Guest Post: The Layered Patent System

Guest post by Michael Risch, Professor of Law, Villanova University School of Law.  Professor Risch also recently joined the Written Description blog as a regular author.  The full article, forthcoming in the Iowa Law Review, is available here.

This follows my last guest post about my article A Generation of Patent Litigation and is the third in my Patent Troll Myths series of studies of the ten most litigious NPEs from 2000-2010. To recap, I gathered data on 1313 randomly selected patent cases distributed over a 25 year period in roughly the same proportion as the 917 cases filed by the most litigious NPEs over the same time period. The number of cases grew substantially starting in 2004. This led to 792 nonNPE patents versus 352 NPE patents, which indicates that the NPEs asserted the more patents per case. This article expands on the last one by looking at the technology categories for each patent as well as the initial source of the patent that wound up in litigation.

The results of my analysis confirmed much of what we already knew, but the data allowed me to demonstrate it. In short, patent litigation is a complex system made up of at least three layers: inventors and their assignees, patent plaintiffs, and technology. There are surely more layers, like defendants and licensees, but these three layers have some of the most relevance to patent quality. The problem is that most of our discourse examines one—or maybe a second—layer at a time, but rarely all three. Thus, we have NPEs versus producers, software versus pharma, individuals versus corporations. We rarely have data that includes all three of these layers in one place. When they are included, they are usually considered control variables rather than additional explanatory measures.

This study seeks the interconnection between the layers. I’ll give a few examples in this post, but there is a lot more detail in the paper.

Consider, for example, initial assignees. Both the random plaintiffs and the most litigious NPEs obtained a majority of their patents from product companies. And a substantial percentage of those companies were public for both groups (though about twice as many for the random plaintiffs). But not all product companies are created equal. Among the random companies, the initial assignees were bigger, better funded by venture and stock market investors, had more employees, and earned greater sales.

What does this mean? Any quality differences we might see between the NPEs and random plaintiffs might relate to the size and types of companies obtaining those patents. It also means that the technologies we see the NPEs enforcing might be the types of technologies that require less investment.

In fact, we do see different types of technologies. The following table shows the top five patent classes for each group with a comparison to the percentage held by the other group. The differences are stark. The paper shows the top 13 categories, and shows that 66% of the NPE patents are in the top 13 classes, while only 30% of the random group’s patents are in the top 13 classes.

Top NonNPE Classes Top NPE Classes
Class   NonNPE NPE Class   NonNPE NPE
514 Drug 4.17% 0.28% 379 Telephonic Comm. 2.40% 17.05%
362 Illumination 4.17% 0.28% 360 Mag. Info. Storage 0.00% 8.24%
348 Television 3.66% 6.53% 705 Fin. Bus. Meth. 1.01% 6.82%
424 Drug 3.54% 0.00% 348 Television 3.66% 6.53%
349 Liquid Crystal 2.53% 0.00% 709 Data Process. Trans. 1.89% 4.55%

 

When we break down by technology and by plaintiff type (two different layers), we see differences that weren’t apparent before. The graphs below show two categories, e-commerce, which has higher invalidation rates, and electric circuits, which has lower.

Risch1
Risch2

In electronic commerce, the nonNPE group saw no challenges – at all. Among the litigious NPEs, however, nearly half of the patents were challenged. When there was a decision on the merits, patents were completely invalidated about half as often as they were held valid. But much of the time, challenges were denied or pending at dismissal.

For electric circuits, however, patents were challenged at about the same rate. But this time it was the nonNPE group that was more likely to reach a decision on the merits – with validation more than twice as much as invalidation when there was a decision on the merits, but also a decision on the merits almost three-fourths of the time. Among the litigious NPE group, however, all of the challenges were denied or pending at settlement, and none went through to final judgment.

These are just two technology categories. The paper compares several others, including optics, chemistry, and medical instruments. It also considers results for different types of software (and for non-software).

As a final test, I ran a series of regressions to test the likelihood that a patent would be adjudicated to have any invalid claim. The full model is presented in the paper, but a few of findings stood out.

First, patents coming from failed startups had the highest correlation with invalidity, regardless of who enforced the patent.

Second, patents left unassigned at issuance were more likely to be invalidated whether asserted by either group (though individual obtained patents fared better when asserted by the random plaintiffs). However, the same was not true of patents assigned to inventor-owned companies. The data does not allow a causal inference, but there appears to be something about inventors starting their own companies that improves validity outcomes later.

Third, once source of the patent and type of plaintiff is controlled for, invalidity differences appear for only some types of technology. This is consistent with the graph I show above, but more rigorous. Thus, for example, cryptography patents are invalidated about one-third as often when we consider the source of the patent and type of plaintiff as compared to just looking at the average cryptography patent without patentee/plaintiff type. On the other hand, optics patents are invalidated at about the same rate, whether or not we consider the source or plaintiff type.

Fourth, these findings continue for software. Though software patents are, on average, invalidated more often than other patents (a finding consistent with other studies), when the type of patentee and plaintiff is considered, whether the patent covers software is no longer statistically significant.

This last point is ultimately the point of the article. When we consider all of the layers of the system rather than just the averages on any one layer, the picture gets far more complex. My data can’t answer every question, of course. After all, I only studied the most litigious NPEs. But even this sample shows the complexity. There’s much more I could write, but I’m out of space. The full article is here if you are interested in reading more.

36 thoughts on “Guest Post: The Layered Patent System

  1. 4

    What I find interesting – and probably needs mention here – is that the US patent system was expressly designed to foster a willing separation from the consideration of the “what” from the “who.”

    It is only the “what” that is truly involved in the Quid Pro Quo and the patent right itself.

    After that, the (personal) property that is the patent is to be (by devoted policy) like any other property: freely and fully alienable.

    This foundation of patent law (which reflects aspects that go well beyond just patents) should be acknowledged, revered, and maintained.

    1. 4.1

      What I find interesting – and probably needs mention here – is that the US patent system was expressly designed to foster a willing separation from the consideration of the “what” from the “who.”

      Yeah… in practice, that’s not how it works. There are an abundance of stories about examiners basing their decisions of how lenient or strict to be with an application based on the identity of the assignee.

      I once had a discussion with an examiner over a 101 issue that went like this:

      Examiner: “I’m going to keep rejecting your claim under 101 unless you amend the statutory class to recite (x). That’s my only option for allowing the claim.”

      Me: “I’m sorry, my client won’t allow me to add (x) to my claims.”

      Examiner: “That’s not true. I’ve dealt with other applications involving your client, and other practitioners have agreed to (x) on its behalf. So it’s (x) or nothing.”

      Me: “Er – can I explain why (x) is problematic?”

      Examiner: “I don’t care about your argument. Your client has a habit of arguing for one claim construction during prosecution, and then arguing for a completely different claim construction at trial. I don’t trust anyone making arguments on behalf of your client, so I’m going to stick with my claim construction.”

      1. 4.1.1

        “Your client has a habit of arguing for one claim construction during prosecution, and then arguing for a completely different claim construction at trial. I don’t trust anyone making arguments on behalf of your client,”

        It is a problem if you get yourself sht listed due to bad behavior. Don’t take it personally, it seems to be your client that was “up to no good”. I’m very surprised that your examiner would know of your client’s exploits though lol.

        1. 4.1.1.1

          It is a problem if you get yourself sht listed due to bad behavior.

          Is that one of those other “quality” star-chamber SAWS-like programs?

      2. 4.1.2

        There are an abundance of stories about examiners basing their decisions of how lenient or strict to be with an application based on the identity of the assignee.

        I’m glad to hear the PTO is stepping up and doing its job.

        It’s naive to believe that anyone should be able to play transparent games with patent system and not to be taken to task for it.

        Please identify the client and the issue more specifically, David, and then we can all decide whether the PTO was the problem here. Thanks.

        1. 4.1.2.1

          >>whether the PTO was the problem here.

          When the Examiner stops treating a case on its merits and goes to who has submitted the application, then there is a problem. That’s called law 101.

          1. 4.1.2.1.1

            ” on its merits”

            If “the merits” are known to shift like the wind then there’s a problem NWPA.

        2. 4.1.2.2

          I’m glad to hear the PTO is stepping up and doing its job.

          I would love to see a proper legal citation to support “their job” to change the way examination is done or gear “severity” as a direct function of the “who” as opposed to the “what.”**

          **outside of any co-inventor type implications.

          1. 4.1.2.2.1

            …if that’s not too, u m, “d e e p” for our super wondrous friend to support his version of “job”…

          2. 4.1.2.2.2

            “direct function of the “who” as opposed to the “what.”**”

            Nobody said that the “who” is at issue. What they said was that the behavior of the who seemed to be impacting the merits.

      3. 4.1.3

        I had an examiner say to me:

        You may be right that my arguments aren’t valid, but your client has a habit of suing people so I’m not putting my name on any patent from your client. You’re going to have to appeal if you want a patent from me.

        1. 4.1.3.1

          Now that’s a bad one right there. You should explain to him about the nature of the entitlement program that he is administering.

          1. 4.1.3.1.1

            6, seriously? You think that is fair to have an examiner (primary) tell me that?

            1. 4.1.3.1.1.1

              “6, seriously? You think that is fair to have an examiner (primary) tell me that?”

              I just got through saying it was a bad thing to say.

          2. 4.1.3.1.2

            Of course the irony is that almost your entire professional life is as a recipient of that entitlement program.

            1. 4.1.3.1.2.2

              “Of course the irony is that almost your entire professional life is as a recipient of that entitlement program.”

              If that’s what you call working at the office, Imma have to lol at ya bro. It’s not much different than working at any of the other thousands of bland office buildings except I get to put in a bunch of VOT to help random members of the public.

  2. 3

    Since Professor Risch has a particular interest in litigation statistics relating to leading PAE’s [which statistics do seem to me to widely vary depending on their source] here is another needed research topic. [It may also be relevant to pending legislation.] The question is this: now that attorney fee sanctions against patent-asserters are becoming a lot more common, what percent are against PAEs vs others?
    [These of course are decisions subsequent to the Spring 2014 Sup. Ct. decisions in Octane and Highmark making 35 USC 285 attorney fee sanctions easier for objectively baseless patent infringement suits or other “exceptional cases” awards ”to the prevailing party,” although 28 USC 1927 and FRCP Rule 11 were applied in some cases.]
    Some examples are:
    Summit Data Systems v. EMC et al., where defendant NetApp was awarded $1.4 million in attorney fees by Judge Sleet of Delaware, and Linex Technologies v. Hewlett-Packard et al., where defendants H-P and Apple were awarded $3.7 million by Judge Claudia Wilken in the N.D. of California. Plus the recent award against the Ray Niro firm in Intellect Wireless against HTC., based on 28 USC 1927 and FRCP 11 (N.D. IL). On March 11, Judge ILLSTON in the U.S. District Court for the Northern District of California awarded the defendant about $5.3 million in attorney fees and $221,000 in costs. Kilopass Technology, Inc. v. Sidense Corp. On March 10, Judge GODBEY in the U.S. District Court for the Northern District of Texas awarded the plaintiff about $45,000 in attorney fees. Dehn’s Innovations LLC v. Cleanblastor LLC. On March 10, Judge GUILFORD in the U.S. District Court for the Central District of California awarded the defendant attorney fees in an amount to be set after additional briefing. Universal Electronics, Inc. v. Universal Remote Control, Inc. On March 9, Judge WILKEN in the U.S. District Court for the Northern District of California awarded the defendant attorney fees in an amount to be determined. Digital Reg of Texas, LLC v. Adobe Systems, Inc. On March 2, Judge LASNIK in the U.S. District Court for the Western District of Washington awarded the defendants about $33,000 in attorney fees. UltimatePointer LLC v. Nintendo Co.

    1. 3.1

      At some point I think we need definitions of

      1. Troll.
      2. PAE.

      We know what a NPE is. The problem is, most people do not understand that the big company can be an NPE as well, especially when, to them, patent licensing a business.

      Jason, you should not assume that a big company asserting a patent is a practicing entity if they are in the patent licensing business.

      A possible test of NPE status is whether part of the litigation occurs at the ITC. The petitioner there must prove “covered” articles as a condition for a remedy.

      1. 3.1.1

        Ned,

        As I recall, the ITC still covers licensing as an allowable condition for using that forum.

        1. 3.1.1.1

          anon, no, that was changed. They now require proof of covered articles under all circumstances. Licensing is OK — it just that the licensees must practice.

          This is off the top of my head. I would like to quote you a case.

          1. 3.1.1.1.1

            Don’t think that’s right Ned, as (depending on the contract), licensee may not be the party that can bring suit (the two functions are separable).

            1. 3.1.1.1.1.1

              Licensing is OK. Petitioner is the licensing entity. But they have to prove articles covered by the patent and they can do that by showing that its licensee is making, selling and using in the US.

              1. 3.1.1.1.1.1.1

                I will grant that you may be correct and I look forward to your citation showing this change.

  3. 2

    “In contrast, when the NPE deals in circuits, the patents they wield are no less valid that the patent wielded by the big boys.”

    The useful arts tend to have that affect on patents.

  4. 1

    Professor, this confirms my own gut feel that the primary problem with so-called trolls lies in software patents of one kind or another. The assumption being bandied is that the patents wielded by these NPEs are invalid, at least in part. It seems the data somewhat confirms this, but only with software patents of one kind or another.

    In contrast, when the NPE deals in circuits, the patents they wield are no less valid that the patent wielded by the big boys.

      1. 1.1.1

        Night Writer,

        Ned sees what he wants to see,
        He’s as blind as he can be.

        Ned can you see reality at all?

        (in the best tones of the Beatles)

        1. 1.1.2.1

          Ned,

          The fact that anything can be spun is just not the same as that that item so spun is actually correct.

          I suggest that you avoid the “6 school of re1ativism” no matter how much it may align with your view of how you want things to be.

    1. 1.2

      when the type of patentee and plaintiff is considered, whether the patent covers software is no longer statistically significant.

Comments are closed.