AIA has not significantly altered patent litigation totals according to recent Lex Machina report

By Steve Brachmann
March 13, 2017

Litigation lightbulbOn Thursday, March 2nd, legal data analytics firm Lex Machina released its fourth annual Patent Litigation Year in Review report which provides some intriguing findings on the landscape of patent cases in the United States over the past 12 months. While other recent Lex Machina reports have already noted that patent litigation levels fell 22 percent between 2015 and 2016, this latest study provides a more detailed look into patent cases filed and/or terminating in the U.S. court system.

 

As always, the U.S. District Court for the Eastern District of Texas (E.D. Tex.) is a major topic of discussion and, at first glance, Lex Machina’s patent litigation report would seem to suggest that patent infringement filings in E.D. Tex. are down dramatically. While overall patent litigation levels fell by 22 percent, patent case filings in E.D. Tex. fell by 34 percent compared to that court’s docket levels in 2015. However, as Lex Machina data scientist Brian Howard notes, that conclusion is faulty given rising levels of patent litigation filings in E.D. Tex. throughout 2016. In the first quarter, E.D. Tex. saw 30 percent of patent cases filed but that percentage grew steadily through 2016’s fourth quarter, when E.D. Tex. received 40 percent of patent cases filed in U.S. district courts. “Although the patent litigation pond might be shrinking, E.D. Tex. is grabbing a bigger share of the pond,” Howard said. A similar consolidation is seen in the U.S. District Court for the District of Delaware (D. Del.), which received seven percent of patent cases in 2016’s first quarter and 13 percent of case filings in the fourth quarter.

The fact that 36.7 percent of all patent cases filed in E.D. Tex. seems to be an exceptionally high degree of concentration in case filings, but the Lex Machina report further notes that 95 percent of civil litigation filed in E.D. Tex. is assigned to Judge Rodney Gilstrap. Of the 4,533 patent cases filed in U.S. district courts during 2016, a total of 1,119 cases were assigned to Judge Gilstrap alone. That means that, not only are more than one-third of all patent cases confined to a single district court, nearly 25 percent of all patent cases filed in the U.S. are assigned to a single judge.

All of this begs the question as to why E.D. Tex. is such a highly preferred venue, a question which is addressed by other data points included in the Lex Machina report. In patent cases terminating between 2015 and 2016, all other districts had a likely settlement rate of 70.3 percent, with 18 percent of cases reaching a procedural outcome, 6.3 percent of cases leading to a claimant win and 5.4 percent of cases leading to a claim defendant win. In E.D. Tex., however, the rate of likely settlements surges to 89 percent of all cases, with only 8.3 percent of cases reaching a procedural outcome and claimant or claim defendant wins resulting in just over 2 percent of cases terminating in E.D. Tex. This high rate of likely settlements correlates with a high rate of denial for summary judgment motions. Between 2013 and 2015, 72 percent of such motions were denied in E.D. Tex. and only 21 percent were granted. In all other districts combined, 43 percent of summary judgment motions were denied and 37 percent were granted. Barriers to earning summary judgment in E.D. Tex. are higher than in other district courts and many judges in E.D. Tex. require parties to file a five page letter brief requesting permission to file a motion for summary judgment, although it is notable that last July Judge Gilstrap relaxed this rule in terms of cases assigned to him.

Litigation in E.D. Tex. is driven by a unique set of plaintiffs which the Lex Machina reports as “high-volume plaintiffs,” or parties which file at least 10 patent cases within one twelve-month period. E.D. Tex. sees most of the high-volume case filing activity from individual plaintiffs going after multiple defendants and in fact high-volume case filing activity outpaces case filing activity from low-volume plaintiffs in that district. That’s an abnormality, especially given the fact that, in almost every other district, low-volume plaintiff cases far outpace high-volume plaintiff cases. The only other district where activity from both sets of plaintiffs are close is D. Del., suggesting that the large amount of high-volume plaintiff case filings in either E.D. Tex. or D. Del. drives the high amount of patent litigation in those two venues. “Clearly, E.D. Tex. is popular with the high-volume set,” Howard said. “It’s not because they’re winning more often, because all these cases are settling. Why are they settling? The summary judgment grant rate is terrible and there are procedures in place to prevent summary judgment. The combination of those two things means that defendants are often faced with no exit from a case prior to trial other than a settlement.”

The other aspect of patent litigation activity in the U.S. which the recent Lex Machina report makes clear is that patent case filing activity is very sensitive to any legislative or judicial changes to the system, even just proposed ones. One very telling indicator of this is a graph looking at the number of cases filed between 2008 and 2016 in terms of defendant-case pairs. This graph looks at the number of cases filed in terms of how many defendants are listed in a case, providing a better comparison of litigation levels prior to the America Invents Act of 2011 (AIA), which established joinder provisions preventing a single plaintiff from suing multiple defendants in a single case, to litigation after AIA was enacted. Looking at the data in this way shows that case filing activity was not significantly altered by AIA; plaintiffs went after about as many defendants prior to AIA enactment as they did post-AIA, even if the joinder provisions artificially inflate the number of patent cases filed after AIA. There’s only one major spike in this graph of more than 2,900 defendant-case pairs in September 2011, the month during which AIA provisions were enacted; no other single month between 2008 and 2016 saw anything much greater than 1,400 defendant-case pairs.

This last point is one that has been corroborated by previous Lex Machina reports on U.S. patent litigation. Spikes in patent litigation have closely preceded other important changes to the country’s patent system, such as a spike of 600 patent infringement cases from high-volume plaintiffs coming in the same quarter that Form 18, which was used to plead patent infringement claims in U.S. district court, was abolished in November 2015. A spike of 688 patent infringement suits filed in April 2014 followed closely after a draft of an informally proposed Congressional amendment on fee shifting provisions was leaked. All of this suggests that patent infringement case activity is highly sensitive to even proposed changes and that much of that heightened activity comes from high-volume plaintiffs which are paying close attention to how the U.S. patent system works.

Other key findings from the Lex Machina report include the fact that South Korean consumer electronics giant Samsung (KRX:005930) was sued most often as a defendant in patent infringement cases filed during 2016 ahead of fellow Korean consumer tech firm LG Electronics (KRX:066570) and American consumer tech developer Apple Inc. (NASDAQ:AAPL) Much of the rest of the top ten patent defendants includes tech and pharmaceutical companies. 14 of the top 15 plaintiffs filing the most patent infringement cases in 2016 were what the Lex Machina report calls “patent monetization entities,” a term chosen to encompass all non-operating companies including non-practicing entities (NPEs) and patent assertion entities (PAEs). Also, compensatory damages are very low in patent infringement case outcomes and have only been awarded in 1.8 percent of terminated cases which have been filed since 2000.

The Author

Steve Brachmann

Steve Brachmann is a writer located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He has become a regular contributor to IPWatchdog.com, writing about technology, innovation and is the primary author of the Companies We Follow series. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients.

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 19 Comments comments.

  1. David March 13, 2017 10:03 am

    Using case filings to determine patent litigation activity is a misleading metric. The numbers are largely propped by nuisance suits that are settled before meaningful litigation activity occurs.

    It’s an impossible number to generate, but the helpful number would be hours billed per patent litigation, or something similar. How much work is the current case load actually creating? For a number of reasons, it appears that this number has fallen off a cliff, and patent litigation departments across the country are being squeezed.

  2. Anon March 13, 2017 11:48 am

    So, if we account for the faux “bump” by the induced non-joinder change in law, and then normalize the counts by the number of possible claims (even roughly estimated by the number of granted patents), we would see that the actual likelihood of a patent suit (normalized) has GONE DOWN.

    And yet, the scare tactics and propaganda of “Oh No Tr011s” runs unabated…

  3. Night Writer March 13, 2017 12:41 pm

    Let’s not forget that the unethical Lemley runs Lex Machina. So, the odds of him feeling any ethical duty to normalize any graph is zero, or to present relevant data is zero. Anything from Lemley should be taken with a grain of salt. The assumption should be that he has rigged the numbers.

  4. Independent Inventor March 13, 2017 5:54 pm

    Thanks Steve.

    Who were the top 15 plaintiffs filing the most patent infringement cases in 2016 that you reference?

  5. Steve Brachmann March 13, 2017 8:55 pm

    II @4 – Top plaintiffs were, in order from first to last: Shipping and Transit, LLC; Uniloc Luxembourg S.A.; Uniloc USA, Inc.; Sportbrain Holdings LLC; Blackbird Tech LLC; Hawk Technology Systems, LLC; Guyzar, LLC; Symbology Innovations, LLC; T-Rex Property AB; Codec Technologies LLC; Global Equity Management (SA) Pty. Ltd.; Pherah LLC; Digital Audio Encoding Systems, LLC; Solocron Education, LLC; and Whirlpool Corporation. The top 14 are defined by Lex Machina as patent monetization entities in a broad way that encompasses NPEs, PAEs and any other company that doesn’t practice the technology but asserts patent rights. If I get a chance I’m going to see if I can upload a link to the study so you can see all of the pertinent info.

  6. Independent Inventor March 13, 2017 9:36 pm

    Thanks Steve.

  7. Benny March 14, 2017 5:20 am

    David @1,
    Not sure I get your drift. Surely a reduction in the number of hours spent in legal wrangling over litigation is a positive effect in general?

  8. Anon March 14, 2017 8:08 am

    Benny,

    The great lawyer answer; it depends.

    One presumption in your statement is that all lawyer hours are “bad.”

    This is just not so.

  9. Anon March 14, 2017 8:12 am

    …by the same token, your “logic” would support statement of “all billed doctor hours are bad.”

    In a perfect world, it would be indeed wonderful if there were to be zero need for doctors.

    (Your message does remind me of the Shakespearean MISquote concerning attorneys)

  10. Benny March 14, 2017 8:59 am

    Anon,
    Hours billed for litigation do not generate value. In our industry, engineers working in the lab can innovate and create, but the IP expenses add nothing to that creativity. At best, it pays the “security guards” patrolling our innovation. reducing the need, and cost, of that security can hardly have a negative effect on our bottom line.
    Never mind Shakespeare, (I am of a more peaceful disposition – I would tone it down to “First, let the lawyers go hungry”) think of the Maytag adverts. A bevy of unemployed Maytag service technicians was touted as a benefit.

  11. Anon March 14, 2017 9:52 am

    Benny,

    Protecting one’s property rights through the provided court system DOES bring value.

    We do live in the real world where transgressions (and illnesses) occur.

    Sorry, but your anti-attorney view is just not correct.

  12. Night Writer March 14, 2017 10:10 am

    @10 Benny

    You don’t understand the bigger structure. The reason those engineers have jobs is because their work can be protected. Without that protection the corporations would not invest in the engineers jobs.

    Please look harder at what is going on. Consider that Microsoft didn’t create a research division until it decided that patents were important and also set goals for the number of patents per billion dollars spent on research. Funny talking to the engineers/scientist who expressed views like yours that patents were worthless and evil.

  13. Benny March 14, 2017 10:39 am

    Night,
    At issue is not the cost of obtaining a patent but the cost of litigation.

  14. Night Writer March 14, 2017 10:54 am

    @13 Benny

    So, you are saying patents are great, but litigation costs are too high?

    The problem with litigation is the unequal start of the litigation where a P can put together a claim chart pretty quickly, but a D must submit all the invalidity contentions upfront in most districts which can cost millions.

    Anyone that has done litigation knows this. Yet no one ever talks about it.

  15. David March 14, 2017 10:57 am

    Benny – my point is merely this: reports suggesting that it’s “business as usual” for the patent system are misleading. Though filings themselves may be relatively static, actual litigation activity is down (significantly).

    The anecdotal examples are everywhere: if Ropes patent lit remained busy, Ropes patent pros would not have walked.

    As to whether this is good or bad, that’s a separate discussion.

  16. Benny March 14, 2017 11:00 am

    Night,
    Not quite, I said that obtaining a patent is a cost associated with protecting an asset, but litigation is money down the drain which adds nothing to the value of your innovation. Commentator David at comment 1 possibly earns his bread and butter from litigation cases, and may see my approach as a threat to his retirement fund. I don’t see people like David adding value to my product.

  17. David March 14, 2017 12:36 pm

    Benny – traditionally speaking, patent litigation costs were justified (and I’m not talking about Apple v Samsung). In a dispute between competitors, the validity of the patent-at-issue could determine market share, and the future survivability of the litigant entities. For a good faith, inventive NPE, patent litigation was the last recourse to harness bad actors from skipping licensing obligations. And, after Alice (whether perfect or imperfect), Article III patent litigation provided good faith “infringers” with a reliable mechanism to invalidate garbage patents at the MTD phase.

    The problem now, however, is that the validity determination is exported out of the Article III courts to Article I administrators who answer to Article I federal agency heads who answer to politicians who answer to entities that fund their campaigns.

    Not only has this muted the litigation process by which the “correct” result was traditionally achieved, it introduced a toxic suspicion of corruption that is undermining the purpose of the patent system itself. Unpredictability goes into the front end of the lending calculus, meaning less R&D money for everybody. It also means less litigation funding for everybody.

    In fact, the only “winners” here are ideologues, who believe our system will be better off once replicating the European model, where infringement and validity are 2-track, and trade secret protection is the preferred mechanism for protection.

  18. Benny March 14, 2017 12:46 pm

    David,
    For “Ideologues” read “Europeans”.

  19. Night Writer March 14, 2017 2:39 pm

    @15 David

    You have a good point about the fact the data may be misleading. I am sure that Lemley would not put effort into figuring out how to illustrate that litigation is dropping. It does not fit his narrative and ethics mean nothing to him.