Patent Litigation: Too Much as Compared to What?

By Brad Pedersen
July 8, 2013

The current debate in Congress on patent litigation reform is focused on patent monetization entities, including the so-called “patent trolls.”  But another theme underlying this debate is a supposed explosion in patent litigation. [1]  Many fear that patent litigation is stifling innovation in the United States and the upcoming report by the GAO will hopefully shed some light on these fears.  To get a sense of what the GAO report might include, this article looks at historical patent litigation trends to evaluate whether the supposed explosion in patent litigation is real and what factors contribute to patent litigation trends.

The America Invents Act (AIA) changed the joinder rules to restrict a patent owner from suing multiple defendants in the same lawsuit.  It is clear that these reforms have resulted in numerically more patent lawsuits being filed in the last two years. [2]  What is unclear is whether this increase in lawsuits is due only to the AIA reforms, or whether there are more fundamental changes occurring in patent litigation trends.  To put recent patent litigation trends into perspective, an analysis was made of patenting and patent litigation in the US over the last 40 years in comparison to overall US economic activity.

As President Lincoln recognized in his famous line, “The patent system added the fuel of interest to the fire of genius.” [3]  It is in our nature to innovate.  In fact, the ability to innovate is part of what makes us human. [4]  Patent protection is not meant to encourage innovation; rather patent protection should serve to encourage economic investment in commercializing our innovations.  So, it is appropriate to measure our patent system in comparison to our economic activity.

Chart 1 shows US patent activity by year for the last 40 years in terms of numbers of patent applications filed (green), patents issued (red) and patent lawsuits filed (aqua).  The number of patent lawsuits filed is represented on this chart at 100x the actual number of unique lawsuits in order to allow the value to be scaled to the axis of the chart.  Chart 1 also shows US economic activity over the same 40-year period in terms of GDP (blue in constant 2012 dollars), the Dow Jones Industrial Average (orange) and an estimated value representing the portion of GDP attributable to intangible assets (purple).  Based on the reported inversion of the ratio of tangible to intangible assets over the last 40 years,[5] the estimated value of GDP intangible assets used in Chart 1 starts at 30% of GDP in 1972 and increases linearly to 70% of GDP by 2012.  What Chart 1 clearly shows is that there is a strong and persistent relationship between patent activity and economic activity.

Over the last 40 years the number of patent lawsuits filed in the US has stayed relatively constant as a percentage of patents issued.  As Chart 2 shows, when normalized against the number of issued US patents, the number of US patent lawsuit filings have varied between 1-2% of the total number of patents issued each year.  Given this relationship, and the apparent relationship between patent application filings and economic activity, it is not surprising there was a continuing increase in the total number of patent lawsuits filed over the last 40 years.

Chart 3 is an alternative representation of the data shown in Chart 1, but presenting the information as five-year moving averages so as to smooth each curve.  There are two periods of time in Chart 3 where the apparent relationship between patent activity, particularly patent lawsuit filings, and economic activity appears not to track as closely as the data otherwise suggests for the majority of the last 40 years

The first period of interest is from 1972-1981 (Period 1).  While GDP growth appears to follow a rather consistent line of growth, the lines for patent activity present a period of relatively flat growth.  After 1981, the growth of patent activity starts to track more closely with the growth of economic activity.  It is interesting to note that the end of this period, 1981, was the year in which the Federal Circuit was formed.  While creation of a single court for patent appeals appears to have achieved its goals of more consistent and predictable treatment of patent cases, it should also be noted that the economic growth activity for Period 1 was also relatively flat.

The second period of interest is from 2003-2010 (Period 2).  During this period, the number of patent lawsuits filed initially drops and then appears to remain relatively constant, only to spike up in 2011.  This deviation in the number of patent lawsuits filed compared to historical trends may be attributable to the rise of the phenomenon of multiple defendant patent lawsuits, a kind of reverse class action tactic that had been especially favored by patent monetization entities (PMEs).  While the total number of patent lawsuit filings in Period 2 was lower than would be expected, it is speculated that a graph of the total number of patent defendants would not show the same kind of decrease during this period.  Instead of filing more unique patent lawsuits during this period, PMEs started using the practice of filing a single lawsuit against multiple patent defendants on the same patent.  The passage of the AIA in 2011 severally restricted this practice, and the number of patent lawsuits filed went back to a level that would have been expected based upon the corresponding increase in economic activity over this second period.  But, as with Period 1, it should be noted that overall economic activity during Period 2 was relatively flat which also may have also contributed to lower patent lawsuit filings during this period.

Although these charts do not represent a rigorous analysis, they do show two things.  First, patent activity appears to have a relatively consistent correlation to economic activity.  Whether Lincoln was correct that there is a cause relationship or whether this is simply an effect relationship can be debated, but the existence of a relationship seems to be well-established.  Second, patent litigation also appears to be following the longer-term trend of the relationship between patent activity and economic activity.  The recent jump in the number of patent lawsuits filed, while significant in the short term, does not appear to represent a significant deviation from what would be expected based on longer-term historical trends.

__________

EDITORIAL NOTE: The charts were prepared with data obtained from the following sources:

USPTO Performance and Accountability Reports
http://www.uspto.gov/web/offices/ac/ido/oeip/taf/ann_rpt_intermed.htm

Federal Judicial Caseload Statistics, http://www.uscourts.gov/Statistics.aspx

The World Bank, http://data.worldbank.org/country/united-states

S & P Dow Jones Indices, http://www.djindexes.com/averages/

 

About the Authors

Mr. Pedersen is a shareholder with Patterson Thuente Pedersen, P.A. and is a frequent speaker and author on patent reform and the America Invents Act.  Mr. Woo is an associate with Patterson Thuente Pedersen, P.A.

Footnotes

[1] Chris Barry, Ronen Arad & Kris Swanson, 2013 Patent Litigation Study: Big cases make headlines, while patent cases proliferate 6 (2013).

[2] Sara Jeruss, Robin Fledman, & Joshua Walker, The America Invents Act 500: Effects of Patent Monetization Entities on US Litigation, 11 Duke L. & Tech. Rev. 357 (2012).

[3] President Abraham Lincoln, Second Lecture on Discoveries and Inventions (February 11, 1859)

[4] Howard Bloom, The Genius of the Beast (2010), Prometheus Books.

[5] Kevin Hassett & Robert Shapiro, What Ideas Are Worth: The Value of Intellectual Capital and Intangible Assets in the American Economy, (2011).

The Author

Brad Pedersen

Brad Pedersen

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 9 Comments comments.

  1. PatentBuddy July 8, 2013 9:48 am

    Gene is dead on right. Without patents, there would be no innovation. Patents also are clearly effective at increasing economic productivity and GDP. Astounding.

    The scope of subject matter that is eligible for patenting also needs to be expanded immensely – the GPD and economic productivity of America would sky-rocket.

    I’m optimistic for America. We are on the cusp of a patent golden age never before seen in history.

  2. Anon July 8, 2013 8:04 pm

    According to the numbers (and another nice graph) at:
    http://ipkitten.blogspot.com/2013/06/more-on-us-patent-litigation-statistics.html

    The actual RATE of patent litigation as a function of patent case over the number of live patents has actually dropped.

    That is not a message that those hurling the invectives and pejoratives in the first place will want to here.

  3. Paul F. Morgan July 14, 2013 6:44 pm

    It would be nice to see more accurate statistics from more impartial sources.
    Re the above “http://ipkitten.blogspot.com/2013/06/more-on-us-patent-litigation-statistics.html’charts” note the critical comments on that same blog. Also note that a ratio of current patent grants to current patent litigation has a large error source due to the fact that the vast majority of patents sued on are not recently granted patents and a large percentage of older issued patents are now abandoned early by non-payment of patent maintenance fees and thus are not “live patents.” Also, re the effect of the AIA non-joinder provision [except for a few more venue transfers]? The economic impact of twenty patent suits against twenty different companies is not significantly different from one suit against twenty companies on the same patents. If anything, the AIA non-joinder provision has made the patent litigation statistics more realistic in that sense.

  4. Paul F. Morgan July 15, 2013 11:21 am

    Further demonstrating the wide variations in alleged troll suit numbers from various interested parties, see the 1,638 patent suits allegedly just from Erich Spangenberg’s ” IPNav” alone just reported in the NYT:
    http://nyti.ms/16zhcwh

  5. Anon July 15, 2013 5:39 pm

    Paul,

    You raise good points. But what caught my eye on the drop was that the data reflecting the drop was using ONLY the US patents within the first maintenance period.

    In other words, the drop is likely GREATER when the full pool of live patents is considered.

    And if you read the article carefully, the 1638 number is NOT suits. It is COMPANIES sued over the last five years.

    The AIA joinder provision has – not shockingly – altered that landscape a bit – but that is a self-induced and (thus to me) false change.

  6. Anon July 16, 2013 10:27 am

    Upon a fresh read, I find the irony of Paul’s admonition at 4 for “impartial sources” juxtaposed against the supplied source of the NYT artilce at 5 to be either the ultimate in hypocrosy or a stunning examplf of LACK of impartiality (in the NYT article).

    The NYT article rehashes bad numbers previously debnunked and leans on sources with a known agenda against the patent system.

    The reverberations from teh echo chamber need to be recognized for what they are.

  7. Paul F. Morgan July 16, 2013 1:56 pm

    Anon, it should be obvious [to an impartial reader not personally financially affected either way by troll issue debates, like myself] from my use of the words “alleged,” allegedly” and “interested parties,” as well as my prior comment] that I was NOT endorsing the alleged troll suit numbers in that NYT article, OR those of any other interested parties.
    I have also questioned some of the other patent related numbers and assumptions of academics, including those in the widely quoted book “Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk” (Princeton 2008) by James Bessen and economist Michael J. Meurer. [James Bessen’s “Curriculum Vitae” under “Education” that I found lists only “A.B. Harvard College, 1972; Graduate courses in economics” even though he is now apparently listed as an “instructor” at the B.U. law school?] Especially, conjectures as to how much of the total economic costs of patent litigation is recoveries returned to the original inventors [by which I think they meant the original assignees doing the R&D?] and if that is representative of troll suits?

    P.S. I doubt if you will find the quotes and other reported details about Erich Spangenberg in that NYT article to be helpful in defending patent trolls to Congress and the courts, irrespective of the alleged numbers?

  8. Anon July 16, 2013 2:08 pm

    I reiterate my point at 6 – you raise good points; in particular, it would be nice to have some objective accurate stats from impartial sources.

    Alas, such may be more mythical than real given the charged climate and the active philosophical camps doing battle for control of public perception.