GAO Report Finds No NPE Patent Litigation Crisis

Just when Congress is gearing up to consider a package of patent reform initiatives aimed at dealing with abusive patent litigation, the U.S. General Accountability Office has released a much anticipated study of the “consequences of litigation” by non-practicing entities as mandated by Section 34 of The America Invents Act (AIA).   Given that Section 34’s language and directives could best be described as unenthusiastic towards licensing and the enforcement of patents, an objective reader of the GAO study cannot help but conclude that the GAO did not conduct or produce the sort of scornful report on the state of our patent system that large IT companies and patent-skeptics had hoped for.  While the report is not a vindication for NPEs (far from it), it did not give patent critics what they hoped to get (i.e. an independent agency’s finding that patent litigation is exploding and that this increase in litigation is having a negative impact on innovation).  Quite the contrary.

The GAO interviewed officials from the PTO, FTC, ITC, and 44 stakeholders including judges, academics, venture capitalists, technology companies, and inventors, surveying existing economic and IP academic research; examined  data from the AIPLA and RPX; and purchased litigation-related data from third party sources like Lex Machina; and conducted a year-long PTO performance audit.  In the end, the GAO produced a measured report which summarizes the views of the various stakeholders and suggests that — to the extent there is a problem in the patent system, it is not a patent litigation problem but rather a legacy patent quality problem.

As Politico reported: “The world wants to blame so-called patent trolls for the lawsuits that have tied the intellectual property system into knots — but operating companies that make actual products are the ones running to the courthouse.” Specifically, the GAO found that “companies that make products brought most of the (patent) lawsuits and that NPEs brought about a fifth of all lawsuits.”  Still, NPEs accounted for over one-third of defendants sued and over one-half of the overall increase in defendants from 2007 to 2011 and the reasons for this increase is something the Congress will want to – and should – examine.   The GAO estimated that 39% of software related patent suits were against nontechnology companies/firm (e.g. retailers).

The GAO dedicated a good portion of its report on how the courts’ administrative improvements (e.g. patent pilot project) and the implementation of AIA are likely to affect the handling of patent cases and patent quality in the future.  The GAO also noted that, not surprisingly, that 38% of the cases brought by PMEs (patent monetization entities) are brought in the ED of Texas.  And, while patent litigation is expensive, the GAO notes that all litigation is expensive, not just patent litigation.

Importantly, Congress had directed the GAO in Section 34 to include “recommendations for any changes to laws and regulations that will minimize any negative impact of patent litigation.”   The GAO chose to make no legislative or regulatory recommendations. Nor did it include any objective findings about the impact NPE litigation has on the economy, job creation, consumers, and such.  (Well, the GAO did make reference to the studies of professors Bessen and Chien s and their conclusions about the cost and impact of litigation but also  noted that the studies were based on ”nonrandom, nongeneralizable “ sets of data).   Instead of condemning NPES, the GAO emphasized at the very outset of its report that our nation’s history is filled with examples of inventors who did not develop products based on the patented technologies.

The GAO concluded, simply, that: 1. Most litigation today involves software-related patents (89%); 2. Focusing on the identity of the plaintiff (be she an NPE or something else) may be misplaced; and 3. PTO is doing more – and can do more – to improve the quality of patents it issues.   The only specific recommendation included in the report was that the PTO examine trends in patent infringement litigation and consider linking the information it gleans from those trends to internal data on patent examination in order to improve the quality of issued patents and the patent examination process.

So what’s the bottom line? Software patent critics will certainly use the report to advance their agendas,  as will retailers who have been frustrated by infringement actions being brought against end-users and sellers of infringing products.  But, overall, the report directly and indirectly supports the view that there is no patent litigation crisis and that, to the extent that there are problems with the patent system, they are linked primarily to patent quality – not the identity of the patent owner (e.g. NPE, PAE, PME, operating company or whatever name one chooses to use).   The best path forward, it would seem the GAO is suggesting, is to allow the courts to implement their administrative reforms, allow the AIA to be implemented, and insure that the PTO continues to implement reforms that will improve the quality of issued patents.  Some in Congress are still going to want to legislate but one can hope these same legislators will review and reflect upon the findings and recommendations contained in the very report they requested before doing so.