Bibliography of pro-reform professors’ letter

Allison, John R., Emerson H. Tiller, Samantha Zyontz, and Tristan Bligh. Patent Litigation and the Internet.” Stanford Technology Law Review (2012): 3.

Summary

Using both univariate comparisons and multiple regression techniques, we find primarily that: (1) Internet patents and their two subtypes were litigated at a far higher rate than NIPs [non-internet patents] — they were between 7.5 and 9.5 times more likely to end up in infringement litigation, depending on the model we used. (2) Within the category of Internet patents, those on business models were litigated at a significantly higher rate than those on business techniques. (3) Across both Internet patents and NIPs, patents issued to small entities, especially individuals and small businesses, were much more likely to be litigated than those issued to large entities; (4) Patents of all kinds with more independent claims were significantly more likely to be litigated than those with fewer independent claims. (5) Including both Internet patents and NIPs, litigated patents received many more forward citations — citations received from later patents — than did unlitigated patents. (6) Patents issued to foreign entities were significantly less likely to be litigated than patents issued to U.S. entities. (7) The more time that an application for an Internet patent or NIP had spent in the PTO prior to issuance, the more likely it was that the patent granted from that application was to be involved in infringement litigation. (8) There was no difference in the ages of Internet patents and NIPs when they became the subject of litigation — both kinds were about 4.5 years old; (9) Once patent infringement litigation was initiated, the owners of litigated Internet patents were significantly more likely to settle before judgment than the owners of litigated NIPs (especially when probable settlements were taken into account along with obvious settlements, which we believe is the more accurate metric). (10) Across both sets of patents, the larger the number of potential infringers involved in a case (defendants in infringement actions and plaintiffs in declaratory judgment actions), the less likely the case was to settle. (11) Internet patents and NIPs went to trial at about the same rate. (12) When failing to settle, the owners of NIPs won on the merits at a significantly higher rate than did owners of Internet patents — although the win rate for NIP owners was quite low at around 16%, the win rate of Internet patents was even lower by a substantial margin. This finding did not hold up in regression analysis, however; when the effects of other variables were taken into account in a logistic regression analysis, there was no significant difference in the win rate for accused infringers between Internet patents and NIPs. Accused infringers did win more often when Internet patents were asserted against them than win they defended against NIP complaints, but the relatively small number of observations prevented the difference from being statistically significant. (13) Surprisingly, owners of both kinds of patents were significantly more likely to win as the number of inventors on the patents increased. (14) The longer that applications for Internet patents and NIPs had spent in the PTO before issuance, the less likely accused infringers were to win. (15) Accused infringers were less likely to win on the merits when the Internet patents or NIPs asserted against them had been litigated previously. (16) Across both sets of patents, the larger the number of potential infringers involved in a case, the more likely these potential infringers were to win a judgment on the merits. That is, the more infringement defendants per case, the more likely these defendants were to win. (17) There was no difference between the different types of patents in the percentage of cases that were terminated for procedural reasons. We also discuss a few other findings of interest.

Allison, John R., Mark A. Lemley, and Joshua Walker. Patent Quality and Settlement Among Repeat Patent Litigants.” Georgetown Law Review, 99 (2011): 677.

Abstract

Repeat patent plaintiffs—those who sue eight or more times on the same patents—have a disproportionate effect on the patent system. They are responsible for a sizeable fraction of all patent lawsuits. Their patents should be among the strongest, according to all economic measures of patent quality. And logic suggests that repeat patent plaintiffs should be risk averse, settling more of their cases and taking only the very best to trial to avoid having their patents invalidated. In this Article, we test those hypotheses. We find that repeat patent plaintiffs are somewhat more likely to settle their cases. But to our surprise, we find that when they do go to trial or judgment, overwhelmingly they lose. This result seems to be driven by two parallel findings: both software patents and patents owned by nonpracticing entities (so-called “patent trolls”) fare extremely poorly in court. We offer some possible explanations for why a group of apparently weak patents nonetheless has so much influence over the patent system and some preliminary thoughts about how these findings should shape the patent reform debate.

Anderson, J. Jonas, and Peter S. Menell. Informal Deference: A Historical, Empirical, and Normative Analysis of Patent Claim Construction.” Northwestern University Law Review, 108 (2014): 1.

Abstract

The Federal Circuit has been the target of a flurry of criticism regarding its claim construction jurisprudence. District judges, members of the bar, academics, and even the court’s own judges have been highly critical of the court’s rate of reversal of claim construction appeals, which peaked above 40%. Partially in response to the critics, the Federal Circuit undertook to reassess its claim construction jurisprudence in the Phillips case in 2005. The empirical and theoretical studies that have emerged since Phillipssuggest that little has changed: the Federal Circuit’s high reversal rate persists and the court’s procedures remain unaltered.

This Article contradicts those perceptions based on a comprehensive empirical analysis of the Federal Circuit’s claim construction jurisprudence from 2000 through 2011. We find that the reversal rate has dropped significantly since Phillips, dipping to 16.5% in 2009 from a high of 44% in 2004. Not only has the reversal rate plummeted, it has done so across the board: all judges on the Federal Circuit are now more likely to affirm claim construction decisions than they were previously, and nearly every technology sector case is more likely to be affirmed on appeal. Phillips signaled the beginning of an era of increasing yet “informal deference” to district court claim construction decisions.

The current era of informal deference does not mean, however, that the problems of claim construction have been adequately resolved. Notwithstanding the drop in the reversal rate, the Federal Circuit’s adherence to the de novo standard has frustrated district courts’ distinctive capabilities for apprehending and resolving the factual disputes inherent in claim construction determinations, undermined the transparency of the claim construction process, discouraged detailed and transparent explanations of claim construction reasoning, and produced alarming levels of appellate reversals. The Supreme Court’s Markman decision supports a balanced, structurally sound, legally appropriate, hybrid standard of appellate review that would promote more accurate, efficient patent dispute resolution. Under this standard, the Federal Circuit would defer to trial judges’ factual determinations in claim construction rulings—such as how a person having ordinary skill in the art would understand technical terms used in a claim—but would retain de novo authority over whether the trial court’s factual finding inappropriately overrides more specific intrinsic indications of the patent’s scope.

Bessen, James. “The Evidence Is In: Patent Trolls Do Hurt Innovation.” Harvard Business Review (July 2014).

Bessen, James and Michael J. Meurer. The Patent Litigation Explosion.” Loyola University Chicago Law Journal, 45 (2013): 401.

Abstract

This paper provides the first look at patent litigation hazards for public firms during the 80s and 90s. Consistent with our model, litigation is more likely when prospective defendants spend more on R&D, when prospective plaintiffs acquire more patents and when firms are larger and technologically close. Public firms face dramatically increased hazards of litigation as plaintiffs and even more rapidly increasing hazards as defendants, especially for small public firms. The increase cannot be explained by patenting rates, R&D, firm value or industry composition. Legal changes are the most likely explanation.

Bessen, James and Michael J. Meurer. The Private Costs of Patent Litigation.” Journal of Law, Economics and Policy, 9 (2012): 59.

Abstract

This paper estimates the total cost of patent litigation. We use a large sample of stock market event studies around the date of lawsuit filings for U.S. public firms from 1984 to 1999. Even though most lawsuits settle, we find that the total costs of lawsuits are large compared to estimated legal fees, estimates of patent value, and research and development spending. By the late 1990s, alleged infringers bore expected costs of over $16 billion per year. These estimates support the view that infringement risk should be a major concern of policy.

Bessen, James and Michael J. Meurer. The Direct Costs from NPE Disputes.” Cornell Law Review, 99 (2014): 387.

Abstract

In the past, “non-practicing entities” (NPEs), popularly known as “patent trolls”, have helped small inventors profit from their inventions. Is this true today or, given the unprecedented levels of NPE litigation, do NPEs reduce innovation incentives? Using a survey of defendants and a database of litigation, this paper estimates the direct costs to defendants arising from NPE patent assertions. We estimate that firms accrued $29 billion of direct costs in 2011. Although large firms accrued over half of the direct costs, most of the defendants were small or medium-sized firms. Moreover, an examination of publicly listed NPEs indicates that little of the direct costs represents a transfer to small inventors.

Bessen, James, Jennifer Ford, and Michael J. Meurer. The Private and Social Costs of Patent Trolls.” Regulation 34(4) (2011): 26.

Summary

Firms that buy and license technologies can improve the market for technology and thus improve the innovation incentives for independent inventors. Patent agents and markets for technology have been an important part of the U.S. innovation system since the 19th century.

But the role of the current NPEs who assert and litigate patents is something altogether different. It is focused on software and related technologies, it targets firms that have already developed technology, and it is very much about litigation, especially litigation in the special circumstances where multiple large parties can be sued at the same time. Whatever the general benefits of technology markets, this does not obscure the fact that this particular manifestation involves large amounts of costly litigation. It is hard to believe that markets can be somehow improved by having thousands of lawsuits that incur hundreds of billions of dollars in losses.

We have shown that defendants have lost over half a trillion dollars in wealth—over $83 billion per year during recent years—and this has not improved incentives to innovate. While the lawsuits might increase incentives to acquire vague, overreaching patents, they do not increase incentives for real innovation. The defendants in these lawsuits are firms that already invest a lot in innovation. Their losses make it more expensive for them to continue to do so and it also makes them less willing to license new technologies from small inventors. Meanwhile, independent inventors benefit very little from what the large companies lose.

Chien, Colleen V. Of Trolls, Davids, Goliaths, and Kings: Narratives and Evidence in the Litigation of HighTech Patents.” North Carolina Law Review, 87 (2009): 1571.

Chien, Colleen V. Predicting Patent Litigation.” Texas Law Review, 90 (2011): 283.

 

Abstract

Patent lawsuits are disruptive, unpredictable, and costly. The inability to anticipate patent litigation makes it practically uninsurable, exposes companies to costly lawsuits, and drives companies to accumulate patents in order to ward off litigation. This Article confronts this systemic problem by examining the factors that lead a particular patent to be litigated—only around 1%–2% of patents ever are. It relates the eventual litigation of a patent to earlier events in the patent’s life, including changes in ownership of the patent (assignments, transfers, and changes in owner size), continued investment in the patent (reexamination and maintenance fees), collateralization of the patent, and citations to the patent. To date, these “acquired” characteristics, developed after a patent has issued, in contrast to the intrinsic qualities with which a patent is “born” have been the subject of limited academic study.

The results are dramatic: along the dimensions studied, patents that end up in litigation have markedly different characteristics than patents that do not. Importantly for predictive purposes, these differences develop prior to the time of litigation, suggesting that litigation-bound patents can be identified ahead of time. The results are also surprising, showing that the likelihood of litigation depends on not only how valuable the patent is but also on its owner and transaction history. The ability to sort among many patents has many potential applications, including in patent risk management, patent portfolio management, and patent planning. The findings presented here draw attention to a policy area that has been long overlooked—ensuring that the public has notice not just of what a patent covers but who owns it and what happens to it. Where a thicket of patents covers a single product, this information can help to highlight its thorniest parts. In addition, the ease with which patent owners can hide who they are and what they are doing with their patents raises cause for concern and potential reform of the patent system.

Chien, Colleen V. Startups and Patent Trolls.” Stanford Technology Law Review, 17 (2014): 461.

Abstract

While patent assertion entities (“PAEs” or patent “trolls”) have received a lot of attention, little of it has focused on the distributional impacts of their demands. The impact of PAEs on startups is crucial, because startups contribute to job creation and innovation, making them potential targets of patent demands. To assess the impact of trolls on startups, I analyzed a comprehensive database of patent litigations from 2006 to the present, conducted a non-random survey of 223 tech company startups, 79 of which had received a demand, and interviewed nearly twenty entities with relevant knowledge of startup patent issues.

I find that although large companies tend to dominate patent headlines, most unique defendants to troll suits are small. Companies with $100M of annual revenue or less represent at least 66% of unique defendants to troll suits and at least 55% of unique defendants in troll suits make $10M or less per year. Suing small companies appears to distinguish PAEs from operating companies, who sued companies with $10M or less per year of revenue only 16% of the time, based on unique defendants. Of survey respondents that had received a demand (N=79), a large percentage reported a “significant operational impact”: delayed hiring or achievement of another milestone, change in the product, a pivot in business strategy, shutting down a business line or the entire business, and/or lost valuation. The smaller the company, the more likely it was to report one or more significant operational impacts. To the extent patent demands “tax” innovation, then, they appear to do so regressively, with small companies targeted more as unique defendants, and paying more in time, money and operational impact, relative to their size, than large firms. 40% of survey respondents stated that they were being targeted because of their use of another’s or a widely available technology.

Yet an operational change was not the only response to a demand: 22% of respondents reported that, to resolve the demand, their primary response was to “do nothing,” while 35% fought the demand, and 18% settled it. Based on available information, costs were highest when fighting in court was the primary response (with average expenditures of $857K (N=7)); settling cost an average of $340K (n=12) and fighting out of court cost $168K (N=18), on average (Table 1).

Small companies can also benefit from a robust market in patents, both as sellers and buyers. An estimated 50% of “non-practicing entity” (“NPE”) patents come from companies with less than $200M in revenue. Patent sales can support the ongoing business, and 4% of survey respondents said they had monetized their patents, and another 20% said that they had considered it. Yet while the conditions of a majority of sales is unknown, they often take place when the company is in distress or transition, as growing young companies often lack the inclination, time, or extra patents to monetize their intellectual property. When patents are sold under firesale conditions, investors, creditors, and patentfocused companies share in the profits, reducing the direct returns to the inventive entity. Growing companies can also benefit from the patent marketplace, buying patents from the marketplace “on-demand” and overcoming some of the advantages of incumbents.

What can be done to decrease the harms of patent assertion and increase the benefits of a robust patent market to small companies and startups? Focusing exclusively on the first question, I present new data that suggest that a number of the reforms put in place over the last year, including by the America Invents Act, are having a positive impact. Fewer defendants are being named in patent suits. The new post-grant review provisions will reduce the leverage of patent plaintiffs in some cases. However, some of these reforms are out of the reach of startups. Prior user rights benefit older companies against younger patents, but don’t help new startups. Startup companies are cash-poor, but challenging issued patents is expensive and time-consuming. Reforms to reduce the cost of litigation defense are laudable, and likely deter some suits from being brought in the first place, but don’t reach small companies against whom litigation is threatened, but not brought. Increasing the cost of software patents would limit the number of patents but would also disadvantage startups that patent, relative to large companies and PAEs with large budgets. The distributional impacts of reforms need to be kept in mind, and I suggest some alternative reforms for the consideration of the courts, Congress, and the market.

Chien, Colleen V. Patent Assertion and Startup Innovation.” New America Foundation (2013).

Abstract

The first part of this report describes the experiences of startups with patent assertion based on surveys of about 300 venture capitalists and venture-backed startups conducted in 2013. It also reports on companion surveys of patent litigators and large-company patent counsel in 2013, and a non-random, non-representative survey of startups conducted in 2012 for a total of over 1,100 respondents. Due to the difficulty of reaching a representative population, these results are not generalizable to all start-ups and startup investors, but instead serve as a window into their experiences and views. The second part of the report describes existing and potential legislative, judicial, and market-based responses and recommends how they may be tailored to better meet the needs of startups and resource-poor companies.

According to survey responses, patents for novel inventions play a generally positive and at times crucial role for startups. They help to transfer technology, enable investment, and improve exits, particularly in bio/pharma industries. But patent assertions by NPEs, which at times hit startups when they are least able to fight them—on the eve of a funding or acquisition event, or, 40% of the time, in the context of the startups’ customers—can have significant and at times devastating impacts on companies. Though partnering with NPEs to monetize patents can be beneficial to companies as well, the benefits do not appear to offset the harms, according to survey responses and VC interviewees whose companies had been sold to and been sued by NPEs. Furthermore, many survey respondents do not 4nd these to be socially productive assertions—but rather on the basis of patents that, though they may be valid, are viewed as frivolous or overbroad.

Though the risks associated with patents were described as feeling “unbounded,” startups are routinely expected to absorb these risks in their dealings with acquirers, investors, and customers. Overall, these assertions have added friction to technology transactions, reduced the value of pursued startups, and triggered large indemnities, according to study subjects. More specifically, we found:

Finding 1: Based on survey responses, 75% of surveyed venture capitalists (VCs) and 20% of venture-backed startups with patent experience have been impacted by an NPE demand; nearly 90% of all tech VCs have been impacted. The demand was based on the startup’s adoption of another’s technology 40% of the time. Low quality and so6ware patents were identified as problematic.

Finding 2: Although NPE assertions are perceived as motivated primarily by money, respondents reported routinely experiencing non-financial consequences including delays in hiring, meeting milestones, and business line pivots and exits.

Finding 3: Most VC respondents believe patents are important for innovation. An estimated 5% of startups have sold their patents to NPEs, experiencing positive benefits from doing so. However, most surveyed VCs, including the small number whose companies have sold to NPEs, believe that NPEs are harmful for innovation.

Finding 4: Startup concerns with patent enforcement go beyond NPEs and extend to the disadvantages startups su5er relative to larger incumbents as a result of poor patent quality, high costs, and delays associated with the patent system, survey respondents told us. The inability of startups to defend their own patents and suits brought by “patent predators,” larger companies that sue with anti-competitive motives, also presented specific concerns.

Chien, Colleen V. Patent Trolls by the Numbers.” Santa Clara University Legal Studies Research Paper No. 08-13 (2013).

Cohen, Lauren, Umit Gurun, and Scott Duke Kominers. Patent Trolls: Evidence from Targeted Firms.” No. w20322. National Bureau of Economic Research (2014).

Abstract

We provide theoretical and empirical evidence on the evolution and impact of non-practicing entities (NPEs) in the intellectual property space. Heterogeneity in innovation, given a cost of commercialization, results in NPEs that choose to act as “patent trolls” that chase operating firms’ innovations even if those innovations are not clearly infringing on the NPEs’ patents. We support these predictions using a novel, large dataset of patents targeted by NPEs. We show that NPEs on average target firms that are flush with cash (or have just had large positive cash shocks). Furthermore, NPEs target firm profits arising from exogenous cash shocks unrelated to the allegedly infringing patents. We next show that NPEs target firms irrespective of the closeness of those firms’ patents to the NPEs’, and that NPEs typically target firms that are busy with other (non-IP related) lawsuits or are likely to settle. Lastly, we show that NPE litigation has a negative real impact on the future innovative activity of targeted firms.

Cotropia, Christopher A., Jay P. Kesan, and David L. Schwartz. Unpacking Patent Assertion Entities (PAEs).” Minnesota Law Review, 99 (2014): 649.

Abstract

There is tremendous interest in a certain type of patent litigant — the often-called non-practicing entity (“NPE”), patent assertion entity (“PAE”), patent monetization entity (“PME”), or simply patent troll. These NPEs are the subject of a recent GAO report, a possible FTC investigation, pending legislation before Congress, and even comments from the President of the United States. All of this commentary and activity centers on whether NPE participation in patent litigation, and the patent system in general, is detrimental or beneficial to society. But the fundamental barrier to understanding the current debate is the lack of granular and transparent data on NPE litigation behavior.

Accordingly, we personally hand-coded all patent holder litigants from calendar years 2010 and 2012, and we are releasing this data to the public. In our coding, we drill down and finely classify the nature of the litigants beyond the simple NPE or non-NPE definitions. Releasing this data to the public that unpacks the definition of NPE can provide better illumination to policy makers, researchers, and others interested in the patent litigation system.

The data reveals a much lower percentage of litigation brought by patent holding companies than other studies, finding no explosion in NPE litigation between 2010 and 2012. Instead, we find that most differences between the years — an increase in the number of patent holding companies and individual inventor suits — is likely explained by a change in the joinder rules adopted in 2011 as part of the America Invents Act.

Ewing, Tom and Robin Feldman. The Giants Among Us.” Stanford Technology Law Review (2012): 1.

Abstract

The patent world is undergoing a change of seismic proportions. A small number of entities have been quietly amassing vast treasuries of patents. These are not the typical patent trolls that we have come to expect. Rather, these entities have investors such Apple, Google, Microsoft, Sony, the World Bank, and non-profit institutions. The largest and most secretive of these has accumulated a staggering 30,000-60,000 patents.

Investing thousands of hours of research and using publicly available sources, we have pieced together a detailed picture of these giants and their activities. We consider first the potential positive effects, including facilitating appropriate rewards for forgotten inventors, creating a market to connect innovators with those who can manufacture their inventions, and most important, operating as a form of insurance – something akin to an Anti-Troll defense fund.

We turn next to the potential harmful economic effects, including operating as a tax on current production and facilitating horizontal collusion as well as single firm anticompetitive gamesmanship that can raise a rival’s costs. Most important, we note that mass aggregation may not be an activity that society wants to encourage, given that the successful aggregator is likely to be the one that frightens the greatest number of companies in the most terrifying way.

We argue that mass aggregators have created a new market for monetization of patents. It is vast, rapidly growing, and largely unregulated. We conclude with some normative recommendations, including that proper monitoring and regulation will require a shift in the definition of markets as well as a different view of corporations and their agents.

Feldman, Robin, Tom Ewing, and Sara Jeruss. The America Invents Act 500 Expanded: Effects of Patent Monetization Entities.” UCLA Journal of Law & Technology, 17 (2013): 1.

Abstract

Public attention is increasingly focused on patent monetization entities. Known colloquially as “patent trolls,” these entities derive income from licensing or litigating, rather than producing a product. To understand the impact of these entities, we examined all patent litigations filed across four years, 2007-2008 and 2011-2012. This involved analyzing almost 13,000 cases and almost 30,000 patents asserted.

Most striking, as of 2012, litigation by patent monetization entities now represents a majority of the patent litigations filed in the United States. In fact, 58.7% of all patent lawsuits were filed by monetizers. This is a sharp rise from 2007, when monetizers filed only 24.6%. In addition, of the parties who filed the greatest number of patent litigations in the years we studied, all 10 are monetizers.

We also examined the age and transfer patterns of the patents asserted. Among other findings, we saw that the newest patents issued are the ones most frequently litigated. This could suggest that people are increasingly applying for patents with the intent of filing lawsuits, rather than making products.

Our analysis also revealed a problem previously unrecognized. Mechanisms for notifying the public when patents have been asserted in lawsuits are woefully inadequate. Current mechanisms did not operate 2/3 of the time. The study also found indications of stealth behavior, as well as a market for purchasing patents after they expire.

Feldman, Robin. Patent Demands & Startup Companies: The View from the Venture Capital Community.” Yale Journal of Law & Technology, 16 (2014): 236.

Abstract

With the high level of interest in patent monetization and its effects on US companies, data on the topic is increasingly important. This study examines one aspect of the topic, focusing on the effects of the rising patent monetization market on startup companies. The study provides one of the rare glimpses of monetization activity outside of lawsuits. It provides both quantitative and qualitative information on the startup community’s experience with and perspectives on patent demands.

Feldman, Robin, and Mark A. Lemley. Does Patent Licensing Mean Innovation?.” Working Paper (2015).

Abstract

A commonly offered justification for patent trolls or non-practicing entities (NPEs) is that they serve as a middleman facilitating innovation, bringing new technology from inventors to those who can implement it. We survey those involved in patent licensing to see how often patent licenses actually led to innovation or technology transfer. We find that very few patent licenses from assertion actually lead to new innovation; most are simply about paying for the freedom to keep doing what the licensee was already doing. Surprisingly, this is true not only of NPE licenses but even of licenses from product-producing companies and universities. Our results cast significant doubt on one common justification for patent rights.

Fischer, Timo, and Joachim Henkel. Patent Trolls on Markets for Technology: An Empirical Analysis of NPEs’ Patent Acquisitions.” Research Policy, 41, no. 9 (2012): 1519.

Abstract

Patent trolls, or NPEs, appropriate profits from innovation solely by enforcing patents against infringers. They are often characterized as relying on low-quality patents, an assessment that, if correct, would imply that eradicating such patents would effectively terminate the NPE business. In this paper, we shed light on this issue by empirically analyzing NPEs’ patent acquisitions. We draw on a unique dataset of 392 U.S. patents acquired by known NPEs between 1997 and 2006, which we compare to three control groups of 784 U.S. patents each acquired by practicing firms. We find that the probability that a traded patent is acquired by an NPE rather than a practicing entity increases in the scope of the patent, in the patent density of its technology field and, contrary to common belief, in the patent’s technological quality. Our findings thus support recent theoretical propositions about the NPE business model, showing that NPEs procure patents that are more likely to be infringed, harder to substitute for, and robust to legal challenges. The fact that NPE-acquired patents are of significantly higher quality than those in the control group implies that elevating minimum patent quality will not put an end to the NPE business, and suggests that this business is sustainable in the long run. We furthermore discuss the fact that NPEs are peculiar players on markets for technology insofar as they are solely interested in the exclusion right, not in the underlying knowledge. We posit that transactions involving NPEs may only be the tip of the iceberg of “patent-only” transactions, a conjecture with strong implications for the efficiency and the study of markets for technologies. Managerial and policy implications are discussed.

Helmers, Christian, Brian J. Love, and Luke McDonagh. Is There a Patent Troll Problem in the U.K.?.” 24 Fordham Intellectual Property Media and Entertainment Law Journal, 24 (2014): 509.

Abstract

This paper reports the findings of an empirical study of patent suits involving non-practicing entities (NPEs) in the U.K. between 2000 and 2010. Overall, we find that NPEs are responsible for 11% of all patent suits filed in the U.K. during this period. Though this is a small percentage by U.S. standards, our study suggests that patent trolling might not be as uniquely American as conventional wisdom suggests. We also find little support for many common explanations for Europe’s relative scarcity of NPE activity. For example, we find that NPEs litigating in the U.K. overwhelmingly assert high-tech patents – even more so, in fact, than their U.S. counterparts – despite higher barriers to software patentability in Europe. Our study does, however, tend to support fee-shifting as a key reason for the U.K.’s immunity to NPEs. We see evidence that the U.K.’s loser-pays legal regime deters NPEs from filing suit, while at the same time encouraging accused infringers to defend claims filed against them. U.K. NPE suits are initiated by potential infringers more often than by NPEs; rarely end in settlement; very rarely end in victory for NPEs; and, thus, result in an attorney’s fee award to the potential infringer more often than a damages award or settlement payment to the patentee. Together, these findings tend to support patent reform bills pending in the U.S. that would implement a fee-shifting regime for patent suits, and may also serve to lessen concerns that Europe’s forthcoming Unified Patent Court will draw NPEs to Europe.

Jeruss, Sara, Robin Feldman, and Joshua Walker. America Invents Act 500: Effects of Patent Monetization Entities on US Litigation.” Duke Law and Technology Review, 11 (2012): 357.

Abstract

Any discussion of flaws in the United States patent system inevitably turns to the system’s modern villain: non-practicing entities, known more colorfully as patent trolls. For many years, however, discussions about non-practicing entities have been long on speculation and short on data. In 2011 Congress directed the nonpartisan Government Accountability Office to study the effects of non-practicing entities on patent litigation. At the request of the GAO, we collected and coded a set of patent lawsuits filed over the past five years. This article presents our analysis of the data and its implications. The data confirm in a dramatic fashion what many scholars and commentators have suspected: patent monetization entities play a role in a substantial portion of the lawsuits filed today. Based on our sample, lawsuits filed by patent monetizers have increased from 22% of the cases filed five years ago to almost 40% of the cases filed in the most recent year. In addition, of the five parties in the sample who filed the greatest number of lawsuits during the period studied, four were monetizers and only one was an operating company.

Khan, Zorina. “Trolls and Other Patent Inventions: Economic History and the Patent Controversy in the TwentyFirst Century.” Working Paper (2013).

Abstract

The most significant changes to the patent and innovation system in the past two centuries have been, or are in the process of being, implemented in the United States today. Critics of patent grants and intellectual property institutions propose alternatives such as unprecedented constraints on the rights of patent owners, and many advocate the award of technological prizes as superior alternatives. Such proposals are motivated by claims that the patent system is in crisis, with new developments that require departures from traditional approaches to property rights and technology policy. The historical record sheds light on the nature and validity of these controversies. In particular, data on patents granted, litigation rates over the past two centuries, and the role of non-practicing entities, indicate that these features of the current market in intellectual property are hardly anomalous. Indeed, they have been inherently associated with disruptive technologies that transformed the United States into the world leader in industrial and economic growth. By contrast, extensive empirical analyses of prize systems in Europe and the United States explain why early enthusiasm about such administered nonmarket-oriented awards had waned by the end of the nineteenth century.

Love, Brian J. An Empirical Study of Patent Litigation Timing: Could a Patent Term Reduction Decimate Trolls Without Harming Innovators?.” University of Pennsylvania Law Review, 161 (2013): 1309.

Abstract

This Article conducts an empirical analysis of the relative ages of patents litigated by practicing and nonpracticing entities (NPEs). By studying all infringement claims for a sample of recently expired patents, I find considerable differences in litigation practices between these groups. Product-producing companies usually enforce their patents soon after issuance and complete their enforcement activities well before their patent rights expire. NPEs, by contrast, begin asserting their patents relatively late in the patent term and frequently continue to litigate until expiration. This variance in litigation timing is so dramatic that all claims asserting the average product-company patent are resolved before the average NPE patent is asserted for the first time. Further, I find that NPEs are the dominant source of patent enforcement in the final few years of the patent term. NPEs, enforcers of just twenty percent of all studied patents, are responsible for more than two-thirds of all suits and over eighty percent of all infringement claims litigated in the final three years of the patent term. These findings cast serious doubt on the utility of the last few years of the patent term and suggest that Congress should, at a minimum, consider increasing the frequency and magnitude of maintenance fee payments in the latter half of the term.

Love, Brian J., and Shawn Ambwani. Inter Partes Review: An Early Look at the Numbers.” University of Chicago Law Review Dialogue, 81 (2014): 93.

Abstract

In the roughly two years since inter partes review replaced inter partes reexamination, petitioners have filed almost two-thousand requests for the Patent Trial and Appeal Board to review the validity of issued U.S. patents. As partial data on inter partes review (IPR) has trickled out via the blogosphere, interest from patent practitioners and judges has grown to a fever (and sometimes fevered) pitch. To date, however, no commentator has collected a comprehensive set of statistics on IPR. Moreover, what little data currently exists focuses on overall institution and invalidation rates — data that, alone, gives us little idea whether IPR is thus far accomplishing its original goal of serving as a quick, efficient alternative to defending patent suits filed in federal court, particularly those initiated by non-practicing entities (NPEs).

This Essay aims to fill both gaps by reporting the findings of an empirical study tracking the outcome of IPRs and their impact on co-pending litigation. As described in greater detail below, we find that: Petitions for IPR are instituted for at least one challenged claim 84 percent of the time; Among instituted IPRs, all challenged claims are instituted 74 percent of the time; Among IPRs that reach a final decision on the merits, all instituted claims are invalidated or disclaimed more than 77 percent of the time; IPRs challenging NPE-owned patents are more likely to be instituted and, on average, are instituted for a larger share of challenged claims, but have their claims invalidated at a lower rate; Litigation proceeding in parallel with an instituted IPR is stayed about 82 percent of the time.

Though it is too early to draw sweeping conclusions from these statistics, they suggest that inter partes review promises to be considerably more potent than inter partes reexamination and, moreover, to have a substantial impact on co-pending patent litigation, particularly suits filed by NPEs.

Miller, Shawn P. What’s the Connection Between Repeat Litigation and Patent Quality? A (Partial) Defense of the Most Litigated Patents.” Stanford Technology Law Review, 16 (2013): 313.

 

Abstract

Patent litigation is notoriously expensive, but few patents are ever litigated. Among the fraction that are, only a small group dubbed the “most litigated patents” by Allison, Lemley & Walker are asserted by repeat patent plaintiffs in many lawsuits. While repeat patent plaintiffs are responsible for a disproportionate share of litigation costs, economic theory predicts their patents will be higher quality such that they offset the costs they generate in winning more disputes. Allison, Lemley & Walker, however, find the owners of the most litigated patents overwhelmingly lose in court. This suggests that repeat patent plaintiffs tend to burden innovation by irrationally litigating weak patents through trial. Because of their troubling results, this Article revisits the relationship between the number of lawsuits in which a patent is asserted and its owner’s litigation success. I find owners who assert their patents in more lawsuits generally win more judgments and that this relationship extends to a comparison of most litigated to once litigated patents. These results support an optimistic view of the impact of repeat patent plaintiffs. This optimism does not, however, extend to repeat software patent plaintiffs, who I find are not more likely to win infringement judgments. This fact is not inconsistent with rational software patent owner behavior but is best explained by Bessen and Meurer’s theory that software patents possess more uncertain boundaries.

Miller, Shawn P. Wheres the Innovation: An Analysis of the Quantity and Qualities of Anticipated and Obvious Patents.” Virginia Journal of Law and Technology, 18 (2013): 1.

Abstract

While more innovation is the main theoretical benefit of patent protection, some have argued an increasingly swamped U.S. Patent Office has granted many patents with negligible innovation value. I test this argument and determine the characteristics of patents that lack innovation value by analyzing 980 litigated patents that were subject to anticipation or obviousness decisions during the last decade. Using a selection corrected probit model, I obtain unconditional estimates of the likelihood that patents with given characteristics would be found to lack innovation value. I estimate a surprising 27 percent of all patents would be found at least partially invalid if subject to an anticipation or obviousness decision. Types of patents that have been particularly criticized, including those covering software and business methods and those owned by licensing firms, possess significantly higher innovation-based invalidity rates.

Reidenberg, Joel R., Jamela Debelak, Daniel Gross, and Elaine Mindrup. The Impact of the Acquisition and Use of Patents on the Smartphone Industry.” Center for Law and Information Policy, Fordham Law School (2012).

Abstract

The empirical results of this study are necessarily retrospective and bounded by the choices in defining smartphones and market leaders. The picture that emerges from this study is that the market has experienced dramatic growth in patents while maintaining fluidity in participant entry and exit and fluidity in product popularity. At the same time, important litigation trends indicate that patents are emerging as part of a potentially significant defensive business strategy for large companies while they remain part of a product development strategy for smaller companies. If history is a guide, the future evolution and openness of the smartphone market will depend most on the pace of technological change and business strategy decisions.

Risch, Michael. Patent Troll Myths.” Seton Hall Law Review, 42 (2012): 457.

 

Abstract

It turns out that just about everything we thought about patent trolls – good or bad – is wrong. Using newly gathered data, this article presents an ethnography of sorts about highly litigious non-practicing entity (NPE) plaintiffs. The results are surprising: they show that the conventional wisdom about patent trolls is likely based on anecdotal, but infrequently occurring, events. Instead, the patents enforced by so-called trolls – and the companies that obtained them – look a lot like other litigated patents and their owners.

To be sure, whether an NPE qualifies as a troll depends on who is doing the name-calling. Regardless of definition, though, commentators on all sides have used little evidence to support their positions. The reason is simple: there has been little research about the patents litigated by NPEs and even less about the source of those patents.

Understanding NPEs is critically important to better understanding the role of patents in society and in entrepreneurial businesses. The debate cannot be resolved without further study of the companies whose patents are now litigated by NPEs. This study is the first step in that direction.

Risch, Michael. “A Generation of Patent Litigation: Outcomes and Patent Quality.” San Diego Law Review (2015), Forthcoming.

 

Abstract

This study compares twenty-five years of litigation and patents of the ten most litigious NPEs (as of 2009) with a random group of cases and patents in the same yearly proportions. All cases involving every patent was gathered, allowing the life cycle of each asserted patent to be studied. The data includes litigation data, patent data, reexaminations, and other relevant data. This paper considers outcomes and patent quality. A future paper will examine innovation and markets.

Unsurprisingly, the data shows that the studied NPE patents were found invalid and noninfringed about twice as often as the comparable nonNPEs. But there is more to the story. First, summary judgment challenges were denied at about the same rate. Second, most cases never tested the patent at all: the invalidations were bunched into 3% of the cases. Third, about 17% of the NPE cases involved a patent that was later invalidated, as compared to 3% for the nonNPEs. This left 75% of NPE cases with patents that were never tested and did not involve a patent invalidated at any time (as compared to 90% of nonNPE cases). Thus, one’s view of the data will depend on views about motivations in asserting patents that wind up invalid later and the merits of settlements. The paper presents data about settlements, consent judgments, defaults, and the like, but ultimately takes no position on the quality of untested patents.

Other major findings include:
1. NPE cases are shorter duration than nonNPE cases, even though they are transferred and consolidated more often. Even with transferred cases, NPE cases are shorter.

2. A patent’s likelihood of being invalidated has almost nothing to do with objectively observable patent metrics – including reexamination data. Instead, the odds of invalidation are driven by those cases that are more likely to have a challenge, like the number of defendants or number of patents in the case. Once variables that indicate challenges are considered, a party’s status as NPE added no explanatory power.

3. One patent metric was statistically significant in predicting invalidation: backward citations, or the number of prior patents that a patent refers to. But the sign was surprising: the more citations in the patent, the more likely it was found invalid. This may mean that backward citations are another selection variable – patents citing many other patents may be more likely to be highly controversial and thus challenged. This finding implies, however, that “gold plating” patents may not be as beneficial as first thought.

Rooksby, Jacob H. “Innovation and Litigation: Tensions Between Universities and Patents and How to Fix Them.” Yale Journal of Law and Technology, 15 (2013): 312.

 

Abstract

Universities that own patents have a problem. While nearly all are keen to enhance their revenue generated from patents, few are eager or prepared to enforce them in court, alone or with their exclusive licensees, should a third party deploy a product or process covered by a university-owned patent. Yet strict prudential standing requirements imposed by the United States Court of Appeals for the Federal Circuit (“CAFC”) effectively require university participation as plaintiffs in enforcement lawsuits over their exclusively licensed patents, regardless of a university’s effective ability or enthusiasm to participate in a given action. Supported by forty years of lawsuit data and original survey and interview data collected from high-level administrators at universities that litigate patents, this Article explores in depth the complicated legal and policy tensions presented by university participation as plaintiffs in patent infringement litigation.

I offer two proposals for alleviating these tensions. The first proposal urges universities to move toward a coherent position on patent ownership and enforcement, particularly in light of recent trends in higher education finance. The second proposal outlines a potential legislative amendment to the Patent Act that would allow universities to enjoy the revenue-generation aspect of patent ownership while freeing them from the legal compulsion to participate as co-plaintiffs with their exclusive licensees in enforcement actions. This novel tweaking of the CAFC’s prudential standing requirement would save universities untold time and money that they currently spend pursuing litigation. By permitting universities to focus more on innovation and less on litigation, this proposal also would better align societal expectations for university commercialization efforts with the public interest.

Schwartz, David L. The Rise of Contingent Fee Representation in Patent Litigation.” Alabama Law Review, 64 (2012): 335.

Abstract

It is well known that plaintiff-side contingent representation is on the rise in patent litigation. But why? And what are the lawyers in the field like? Although scholars have studied contingent litigation in other contexts—such as medical malpractice, personal injury, and products liability litigation—patent litigation has received almost no attention. This gap in the literature is unsettling because patent litigation is different from these other fields of contingent litigation in important and interesting ways. These differences include: patent litigation is much more uncertain; the costs of litigating claims are usually significantly higher; and patents, including their underlying infringement claims, are freely assignable. Absent in most other contingent litigation contexts, these characteristics of patent litigation shed light on the broader topics of litigation and contingency relationships in general. Drawing upon several sources of data, including in-depth interviews with over forty lawyers involved in contingent representation in patent litigation and examination of over forty contingent fee agreements, this Article provides the first comprehensive analysis of the rapid evolution of contingent representation in patent law. The development of contingent representation includes top-tier litigation firms recently transitioning to taking on high-value contingent cases, small entrants representing plaintiffs in lower value cases, and numerous general-practice firms experimenting with contingent patent litigation. These diverse players each select and litigate cases using varied methods, resulting in different levels of risk and reward. The Article uses the study of these players to discuss how and why attorney–client contingent relationships established in the nascent marketplace of patent contingent litigation differ from other types of contingent litigation and what patent law can teach about contingent representation in general. It also lays the foundation for future quantitative research comparing the results of contingent and hourly billing representation.

Smeets, Roger. Does Patent Litigation Reduce Corporate R&D? An Analysis of US Public Firms.” Working Paper (2014).

Abstract

This study investigates if firms’ involvement in patent litigation as alleged infringers hinders their innovation. I develop a simple model that predicts a decrease in innovation following patent litigation. I investigate the model’s implications in a sample of publicly listed US firms, using a combination of propensity score matching and difference-in-differences estimation. I find a negative impact of patent litigation on corporate R&D intensity – in the range of 2.6-4.7%-points – in small firms (with less than 500 employees), that are involved in extensive patent lawsuits (captured by the number of legal documents filed).

Tucker, Catherine. Patent Trolls and Technology Diffusion.” Working Paper (2011).

Abstract

Patent assertion entities, sometimes known as ‘patent trolls,’ do not manufacture goods themselves but profit from licensing agreements that they often enforce via the threat of litigation. This paper explores empirically how litigation by one such patent troll affected the sales of medical imaging technology. It finds evidence that relative to similar products, made by the same firm, but not covered by the patent, imaging software sales declined by one-third. This was not due to a suppression in demand by hospitals but instead is linked to a lack of incremental product innovation during the period of litigation.

Tucker, Catherine. The Effect of Patent Litigation and Patent Assertion Entities on Entrepreneurial Activity.” Working Paper (2014).

Abstract

This paper empirically investigates the statistical relation between levels of patent litigation and venture capital (“VC”) investment in the U.S. We find that VC investment, a major funding source for entrepreneurial activity, initially increases with the number of litigated patents, but that there is a “tipping point” where further increases in the number of patents litigated are associated with decreased VC investment, which suggests an inverted U-shaped relation between patent litigation and VC investment. This appears strongest for technology patents, and negligible for products such as pharmaceuticals. There is some evidence of a similar inverted U-shaped relation between patent litigation and the creation of new small firms. Strikingly, we find evidence that litigation by frequent patent litigators, a proxy for PAE litigation, is directly associated with decreased VC investment with no positive effects initially.

Turner, John L., James Bessen, Peter Neühausler, and Jonathan W. Williams. The Costs and Benefits of United States Patents.” Working Paper (2014).

Abstract

We use detailed data to estimate the private costs and private rents of United States patents for publicly-traded firms. To estimate these costs, we combine lawsuit data from Derwent Litalert with non-practicing entity (NPE) lawsuits collected by Patent Freedom, and use an event-study approach to estimate losses suffered by alleged infringers during 1984-2009. To estimate these rents, we combine patent data from the USPTO and EPO with financial data from CRSP and COMPUSTAT, and use market-value regressions to estimate the value of patent rents for publicly-traded US firms during 1979-2002. We find that private costs exceed private rents during 1999-2000 and the trend in costs is sharply higher. Costs also exceed forecasts of rents for 2005-09. Surges in the number of NPE lawsuits contribute to the increase in the gap.

U.S. Government Accountability Office, “Intellectual Property: Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality.” Report to Congressional Committees GAO-13-465 (2013).

Abstract

From 2000 to 2010, the number of patent infringement lawsuits in the federal courts fluctuated slightly, and from 2010 to 2011, the number of such lawsuits increased by about a third. Some stakeholders GAO interviewed said that the increase in 2011 was most likely influenced by the anticipation of changes in the 2011 Leahy-Smith America Invents Act (AIA), which made several significant changes to the U.S. patent system, including limiting the number of defendants in a lawsuit, causing some plaintiffs that would have previously filed a single lawsuit with multiple defendants to break the lawsuit into multiple lawsuits. In addition, GAO’s detailed analysis of a representative sample of 500 lawsuits from 2007 to 2011 shows that the number of overall defendants in patent infringement lawsuits increased by about 129 percent over this period. These data also show that companies that make products brought most of the lawsuits and that nonpracticing entities (NPE) brought about a fifth of all lawsuits. GAO’s analysis of these data also found that lawsuits involving software-related patents accounted for about 89 percent of the increase in defendants over this period.

Stakeholders knowledgeable in patent litigation identified three key factors that likely contributed to many recent patent infringement lawsuits. First, several stakeholders GAO interviewed said that many such lawsuits are related to the prevalence of patents with unclear property rights; for example, several of these stakeholders noted that software-related patents often had overly broad or unclear claims or both. Second, some stakeholders said that the potential for large monetary awards from the courts, even for ideas that make only small contributions to a product, can be an incentive for patent owners to file infringement lawsuits. Third, several stakeholders said that the recognition by companies that patents are a more valuable asset than once assumed may have contributed to recent patent infringement lawsuits.

The judicial system is implementing new initiatives to improve the handling of patent cases in the federal courts, including (1) a patent pilot program, to encourage the enhancement of expertise in patent cases among district court judges, and (2) new rules in some federal court districts that are designed to reduce the time and expense of patent infringement litigation. Recent court decisions may also affect how monetary awards are calculated, among other things. Several stakeholders said that it is too early to tell what effect these initiatives will have on patent litigation. The U.S. Patent and Trademark Office (PTO) has taken several recent actions that are likely to affect patent quality and litigation in the future, including agency initiatives and changes required by AIA. For example, in November 2011, PTO began working with the software industry to develop more uniform terminology for software-related patents. PTO officials said that they generally try to adapt to developments in patent law and industry to improve patent quality. However, the agency does not currently use information on patent litigation in initiating such actions; some PTO staff said that the types of patents involved in infringement litigation could be linked to PTO’s internal data on the patent examination process, and a 2003 National Academies study showed that such analysis could be used to improve patent quality and examination by exposing patterns in the examination of patents that end up in court.

Using both univariate comparisons and multiple regression techniques, we find primarily that: (1) Internet patents and their two subtypes were litigated at a far higher rate than NIPs [non-internet patents] — they were between 7.5 and 9.5 times more likely to end up in infringement litigation, depending on the model we used. (2) Within the category of Internet patents, those on business models were litigated at a significantly higher rate than those on business techniques. (3) Across both Internet patents and NIPs, patents issued to small entities, especially individuals and small businesses, were much more likely to be litigated than those issued to large entities; (4) Patents of all kinds with more independent claims were significantly more likely to be litigated than those with fewer independent claims. (5) Including both Internet patents and NIPs, litigated patents received many more forward citations — citations received from later patents — than did unlitigated patents. (6) Patents issued to foreign entities were significantly less likely to be litigated than patents issued to U.S. entities. (7) The more time that an application for an Internet patent or NIP had spent in the PTO prior to issuance, the more likely it was that the patent granted from that application was to be involved in infringement litigation. (8) There was no difference in the ages of Internet patents and NIPs when they became the subject of litigation — both kinds were about 4.5 years old; (9) Once patent infringement litigation was initiated, the owners of litigated Internet patents were significantly more likely to settle before judgment than the owners of litigated NIPs (especially when probable settlements were taken into account along with obvious settlements, which we believe is the more accurate metric). (10) Across both sets of patents, the larger the number of potential infringers involved in a case (defendants in infringement actions and plaintiffs in declaratory judgment actions), the less likely the case was to settle. (11) Internet patents and NIPs went to trial at about the same rate. (12) When failing to settle, the owners of NIPs won on the merits at a significantly higher rate than did owners of Internet patents — although the win rate for NIP owners was quite low at around 16%, the win rate of Internet patents was even lower by a substantial margin. This finding did not hold up in regression analysis, however; when the effects of other variables were taken into account in a logistic regression analysis, there was no significant difference in the win rate for accused infringers between Internet patents and NIPs. Accused infringers did win more often when Internet patents were asserted against them than win they defended against NIP complaints, but the relatively small number of observations prevented the difference from being statistically significant. (13) Surprisingly, owners of both kinds of patents were significantly more likely to win as the number of inventors on the patents increased. (14) The longer that applications for Internet patents and NIPs had spent in the PTO before issuance, the less likely accused infringers were to win. (15) Accused infringers were less likely to win on the merits when the Internet patents or NIPs asserted against them had been litigated previously. (16) Across both sets of patents, the larger the number of potential infringers involved in a case, the more likely these potential infringers were to win a judgment on the merits. That is, the more infringement defendants per case, the more likely these defendants were to win. (17) There was no difference between the different types of patents in the percentage of cases that were terminated for procedural reasons. We also discuss a few other findings of interest.