Wednesday, September 22, 2010

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)

15 Comentários:

mike said...

There is another hypothesis. It takes two to litigate - the patent owner who believes that there patent can be asserted, and a defender who believes that they have a case in court. In the event that the defender believes they do not have a strong case, they will probably settle. In the study, each highly litigated patent was litigated 8 or more time, therefor there were 8 or more defendants who came to the view that the patent was arguable. Given this hypothesis, the results are not surprising

simplyideal said...

Its the nature of the industry. What would you have litigants do were it not for litigation?

See http://bit.ly/8ZVYrr

Anonymous said...

I agree with Mike entirely. What the authors did not state is the quality of the patents & assertions which resulted in their low scores. Common sense will dictate the outcome if the patents in question are not that strong to start with. Better compare apples to apples!

Anonymous said...

"That may be a good thing, if you believe that most software patents are bad or that NPEs are bad for society."

Keep in mind it has historically been small firms and independent inventors, NPE's as you call them, who have contributed the lions share of groundbreaking discoveries. If they cant protect their creations, they will not create. Rather, what this study does is illustrate the need for changes in laws to better secure the value of patents for all players -large and small.

For a knowledgeable analysis of patent issues, please see http://truereform.piausa.org.

TemporalBeing said...

"NPE's as you call them, who have contributed the lions share of groundbreaking discoveries."

NPE's by definition cannot contribute as they are NON-practicing - thereby, they are no creating new ideas, discovering anything, or making anything. That is their definition.

That's not to say that a Practicing Entity might not become a NPE - Trasmeta Corporation is an example of this.

". It takes two to litigate - the patent owner who believes that there patent can be asserted, and a defender who believes that they have a case in court. In the event that the defender believes they do not have a strong case, they will probably settle. In the study, each highly litigated patent was litigated 8 or more time, therefor there were 8 or more defendants who came to the view that the patent was arguable. Given this hypothesis, the results are not surprising"

It only takes one to litigate; it takes two to settle. So their hypothesis is likely more valid.

However, if the data is available (which it's not likely to be) then it would be interesting to see how settlements play against the same patent set. The problem is that the data is not likely available since anything settled may either not make it to court to start with or be closed out from court with NDA's in place to keep everyone from talking.

So a settlement cannot really tell you anything about the patent either, since it could settle in either direction and they don't typically say whose favor the settlement really came out in.

For example, entity L could sue entity P; they two settle announcing, as part of the settlement, that the settlement was in favor of entity L when entity P was the real winner in the settlement.

So of the available data, the accuracy of it; the authors are likely the most correct. Unless you can provide data to the contrary.

Anonymous said...

" . . and particularly NPE's (aka "trolls"), for a lack of a better phrase

Really? There is no "better" phrase for a patent holder who does not practice his invention than "troll"?

I guess that I'd be more at ease with this if "thief" rolled of the tongues and typewriters of folks who were referring to infringers.

". . . and particularly infringers (aka "theives" for lack of a better phrase"

Anonymous said...

"Really? There is no 'better; phrase for a patent holder who does not practice his invention than 'troll'?

If you actually know how to read, you can see that "for lack of a better phrase" refers to better than "NPE" not better than "troll." Troll was placed there in parentheses to let people who are used to hearing them referred to as "patent trolls" know what they are talking about.

Of course "thief" is an inappropriate word to describe an infringer because, no matter how serious you feel infringement is, it is not the same thing as thievery. (Murder is not the same thing as thievery either, and it's certainly not less serious.)

Of course, stealing has been recognized as a crime since the beginning of human history while infringement is quite a recent invention, so I would say stealing is more serious. However, if infringers are taking credit for something that they did not actually do, then they are also lying, which makes the offense more serious.

Anonymous said...

Eolas v Microsoft, software patent, NDILL, $600 million settled on remand
Uniloc v Microsoft, software patent, DRI, $388 million,
JMOL for dft, appeal pending
i4i v Microsoft, software patent, EDTEX, $240 million, affirmed on appeal, cert pending
Virnetx v Microsoft, software patent, EDTEX, $100 million, settled post-trial
Versata v SAP, software patent, EDTEX, $100 million plus, appeal pending
Finjan v Secure, software patent, DDEL, $30 million, appeal pending
z4 v Microsoft software patent, EDTEX, $180 million, affirmed on appeal
Trading Technologies v eSpeed, NDILL, $3.5 million, affirmed on appeal
And the list goes on, some settled, some overturned, some paid, and this is a list off the top of my head. Statistics are a datapoint but do not tell a story in any one case. Cases must be considered on an individual basis.

Anonymous said...

Lemley.

"Nuff said. Let's move on.

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Ben said...

In my experience, bad patents are never asserted, good patents are licensed, and middle-of-the-road patents get litigated...

patent litigation said...

Bad news for NPEs (patent trolls). The disclosure of the results of this study likely weakens their bargaining position, as more defendants learn that NPEs have a disadvantage at trial. It's starting to look like the ITC -- which has proven itself quite NPE-friendly, of late -- may be would-be trolls' best bet.

SeattleIPGuy said...

I'm deeply skeptical of the significance of the statistical analysis here. Here's a quick thought experiment:

Assume the verdict of any patent litigation is a coin flip, because if both sides are unwilling to settle, you can assume that both sides have reasonable arguments. Also assume that once a patent is invalidated once, all other pending suits will also be losses.

For a patent that is litigated once, you would get a 50% success rate. This is actually what the paper claims to see.

For a patent that is litigated eight or more times, you will have a 50% success rate in any given case, but as soon as you get one failure, all of the other pending suits have a 0% success rate.

It's been a long time since I studied probability, but if you have eight cases pending at once, each of which is a coin flip, the probability of success in all 8 cases is... what... (0.5)^8? Something like 0.4%?

I don't think that you can draw conclusions from these broad numbers without paying close attention to the history of each case, and whether the negative outcomes were necessitated by negative outcomes in other pending cases. I am curious to see what the outcome on this would be if such cases were coded differently.

It seems to me that the only real lesson you can take from this is that if you're litigating, to only participate in one suit at a time. That way, you're only risking an investment on one coin flip at a time.

If the patent is killed in the first suit, you walk away. If you win, you use that judgment as a stick for driving settlement negotiations, and only risk another coin flip when you have no other choice.

Anonymous said...

It would be a fallacy to say: "NPE's by definition cannot contribute as they are NON-practicing - thereby, they are no creating new ideas, discovering anything, or making anything. That is their definition."

"Practicing" isn't a part of the patent right.

Creation does not entail "practicing".

If indeed you are referring to a smaller subset of NPE, those that purchase the patent right and then enforce that right, then your argument is misdirected, as the contribution has already been made and it is a business/property ownership issue that you are trying to address. The problem that you have is that such behavior is perfectly legal. In fact, in so far as such behavior breaks up patent thickets, such NPE applications of legal rights is beneficial to society.

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