Bombshell Study: Heavily Litigated NPE
Patents Overwhelmingly Lose at Trial
To date, litigated patents were viewed as
"strong" patents - the types that defendants were supposed to avoid
taking to trial. Moreover, litigated patents were seen as more valuable,
since they managed to survive an all-out attack on validity by a presumably
well-financed defendant. Earlier studies (John R. Allison et al., Valuable Patents, 92
Geo. L.J. 435 (2004)) looked at litigated patents, and found that they differed from
non-litigated patents in that they (1) include more claims, (2) cite more prior
art, (3) are cited more often by later patents, and (4) come from larger
"families" of patents/continuations. Each of these factors are
now used in conventional methodologies to determine the private value of
patents.
John Allison, Mark Lemley and Joshua Walker recently
took on the task of identifying every patent that was litigated eight or more
times between 2000 and February 2009, including cases still pending, and
compared the outcomes of the cases against patents that were litigated only
once. In the course of their analysis, they found 106 such patents, which
have been litigated in a total of 2,987 different patent assertions in 478
different cases, often against multiple defendants.
What did they find? Serial patent litigants, and particularly NPE's (aka
"trolls"), for a lack of a better phrase, "get
creamed" when they go to trial:
[T]o our
great surprise, we
find that the willingness of these
patentees to litigate their cases to
judgment is a mistake. Far from
being stronger than other litigated
patents, the most--litigated patents that go
to judgment are far more likely to
be held invalid or not infringed. The
differences are dramatic. Once-litigated patents
win in court almost 50% of the time,
while the most-litigated – and
putatively most valuable – patents
win in court only 10.7% of the time.
The results
are equally striking for patents owned
by non-practicing entities (NPEs), and for
software patents. NPEs and software
patentees overwhelmingly lose their cases, even
with patents that they litigate again and
again. Software patentees win only 12.9%
of their cases, while NPEs win only
9.2%.
[S]tatistical
tests bear this out. We compare the
proportion of win rates, testing the
null hypothesis that there is no difference
between the most-litigated and once-litigated
patent outcomes. We test the proportions in
several ways, both including and excluding
settlements in the denominator of decided
cases, and both including and excluding
default judgments as plaintiff wins. No matter which test we use,
the differences are highly statistically
significant – the most-litigated patentees
were more likely to lose.
Also,
Considering
only the patents themselves, the
proportions of initial ownership by large
and small entities are almost equal
in the most- and once-litigated data
sets: 53.5% of most-litigated patents and
47.8% of once-litigated patents were issued
to large entities. The picture is
quite different, however, when one looks
at the proportion of actual assertions
in litigation, where large entities account
for a surprisingly small percentage of
the most-litigated patents. Because small
entities are disproportionately represented in
the actual litigation of most-litigated
patents . . . patents that were initially issued
to large entities represent only 22.4%
of the assertions in the most-litigated
group, compared to 47.8% of the once-litigated
group.
[W]hen the
cases do not settle, large patent
plaintiffs are significantly more likely
than small ones to win, without
regard to how the data are sliced.
When we combine the two data sets,
large entity plaintiffs win 53.1% of
the cases decided on the merits
(55.9% if default judgments are included),
while small entity plaintiffs win only
12.3% of their cases (23.1% if
default judgments are included).
Other interesting
findings:
- Just 16.7% of the
assertions of the most-litigated patents were made by product-producing
companies.
- Software patents
constituted 20.8% of the once-litigated patents but 74.1% of the most-litigated
patents.
- Owners of
non-software patents are far more likely to win their cases than are software
patent owners (37.1% versus 12.9% overall)
- The number of
defendants per case is a negative predictor of settlement - the more defendants
there are per case, the less likely the case is to settle. Also, the more
defendants there are per case the more likely those defendants are to
win.
The study concludes:
We designed
this study to explore the effects of
repeat play on litigation behavior,
contributing to a literature on the
economics of civil procedure as well
as the substance of patent law. But
what we found was dramatic and
unexpected: The patents and patentees that
occupy the most time and attention in
court and in public policy debates
– the very patents that economists
consider the most valuable – are
astonishingly weak. Non-practicing entities and
software patentees almost never win their
cases. That may be a good thing,
if you believe that most software
patents are bad or that NPEs are bad
for society. But it certainly means
that the patent system is wasting
more of its time than expected
dealing with weak patents. And it
also suggests that both our measures
of patent value and our theories of
litigation behavior need some serious
reconsideration.
Read/download
"Patent Quality and Settlement among Repeat Patent Litigants" (link)