On 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.