Wednesday, December 06, 2006

Adjudication and Settlement of Patent Disputes

Over the past 5 years or so, there has been an increased focus on the empirical outcome of patent litigation, primarily because the number of such lawsuits have increased noticeably. Jay Kesan & Gwendolyn Ball from the University of Illinois have published a recent study titled "How Are Patent Cases Resolved? An Empirical Examination of the Adjudication and Settlement of Patent Disputes." The study builds on previous findings that detail many of the pathologies of the litigation process:

"divergent expectations" - for trials to occur, the parties must be either behaving irrationally, or there must be some uncertainty about the probability of a victory in the courtroom.

"asymmetric stakes" - if the defendant's loss does not equal the plaintiff's gain, there is little incentive for the defendant to avoid trial and no point in bargaining to a settlement.

The "free rider" problem - defendants having an eye towards settlement have no compulsion to spend money to invalidate "bad" patents, since others (i.e., competitors) will similarly benefit from the effort.

Kesan and Ball also noted many of the existing statistics regarding patents and the probability that they will be litigation in court:

• On average, 10.7 patents per 1000 will be litigated (1%);

• The probability of a patent appearing in litigation increases with the number of later patents citing it, but decreases with the number of backward citations;

• Litigation probability increases with the number of "self citations" (patents cited by other patents owned by the same party);

• Litigation probability increases with the number of claims describing the invention;

• Patents in "crowded" fields are subject to an increased probability that disputes will arise.

Regarding the outcomes of the cases, the following statistics were noted:

• The overall decision rate in favor of patentee is 58%.

• In jury trials, 68% of the cases come out in favor of the patentee; 71% of jury trials find that the litigated patent is valid and infringed.

• In bench trials, only 51% of the cases come out in favor of the patentee. Also, 64% of bench trials find that the litigated patent is valid, but only 59% of bench trials find infringement.

The authors tracked the evolution of patent cases from 1995, 1997 and 2000 and found that most of the previous findings were largely correct. However, the study clarifies the notion that "95% of all cases settle," noting that previous studies did not necessarily consider other procedural terminations, such as summary judgment when determining this statistic. When this is taken into account, the number drops to almost 80%.

The paper also had some other interesting findings as well:

Using the courts to invalidate patents at trial doesn't appear to be an effective policy. Despite the greater ability of the court system to review all evidence pertaining to the validity of patents, less than 2.5% of litigated patents appear to be "weeded out" every year in the courts. Combined with reexamination requests, and average of 300 patents a year were invalidated in the mid-90's (as compared to the roughly 300,000 patents that were granted each year).

Also, despite the recent furor over injunctions, permanent injunctions are relatively rare in adjudicated cases (19% at trial, 4% on SJ). Most injunctions appear in consent judgments and formal settlements, and a few appear in default judgments.

Damages were only awarded in a small number of cases. According to the study,

Damages were awarded in only forty-two non-settled cases from 1995 (of which twenty-nine were jury verdicts), 54 non-settled cases from 1997 (of which twenty-three were jury verdicts) and 30 non-settled cases from 2000 (of which nineteen were jury verdicts). The average amount awarded in these cases was $7.4 million, $3.3 million, and $2.1 million respectively.

You can read or download the study here.

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