On Monday, the Financial Times published an article by Rana Foroohar. While there are a lot of flaws in the article, one particularly pernicious myth shows up—the myth that patent trolls aren’t really a problem. Purporting to look at patent reform as a battle between the tech industry and pharmaceutical manufacturers, the FT article gives the impression that patent trolls aren’t an issue.
Unfortunately, Ms. Foroohar relied on bad data in order to come to that conclusion.
The Trolls Under The Bridge Aren’t A Myth
In particular, Ms. Foroohar’s article focuses on three numbers. First, she states that the total number of defendants is largely unchanged before and after the America Invents Act (AIA). This is accurate. Second, she notes that a 2013 GAO report stated that patent trolls only filed 20% of lawsuits. This is also accurate.
She also quotes a 2013 report from the White House that states that patent trolls brought 66% of all patent lawsuits. She claims that this statistic is wrong and implies that it shows the tech industry had influenced the Obama Administration with fake statistics.
There’s only one problem. That 66% statistic? It’s also completely accurate.
I can hear you already—how could trolls only file 20% of lawsuits, and also file 66% of lawsuits? Those can’t both be right, can they?
Trolls Filed “Shotgun” Lawsuits, Hiding Their Numbers
Prior to the passage of the AIA in 2011, there was no restriction on the number of defendants that could be named in a single lawsuit. NPEs typically filed lawsuits naming multiple defendants; in some cases, a single “shotgun” suit might have dozens of defendants. In E.D. Texas, the average 2011 lawsuit named more than 10 defendants! This was generally not beneficial to the defendants. Operating companies, in contrast, tended to name a single defendant in their lawsuits. As a result, the GAO—correctly—stated that in the timeframe of their study, NPEs had filed approximately 20% of patent lawsuits.
The AIA included a change that makes statistics on the number of lawsuits hard to compare directly. After the AIA passed, multiple defendants can only be named in the same lawsuit when they’re jointly liable, or when infringement raises common questions of fact. This is why the number of lawsuits spiked after the AIA passed; to sue the same 10 defendants in E.D. Texas, your average NPE now has to file 10 lawsuits, not just one.
Turns Out It Was Patent Trolls The Whole Time
Even though the number of discrete patent infringement complaints filed in federal courts spiked, the total number of defendants remained relatively flat in the 2010-2015 timeframe. (This broke a sustained trend of steadily increasing numbers of patent defendants over the previous two decades identified by Professor Sag of Loyola-Chicago.)
During the timespan the GAO analyzed, 2000-2011, the old rules were in place. Under those rules, NPEs were indeed behind around 20% of lawsuits. But after the AIA was enacted, they couldn’t name dozens of defendants in a single case. As a result, they had to spread out, revealing that they’d been responsible the whole time for a majority of patent litigation even when they only filed 20% of lawsuits. As a result of the AIA’s changes, NPEs now file approximately two-thirds of all patent lawsuits against approximately 66% of all patent litigation defendants. The same 66% the Obama Administration reported in 2013, referring to post-AIA litigation. The same approximately 66% that trolls file today.
The AIA Has Helped
While the number of patent defendants was approximately steady immediately before and after the AIA, and has remained roughly flat since then, this doesn’t mean the AIA didn’t have an impact. The fact that the number of patent defendants has remained roughly static or slightly declined since the AIA’s passage, despite the long-term trend of several decades of increase identified by Prof. Sag, shows that the AIA has helped reduce patent litigation. And the cost-effectiveness of the AIA’s IPR procedure has helped reduce the costs related to the litigation that does occur.
But Ms. Foroohar claims that the AIA wasn’t necessary in the first place. Based on her flawed analysis of statistics you can’t compare directly, Ms. Foroohar concludes that “patent trolls are an overblown issue.” She implies that the entire problem is a mythical narrative that tech companies have simply made up.
Hundreds of millions of dollars spent defending against baseless NPE lawsuits doesn’t seem mythical. And 66% of all patent litigation coming from companies that make nothing and do nothing but file lawsuits doesn’t seem like an overblown problem at all.