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Bombshell Study: Heavily Litigated NPE Patents Overwhelmingly Lose at Trial

Publication Date: 
September 22, 2010
Source: 
The 271 Patent Blog
Author: 
PeterZura

Professor Mark Lemley and CodEx founder Joshua Walker's article, co-authored with John Allison, "Patent Quality and Settlement among Repeat Patent Litigants," is mentioned in this blog post from The 271 Patent Blog:

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.