The America Invents Act 500: Effects of Patent Monetization Entities on US Litigation

Guest Contributors: Sara Jeruss (left), Robin Feldman (center) and Joshua Walker (right).

Any discussion of flaws in the United States patent system inevitably turns to the system’s modern villain: non-practicing entities. They are known more colorfully as patent trolls, although the business model of non-practicing entities has appeared in copyright markets as well as well as in patent markets.

In the America Invents Act, Congress directed the nonpartisan Government Accountability Office (GAO) to conduct a study “on the consequences of patent infringement lawsuits brought by non-practicing entities.” At the GAO’s request, we provided data on non?practicing entities for five years (2007-2011) using a database from Lex Machina, formerly the Stanford IP Clearinghouse.  The GAO requested only the coded data without analysis, and we provided this with the understanding that we would publish our own analysis of the data at a later time.

Our current article, which is in draft form and available at SSRN and the final study will be available from the Duke Law & Technology Review. We note that although the cases were compiled at the GAO’s request, all conclusions are our alone and not those of the GAO.

As an initial matter, we chose to use the term “patent monetization entity,” to describe those entities whose primary focus is deriving income from licensing and litigation, as opposed to making products. The article explains the way in which we believe our new terminology creates a better definitional grouping than terms employed in the past, such as NPE or PAE. In addition to the term patent monetization entity, we also use the word “monetizer” as a short form.

We analyzed a random sample of 100 of the patent cases filed each year from 2007 through 2011, for a total of 500 cases, hence the title The America Invents Act 500.

Chief among the conclusions of the study are the following: First, based on our sample, lawsuits filed by patent monetizers have increased significantly over the five-year period. The sheer number of cases has increased, as well as the percentage of overall case filings represented by monetizers. In other words, lawsuits filed by patent monetizers are on the rise, while lawsuits filed by operating companies have fallen.

Specifically, lawsuits filed by monetizers increased from 22% of the cases filed five years ago to almost 40% of the cases filed in the most recent year.  In addition, monetizers were also heavily represented in the list of those who filed the greatest number of lawsuits. Of the 5 parties in the sample who filed the greatest number of lawsuits during the period studied, 4 were monetizers.  Only one was an operating company.

Of additional note, universities were almost invisible in this dataset, despite sometimes being grouped with non-practicing entities on the theory that they do not make products. Universities accounted for only 0.2% of the first-named plaintiffs who filed lawsuits in our sample. The number rises slightly when second-named plaintiffs are included, but remains quite small.

The data also show that cases filed by patent monetizers were unlikely to advance very far in the trial process and often settled prior to a summary judgment decision.

The data confirm in a dramatic fashion what many scholars and commentators have suspected: Patent monetization entities play a role in a substantial portion of the lawsuits filed today. The results are even more striking, given that the study examined only disputes that progressed to the courtroom. From all appearances, lawsuits filed are only the tip of the iceberg, and a major operating company may face hundreds of invitations to license for every lawsuit. Much of the bargaining, posturing, and payment concludes without any party filing suit. Thus, one can only imagine the magnitude of the impact that patent monetization has on the patent system, and on the economy, as a whole.


About the Authors

Sara Jeruss is Director of Legal Analytics at Lex Machina, Inc. Prior to working at Lex Machina, Sara was as a patent litigator at O’Melveny & Myers. Sara received her J.D. from Yale Law School and a Bachelors Degree from Cornell University, graduating summa cum laude. Sara is a member of the California Bar and the Federal Circuit Bar.

Robin Feldman is a Professor of Law at UC Hastings. She specializes in intellectual property and is the Director of the UC Hastings LAB Project. She has also served as the Herman Phleger Visiting Professor of Law at Stanford Law School. Professor Feldman has received the Rutter Award for Teaching Excellence and the 1066 Foundation Award for Scholarship. Professor Feldman’s second book, Rethinking Patent Law, was published by Harvard in June and focuses on understanding patents form the perspective of bargaining. Her recent article on patent mass aggregators is titled The Giants Among Us and was published in Stanford’s technology journal in January. Other articles have appeared in the New England Journal of Medicine and in journals at law schools including Georgetown, Minnesota, Stanford, Texas, USC, UCLA and Virginia. Her first book, The Role of Science in Law, was published by Oxford in 2009.

Joshua Walker is IP Counsel at Simpson Thacher & Bartlett LLP. He regularly collaborates with elite technology and financial clients, IP policy-makers, judges, and leading academics to advance the state of the art in IP practice. Walker was the Founding CEO of Lex Machina, Inc. and the Founding Executive Director of Stanford University’s CodeX, the first law and computer science lab in the United States.

The Author

Sara Jeruss, Robin Feldman & Joshua Walker

Sara Jeruss, Robin Feldman & Joshua Walker

Warning & Disclaimer: The pages, articles and comments on 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 as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of Read more.

Discuss this

There are currently 2 Comments comments.

  1. Robert Fletcher October 23, 2012 8:51 am

    Small companies are disproportionately, and many times unfairly, targeted by non-practicing entities (NPE’s). Routinely, they are forced to deal with, NPE’s, commonly known as “Patent Trolls,” and due to lack of funds, many times are forced to sign license agreements, pay royalties, give up market share or go out of business altogether. When the amount in controversy ranges between $1-$25 million, legal expenses alone average $2.5 million dollars, without considering settlements and judgments,.

    Specialized insurance is available to provide the funds to help innovators defend an IP lawsuit, and should be investigated.

    Contact Bob Fletcher at; 502-491-1144;

  2. Steve M October 23, 2012 6:13 pm

    Thank you for your research.

    Initial appearances may, however, prove misleading:

    Doesn’t the total number of patent lawsuits filed closely follow the much larger number of issued patents . . . as well as the total number of “in force” (not expired) patents? And hasn’t this been the case for many years? So the total number of suits filed is in fact not excessive, unreasonable, or unfair.

    How would the numbers and share percentages differ were it not for the effective end of joinder; where individually filed cases which once included 2 – 5+ alleged infringers . . . now are generally filed against each alleged infringer?

    How would the numbers and share percentages differ were it not for the large number of operating companies who have “sold,” licensed, or “moved” (i.e. to their own LLCs or other entity) who-knows-how-many of their patents . . . which they then file suit against others with — including their competitors? Suits which they would have; back in the “good ol’ days” ; filed in their own names?

    You state, “From all appearances, lawsuits filed are only the tip of the iceberg, and a major operating company may face hundreds of invitations to license for every lawsuit.”

    Respectfully, this type of mere conjecture and supposition is out of place; and especially so in the context of a claimed scholarly article. What specific facts and figures are you relying on to conclude that patent lawsuits are, “only the tip of the iceberg,” and that a major operating company may, “face hundreds of invitations to license for every lawsuit?”

    You also state, “Much of the bargaining, posturing, and payment concludes without any party filing suit. Thus, one can only imagine the magnitude of the impact that patent monetization has on the patent system, and on the economy, as a whole.”

    Again, more disappointing mere conjecture and supposition. Since you provide no reasonable basis for these statements, looks like imagining is about all we’re left with. Though unstated, anti-monetization bias is clear.

    Now let me share with you one of the greatest benefits patent monetization provides:

    The opportunity for inventors to receive fair and reasonable compensation for what they have graciously offered to share with society, the economy, and the nation as a whole.

    An opportunity which was rarely if at all available to inventors until the rise of patent monetization entities over these past few years.

    Imagine that.