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Thursday, September 19, 2019

Study finds patent cases reach record high, but law professor says numbers are ‘misleading’

By Jessica M. Karmasek | Sep 4, 2014

NEW YORK (Legal Newsline) - According to a recent study on patent litigation, the number of U.S. patent cases filed increased in 2013.

But one law professor argues that those numbers are misleading.

“This suggests some sort of explosion going on and there isn’t,” said Jay Kesan, who directs the Program in Intellectual Property and Technology Law at the University of Illinois College of Law. “There has been an increase in patent litigation, don’t get me wrong, but not an explosion.

“It’s really an artifact because of the changes in law.”

In 2011, President Barack Obama signed the America Invents Act, or AIA. The law switched the U.S. patent system from a “first to invent” to a “first inventor to file” system, eliminated interference proceedings and developed post-grant opposition. Its central provisions weren’t put into effect until March 2013.

In particular, the AIA changed the procedural rules regarding joinder, or the number of defendants a plaintiff can sue in a single case.

“Previously, you could have sued five defendants all at once. Now, you may have to file separate suits,” explained Kesan, who also holds a doctorate in electrical and computer engineering.

According to the study released by PricewaterhouseCoopers in July, the number of patent cases filed in the U.S. is up 25 percent to a new record high of 6,500 cases.

However, the study found median damages awards continue to trend down, declining to $4.3 million in the most recent four-year period.

The study also found that more than half of new cases are filed by non-practicing entities.

Generally speaking, a non-practicing entity, patent assertion entity or patent monetization entity purchases groups of patents without an intent to market or develop a product.

In some cases, but not all, the entity then targets other businesses with lawsuits alleging infringement of the patents it bought. Often, these are referred to as “patent trolls.”

The PwC study found that NPEs generally prevail less often than practicing entities, with NPEs successful 25 percent of the time overall, versus 35 percent for practicing entities, as a result of the relative lack of success for NPEs at summary judgment.

However, both types of entities win about two-thirds of their trials, according to the PwC study.

“At first glance, 2013 appeared to be a moderating year in patent infringement litigation since there were no mega-verdicts and damages awards moderated from previous years. However, the number of patent cases filed and granted is continuing to grow rapidly,” Chris Barry, a PwC advisory partner focused on forensic services, said in a statement.

“Additionally, NPEs’ prevalence in patent litigation, coupled with certain reported aggressive tactics, have captured the attention of practicing entities as well as incited multiple political responses.

“With patent cases increasing and actions aimed at constraining perceived litigation abuses, recognizing the ongoing issues in patent litigation and intellectual property matters is critical.”

But Kesan, who recently served as a Thomas A. Edison Scholar at the U.S. Patent and Trademark Office and is a registered patent attorney, contends there are flaws in the PwC study.

First off, it isn’t clear who is an NPE, he says.

“Here, you have inventors and university professors, who come up with some really great stuff,” Kesan said. “These are not patent trolls.

“Yet, here they are, lumping many individuals and parties (e.g., universities, individual inventors, failed start-ups) together in their definition of a patent troll.”

Kesan also takes issue with the study’s findings on success rates.

“Look at how they’re defining success,” he said. “They’re saying if you have a grant of summary judgment and you were the patent holder or you prevailed at trial, then you are successful.”

However, 80 to 85 percent of all cases are settled, 10 to 15 percent are granted summary judgment, and only 3 to 5 percent end up going to trial, Kesan notes.

“What they’re suggesting is if there is any finding of infringement, only then is it a successful lawsuit,” he said. “But that just goes to a small number of cases.  What about the 80-plus percent of cases that are settled?

“There’s a selection bias here when you only consider cases with a judgment on the merits.”

The findings on median damages also are problematic, he contends.

“Again, the denominator is the number of lawsuits,” he said. “If you divide by the number of lawsuits, due to the new joinder rule, you’re going to get a misleading outcome.”

What should be done instead is to compute damages awarded per defendant, Kesan says.

“Obviously, they’re trying to put something out that they hope their clients might find useful. But we really have to be careful what kind of conclusions we draw from it,” he said.

The bottom line, Kesan says, is that PwC needs to release its underlying data.

“We would be able to tell more precisely what’s going on if they release their data,” he explained. “Because, right now, we don’t know who is considered an NPE, we don’t know what they got from Westlaw and Pacer. We don’t know what information they got from which source.”

PwC did not respond to a request for comment on its data or its release.

However, according to a news release, the firm says it maintains a database of U.S. patent infringement actions.

“The firm collects information on liability outcomes, damages awarded, time-to-trial, trier of fact, type of entity (practicing vs. non-practicing), industry, district court and judge,” the release stated. “The firm’s primary case data relates to the 19-year period of 1995 through 2013.”

Kesan says better, more scientifically-sound data can be found on NPEdata.com. He, along with two other law professors, authored the website for the NPE Patent Data Project.

The professors personally hand-coded all patent holder litigants from calendar year 2010 and 2012, and have released the data to the public.

From Legal Newsline: Reach Jessica Karmasek by email at patents@legalnewsline.com.

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