that lengthen cases constant, like appeals, merits rulings, and stays. There was one effect that bears further mention, though: NPEs filed more cases that were transferred or consolidated, and transfer/consolidation tended to lengthen cases.

Percentage of Cases Transferred or consoldiated

Even this, however, was not enough to make NPE cases longer. First, NPE transferred cases were shorter than nonNPE transferred cases (some might argue because NPEs dropped many cases if they were transferred, but the data doesn’t show that either way). Second, NPE cases were so much shorter that the average NPE case – including all those that were transferred or consolidated—was only 20 days longer than the average nonNPE case – excluding transferred cases. Once the transferred cases were added back to the nonNPE total, the average difference grew much longer. Full regressions are presented in the paper.

Second, when adjudicated on the merits, NPE patents were invalidated about 3 times as often as nonNPE patents. However, this was only about 12% of all the patents asserted by NPEs. Furthermore, this 12% was invalidated in less than 3% of the cases. For nonNPEs, it was about 4% of the patents in about 1.8% of the cases.

Percentage of cases adjudicated on invalidity merits, NonNPE v. NPE

Percentage of cases adjudicated on invalidity merits, NonNPE v. NPE

That is, of the patents asserted by NPEs, 88% were never tested on the merits, and 97% of the cases did not involve a patent invalidation. Most studies only report invalidity rates once a patent is adjudicated (and it’s bad for NPEs, like 91% of adjudicated patents because patents are only validated after trial, and NPEs never go to trial). This study asks what about the other 97% that are never adjudicated? I suspect the answer will vary depending on who you talk to, though I give some clues based on procedural dismissals, etc. The full paper includes reexamination results as well. Interestingly, reexaminationrs were only lightly correlated with litigation results.

Third, because I had data about all of the cases involving each of the patents, as well as the outcomes in each of those cases, I was in a unique position to test something I don’t think anyone else has been able to test: what causes a patent to by invalidated? The problem with just focusing on those patents that are adjudicated is that you lose most of the data in the set – data about the very same patents asserted by the same parties against potentially similar parties. The question is why does a patent eventually get invalidated?

It turns out that there is nothing on the face of the patent that will tell you. All of the traditional patent metrics, like future citations, number of claims, continuations, etc. are not statistically significant. (It turns out that this is true even if you look at adjudicated patents). Instead, aside from unobserved features of the patent (perhaps it’s “true” quality) and technology (which will be addressed in a later paper), the factors that most correlate with invalidation in court are those that relate to whether the defendant is more likely to challenge the patent in the first place. Thus, the number of defendants, number of times the patent has been asserted, the number of reexaminations (but, interestingly, not the results of the reexaminations), etc., are most predictive of invalidation. Now, to be sure, the NPEs in the study were more likely to do these things, but once the regression corrected for these choices and other selection variables, the NPE dummy variable added zero explanatory power in the model. Invalidation was a function of suing too often, suing the wrong parties, suing too many parties, or suing on too many patents at once, regardless of NPE status.

There was one further surprising result in all of this. Backward citations, or the number of other references cited in the patent, had a significant effect on invalidity. But the sign was wrong! The more citations, the more likely a patent is invalid. This is contrary to the conventional wisdom that “gold plating” with more references can help the patent. My interpretation is that more references means that the patent was one more likely to be asserted in a high impact way (thus, reexamined, etc.), and that backward citations is merely another variable that identifies likelihood of a challenge. I do not think it is about crowded art, because forward citations do not have the same result, which you would expect in a crowded art.

That’s all I can write in a guest post, but there is much more in the paper, including examination of infringement, reexamination outcomes (and their correlation to litigation outcomes), choice of district over time, etc. This is prepublication, so comments appreciated.

18 thoughts on “Guest Post by Prof. Risch: A Generation of Patent Litigation: Outcomes and Patent Quality

  1. Another finding in this paper:
    “More than 16% of the [major] NPE patents were found noninfringing at one point or another. This is more than twice the 6.8% of patents found invalid. A similar ratio applies to nonNPE patents as well.137 Further, the very small number of infringement findings for these NPEs was surprising, at it is well below the win rate for all NPEs.138 This illustrates concerns with defining NPEs as any company or person that does not sell a product. There is clearly a large variation in litigation merits among parties collectively called NPEs.”

    Reply
    1. Translation: some of the bigggest and most agressive troll companies are run by the kind of attorneys that we thought they were.

      Reply
  2. Another interesting finding from the paper itself: “since then, [2009] NPE lawsuits have grown to more than half of filings, depending on how one defines an NPE.”

    Reply
    1. I wonder how the definitions correlate with the GAO report from last summer…

      Reply
  3. I’m amazed that the finding that “when adjudicated on the merits, NPE patents were invalidated about 3 times as often as nonNPE patents” has not stirred up the usual commentator hornets nest?

    Reply
    1. probably because of the caveats attached to that statement deflate its effect a wee bit.

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  4. I’d have to look into this citing references. I know some firms create these gold plated applications for $40K with lots of cited references. Other times you get massive references cited because of litigation. Other times it can be because of inventors gone wild with references. Other times it can be from a search report that only cost less than $2K. So, I think how those references got there is important.

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  5. Thank you for this study and your interesting findings.
    I was not surprised at the finding that that patents asserted against large numbers of defendants had the highest odds of invalidation, since one can think of several good reasons for that, including the old addage that “two heads are better than one” at both finding and asserting prior art. It also correlates with only a few defendants even being willing to try to win on validity in a jury trial, and settling, or relying on a non-infringement defense. [Or, now, an IPR.]
    But the finding that patents with the largest numbers of prior art citations [which looks intimidating on an initial review, even though we all know examiners do not have time to actually read them] were the most commonly invalidated was indeed unexpected. I wonder if those multi-page art citations are particularly prevalent in asserted “internet business method” patents by certain applicants? Especially since I would guess that that kind of patent is often the kind of patent being asserted against the largest number of defendants?
    P.S. Given the widespread use now of IPRs, and given their estoppels, I would think the number of patents invalidated on prior art in litigation would soon become even smaller than it is now?

    Reply
    1. >>IPRs, and given their estoppels

      I don’t know about that. Don’t forget that estoppel only applies to the real part of interest that filed the IPR.

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      1. Yes [plus privies], but also don’t forget that almost all parties filing IPRs are the party being sued and thus the party having the estoppel risk.
        [But the estoppel only applies to patent or publication prior art, since that is all that can be raised in an IPR. But, on the other hand, some fairly recent cases have demonstrated that can be hard to prove up prior software PRODUCT prior art, for example, without such prior publication documentation.]
        —————-
        Good points at your 4 about the several different reasons for the massive prior art citations in some applications.

        Reply
  6. A couple of things that might be worth checking how they affect likelihood of invalidation:

    For the number of backwards references, who cited them? In the patents with large numbers of cited references, were these mostly cited by the applicant or by the examiner? Were they mostly cited on an IDS filed along with the application, or otherwise before first action, or as the result of a foreign office action, or at some other point during prosecution? In patents where the same inventor or assignee is involved, how much overlap is there among the cited documents, and does this overlap correspond to similarities in the subject matter disclosed/claimed in the patents?

    What size of entity prosecuted the patent? Who was the initial assignee, and at what point did the NPE become owner (or exclusive licensee) of the patent?

    Reply
  7. Large numbers of disclosures, from my point of view means you either:
    1. Don’t understand the patent, thus don’t understand what is relevant; or
    2. Are attempting to hide a reference that teaches an important feature.

    Reply
    1. al, attempting to hide may or may not be true. But hide is what happens in fact as the examiner really does not fully consider the references once they become too many.

      I have long advocated here that we stop the practice of citing published prior art – simply ban it. If a reference needs to be discussed, put in the the spec. and discuss it.

      Reply
      1. I mean, I cant see into the mind of the examiner, but I can see into my own mind. And I disagree that citing references is a bad thing, I think they are generally helpful (if done correctly).

        If I see a patent that I think is relevant and see 10, 15, 20 references I will check them out and go through the figures of them. If there is 100, 200 (sometimes there are thousands), there is really no point. You will be looking at a relevant Suture Anchor or Bone Screw, and one of the patents listed is a V12 engine. Plus, then the examiner cited references get buried, and they are only pertinent to the narrow set of things that the applicant actually claimed.

        Reply
        1. The distinction that I was drawing al is between citing references and including references in your application (and discussing them).

          Ned has a (bad) habit of thinking that old ways are how patents should be written, including discussions of things outside of what the inventor has invented.

          Reply
        2. Al,

          Most commercial search engines allow you to view the examiner cited references preferentially. This data is published by the USPTO and put into the common citation document. Unfortunately, you need a real search engine (not uspto.gov or google) to take advantage of this data. The great thing about this data is that it allows you to look at the citations in PG-Pubs, not just in granted patents.

          Reply

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