Patent Law

Last week, I commented on Colleen Chien's new article. After reviewing what I wrote, I realized that I had mischaracterized the content a bit. Here is her entire abstract.

Of Trolls, Davids, Goliaths, and Kings: Narratives and Evidence in the Litigation of High-Tech Patents

While each patent dispute is unique, most fit the profile of one of a limited number of patent litigation stories. A dispute between an independent inventor and a large company, for instance, is often cast in ?David v. Goliath? terms. When two large companies fight over patents, in contrast, they are said to be playing the ?sport of kings.? Some corporations engage in ?defensive patenting? in order to deter others from suing them. Patent licensing and enforcement entities who sue have been labeled ?trolls.? Finally, observers of the patent system call the use of patent litigation to impose or exploit financial distress ?patent predation.?

These stories, routinely invoked by the press, advocates, and academics, shape public understanding of the patent system. In this Article, I describe, then match, these stories to data on patent litigations to determine which types of suits are most prevalent. I focus exclusively on the litigation of high-tech patents, covering hardware, software, and financial inventions, using data from the Stanford Intellectual Property Clearinghouse for cases initiated in U.S. District Courts from January 2000 through March 2008.

The data shows that the reality is more complicated than the rhetoric regarding patent litigation. For instance, many blame nonpracticing entities (?NPEs?) for a majority of the problems with the patent system. But they bring only a minority of patent suits: 17% of high-tech patent suits in the last eight years. However, NPEs often name multiple defendants and sometimes, rather than sue, are sued, for declaratory judgment (DJ). Counting suits based on the number of defendants and including DJ cases, the NPE share rises to 28% of all high-tech patent suits. This average reflects an increase in NPE suits as a proportion of all suits over an eight-year period, from 22% in 2000-2001 to 36% from 2006 to March 2008, counting defendants, or from 10% to 20%, counting cases. I also report the variation by industry based on the absolute number of suits - the share of financial patent NPE suits (26%) was nearly triple that of hardware patent NPE suits (9%). These numbers provide a richer context for understanding the NPE phenomenon.

Another perception of the patent system is that large companies are reluctant litigants, carefully constructing portfolios of patents to avoid going to court. The practice of ?defensive patenting? has been well-documented and theorized. Yet, I found that public and large private companies initiated 42% of all lawsuits studied, 28% of the time against other large companies - the largest single category. They also defend against many other suits, brought by NPEs, small inventors, and individuals. These data suggest that defensive patenting, which is supposed to keep large firms out of court, is at least an incomplete - and perhaps a failing - strategy for many companies.

This Article also reports on the other major narratives of patent litigation. 4% of the suits were initiated by individual inventors (David v. Goliath), 18% of the suits were brought by small private companies against public or large private ones (small v. large), 16% pit one small- or medium-sized company against another (limited stakes), and in 8% a large firm sued a small one (predation profile). These and other findings provide a snapshot of patent litigation that should both inform current efforts to reform the patent system and serve as a basis for further investigation into its functioning.

Prof. Holman's post on reverse payment settlements was also buried yesterday in all the bits and bytes.