Decrease in patent litigation questions need for patent reform

Lex Machina recently released its second annual Patent Litigation Year in Review report, which provides some interesting insight into the major patent litigation trends of 2014. The report paints a picture for patent litigation that seems quite different than the narrative you typically hear in the popular press. According to Lex Machina data there has been a dramatic decrease in patent litigation.

The topic of patent reform has once again taken center stage in Washington, DC, with several large tech companies continuing to push for additional reforms. These tech companies claim that the reforms are necessary in order to combat run away patent litigation. But that is not what Lex Machina’s data shows. In fact, in 2014 there were 1,070 fewer patent lawsuits filed than during 2013. Furthermore, the number of patent cases filed in 2014 was lower than the number of cases filed in 2012 by some 433 cases. Therefore, the stories of continued run away litigation seem to be greatly exaggerated.

When looking at this chart it is wise to keep in mind that President Obama signed the America Invents Act (AIA) into law on September 16, 2011. The AIA included several litigation relevant provisions. First, the AIA created the new and extremely popular Inter partes review procedure, which gives defendants the ability to challenge patents at the United States Patent and Trademark Office (USPTO) in a streamlined, challenger friendly process. The entire purpose of IPR and the other post grant proceedings was to alleviate the burden on district courts and to give challengers a faster, cheaper way to challenge specious patents. Given the extreme popularity of IPR and the fact that we are witnessing a steep decline in patent litigation it would seem that there is reason to believe IPR is working as intended.

Second, and perhaps most importantly, the AIA introduced new joinder provisions that would make it more difficult, if not impossible, for patent owners to sue large numbers of defendants in a single litigation. Prior to the enactment of the AIA dozens or hundreds of defendants were sued in a single case. This unfairly compromised their right to mount an individual defense. Of particular interest, the joinder rules were not intended to prevent patent litigation, just make it fairer for defendants so that they would not be bundled together in cases where there really was no commonality of facts aside from the patent being asserted.

Although Congress may have naively thought otherwise, no one familiar with the industry suspected that the implementation of joinder provisions in the AIA would mean patent plaintiffs would give up suing, or that patent plaintiffs would sue fewer defendants. Yes, patent plaintiffs cannot sue as many defendants per case, so that necessarily meant that they would bring a greater number of patent lawsuits, which they did initially during 2012 and 2013. That there is such a dramatic decrease in patent lawsuit filings in 2014 suggests that the initial surge in the number of patent lawsuits filed in response to the joinder provisions has slowed, likely in response to Inter Parte review and the fact that the Patent Trial and Appeal Board (PTAB) has been working as intended, as a filter to weed out cases.

Given the dramatic decrease in patent litigation it seems entirely premature for Congress to be considering additional patent reform at this early stage. The AIA is barely 3.5 years old, post grant challenges such as IPRs have only been available for barely 2.5 years, and the most significant changes to substantive patent law are barely 2 years old. Now that we have evidence that the so-called patent litigation explosion (which was of course intended by the AIA) has been curbed the prudent thing to do would be to wait and see what, if any, additional laws are necessary. The significant changes to both substantive and procedural patent law brought about by recent Supreme Court decisions on patent eligibility and the availability of attorneys’ fees further mandates caution.

Other highlights from Lex Machina’s 2014 Patent Litigation Year in Review include:

• Filing Trends: Although the Eastern District of Texas and the District of Delaware remain the most popular courts for new patent cases, both saw a net decrease from last year – a 4.9% drop for Eastern Texas and a whopping 41.2% decline in Delaware.
• Case Timing: Both the Central and Northern Districts of California saw faster median times to claim construction (about a year) than the Eastern District of Texas, the District of Delaware, or the national average (all a year and a half).
• Motion Metrics: Of transfer motions decided in 2014, the Eastern District of Texas and the Northern District of California both saw near parity in their grant/deny rates, while Delaware and the Central District of California both exhibited a higher motion rate.
• ANDA Cases and Design Patent Cases: Neither kind of case has been affected by the general downturn in new patent case filings.
• Judges: Judge Gilstrap (E.D.Tex.) had 982 new cases in 2014, the most of any district court judge. Judges Sue Robinson (D. Del.), Leonard Davis (E.D.Tex.) and Richard Andrews (D.Del.) led in dispositive summary judgments.
• Law Firms: Fish & Richardson led nationally by open cases, while Morris, Nichols, Arsht & Tunnell in Delaware and the Tadlock firm in Texas led in their respective districts.  
• Parties: A large number of cases by eDekka and Olivistar placed them at the top of the plaintiffs list; Apple remained the top defendant.
• Patents: The Alice v. CLS Bank decision coincided with a dramatic increase in §101 invalidations for unpatentable subject matter.
• Damages: Damages awarded in 2014 included approximately $1.8 billion total in compensatory damages, with another $313 million total in enhanced damages.  Eastern Texas tended to award more damages than other districts, regardless of whether measured by ratio of damages awarded to cases filed, or simply by median damages.
• PTAB and ITC: PTAB cases were on the rise and ITC activity remained steady since its peak years in 2010-2011.

You can receive the full report by visiting 2014 Patent Litigation Year in Review.