Perryman PTAB Study for Unified Patents Leaves Out Half of the Story

By Steve Brachmann
July 27, 2020

“To its own detriment, the Perryman study does an exceedingly poor job at accounting for any losses to the U.S. economy through the invalidation of patent rights, which leaves inventors without an ability to generate licensing revenues or attract investment to grow their own companies, both of which are legitimate ends of the patent system.”

Publisher’s Note: We did not receive the Unified Patents response until shortly before scheduled publication, which accounts for the answers to questions posed to Unified being appended to this article. At 8:10pm ET I updated the article to provided hyperlinks where appropriate to take the reader to the relevant response from Unified. 

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In late June, Unified Patents published the findings of an economic report conducted by consulting firm The Perryman Group on the supposed impacts of validity trials conducted under the America Invents Act (AIA) at the Patent Trial and Appeal Board (PTAB) on the U.S. economy. Unsurprisingly, the report is very bullish on the effects of the AIA, and Perryman pegs the positive impact of the AIA and the PTAB at $2.95 billion in terms of increased gross domestic product, $1.41 billion in increased personal income and 13,500 of additional job-years of employment.

Careful observers of the U.S. patent system, however, will note that the data only does a good job of examining one side of the PTAB’s impact. To its own detriment, the Perryman study does an arguably poor job at accounting for any losses to the U.S. economy through the invalidation of patent rights, which leaves inventors without an ability to generate licensing revenues or attract investment to grow their own companies, both of which are legitimate ends of the patent system. (See Unified Response.) Instead, Perryman conceives of the U.S. patent system as a zero-sum game wherein one patent owner’s loss is another business owner’s gain—a conceit which may work well to advance certain policy points, but which does an inadequate job of depicting reality.

The Other Half

The economic study, published as part of Unified Patent’s Patent Quality Initiative, estimates reductions to district court litigation as a result of AIA trials conducted at the PTAB, finding that the 10,085 cases handled by the PTAB between 2014 and 2019 led to a reduction of $262,200 per case, or $2.644 billion total, in litigation costs. These cost savings were then fed through an input-output model of the United States, obtained from the Bureau of Economic Analysis, to arrive at the study’s findings on gross domestic product, personal income and job-year increases. The study then splits these figures up by industry.

While a surface level look at the data compiled by Perryman would give a reader no reason to question Unified Patents’ thesis that the implementation of AIA trials at the PTAB has been a net benefit to the U.S. economy, the study pays zero heed to U.S. economic losses stemming from the invalidation of patent rights. Several statements within the report itself underscore this myopic presentation of facts. First, in the section discussing total economic benefits, the study says that “these estimated direct savings represent a net gain in efficiency (reduction in cost with no corresponding loss of output).” How can PTAB trials represent a reduction in litigation cost that has absolutely zero corresponding loss of output affecting the U.S. economy? The study doesn’t even mention loss of licensing revenue for patent owners who have lost all ability to exercise a property right against infringers. That has an obvious impact on the ability of patent owners losing those rights to grow their business, which in turn produces reductions on personal income and job-years that should have been accounted for by Perryman if the study was to produce a more accurate depiction of the AIA’s impact on the U.S. economy. To do otherwise would require utter ignorance of other economic models showing the impact of patent rights on increasing venture capital investment and creating millions of jobs across the United States.

Perryman Group’s misapprehension of this side of the story is magnified by another statement made one paragraph later, where the study acknowledges that “[a]ny economic stimulus, whether positive or negative, generates multiplier effects throughout the economy.” If this is true, the fact that the Perryman study doesn’t even attempt to put a gloss on the aforementioned negative economic stimuli is very telling. The billion-dollar figures touted by Unified Patents in net litigation savings and U.S. GDP growth are easily wiped out by even just a few cases at the PTAB, where patent assets worth billions of dollars have been invalidated.

Business Model Biases

From there, the study’s inherent bias against patent owners fighting to vindicate their patent rights becomes very easy to see. For example, a box on page 2 of the report states that “PTAB trials typically cost less to litigate and conclude within 12 months from institution, whereas district court litigation may take several years.” It is abundantly clear that this only represents the viewpoint of PTAB petitioners looking to invalidate patent claims. Patent owners overwhelmingly see the PTAB as an added expense on top of the already costly process of vindicating patent rights in district court. (See Unified Response.) Further, the idea that an AIA trial at the PTAB reaches a favorable result within 12 months of institution is another viewpoint that reflects only the interests of petitioners. For patent owners, whose legal costs at the PTAB begin to rack up at the petition phase, well before the PTAB decides to institute, the 12-month period between institution decision and final decision is often followed by many months, or perhaps years, of rehearing requests at the PTAB and appeals to the Federal Circuit. If, and only if, the patent rights survive this gauntlet, can the patent owner return to any district court litigation that may have been stayed pending the PTAB trial, which the Perryman Group study, to its mild credit, acknowledges “may take several years.”

The bias is clear. On the last page of the report, an about box description of Perryman touts the fact that the firm has worked with the 12 largest tech companies in the world; more than one-half of the Fortune 100; two-thirds of the Global 25; and the nine largest firms in the U.S. These are exactly the type of market dominant players that do not need a working patent system to succeed, and arguably thrive better when they can infringe patent rights with impunity. The fact that the Perryman study would willingly ignore certain inconvenient truths about the PTAB’s negative economic impacts is thus completely understandable.

Everyone is entitled to their own policy positions, just as our readers are entitled to a thorough conversation dissecting the various data points supporting those policies. It’s probably no secret that a study funded by a business with a profit model predicated on invalidating patent rights in a particular executive agency tribunal would be resoundingly positive on the economic impacts of that tribunal. However, pointing out the biases inherent in such a study is time well-spent for anyone who actually cares about how secure patent rights can better produce a stronger U.S. economy than the race to invalidation that the Perryman study suggests.

Here is what some other stakeholders had to say about the study:

James Carmichael

Jim Carmichael, Carmichael IP and a former administrative patent judge: “The PTAB does not reduce the cost of litigation for my patent owner clients. For them, the PTAB is a crushing burden that adds to their costs. The delay in vindicating their rights can be a death knell for small businesses when the fruits of their labors have been stolen by efficient infringers. Knowing this, potential innovators are discouraged and the useful arts are diminished, not promoted. This diminishment has real ripple effects not accounted for in this Perryman report. The report uses unreliable assumptions that are employed to get to the result they want. The report seems to assume that all patents are bad. That’s the only way that it makes sense to say that it saves money compared to district court litigation. I don’t think that approach works for patents that protect true innovations and survive the PTAB.”

Dr. Kristina M. L. Acri, née Lybecker, Associate Professor of Economics, Department of Economics & Business, Colorado College: “In general, I find the analysis of the Perryman economic study to be quite ‘thin’ and the methodological appendix to be woefully inadequate. Overall, I feel as though there isn’t enough information provided about how the estimates were reached to be able to place much confidence in them or the methodology used. The industry categories used are far too broad to accurately describe the U.S. economy. The fact that 50% of the GDP impact is in manufacturing reveals very little. I imagine that the impact on manufacturing in pharma is very different than in autos or furniture. I would have liked to see this broken out at a finer level. Further, my understanding is that the study evaluated patent litigation costs and trademark litigation costs. I would expect those costs to differ substantially across industries and sectors. How did they create the average cost across industries? No justification is provided. (See Unified Response.)

“While only 10% of the cases reach the trial stage, I would again expect this proportion to differ by industry. (See Unified Response) It is unclear whether this was considered or accounted for. I appreciate the use of constant 2019 dollars and the use of historical data to estimate trends. Those assumptions strike me as very reasonable and workable.”

Paul Morinville, Founder, US Inventor: “Biased research was used to crash the patent system, thus sending the majority of early stage investment in technology to China. Now, biased research is used to maintain its destruction. The PTAB invalidates or neuters 84% of the patents it reviews. One side of the USPTO creates a property right. When the patent holder finally develops market value for the patent, the other side of the USPTO, the PTAB, invalidates the patent, effectively transferring that market value to huge multinational corporations. No inventor can trust the U.S. government when they see such blatant corruption.”

The Response

In an email conversation with Unified’s Chief IP Counsel Jonathan Stroud, Unified’s Co-Founder and COO Shawn Ambwani, and Ray Perryman, President and CEO of the Perryman Group and author of the PTAB study, IPWatchdog posed a series of questions on the issues raised in this article, which elicited the following responses, shown in red and reproduced here in their entirety:

Q: The Perryman study does not seem to account for lost value to the U.S. economy caused by the invalidation of patent rights. Does every single patent invalidated at the PTAB represent a net gain for the U.S. economy?

A:  There is no “gain” to the U.S. economy from invalid patents. Rather, to the extent that holders seek compensation for invalid patents and parties incur transaction costs for patents that were wrongly issued, it is a net loss.

Q: The Perryman study says that the direct savings created by AIA trials at the PTAB have “no corresponding loss of output”. This does not seem to square with studies like the September 2016 report from the U.S. Department of Commerce regarding the $6 trillion (38.2%) of U.S. GDP contributed by IP-intensive industries. Is it possible that the Perryman study overlooked any possible loss of U.S. economic output resulting from the invalidation of patent rights, especially given the importance of secure IP rights to the businesses contributing to more than one-third of the U.S. economy?

A: Legitimate IP rights support innovation and are a major and critical driver of the U.S. economy and have been since its inception. However, patent rights that are not valid are not beneficial. As noted, they are basically harmful in that they divert resources to compensation for illegitimate IP claims.

Q: If there are any such oversights in lost economic output, would that impact the Perryman study’s numbers on increased U.S. GDP, increased personal income and additional job-years of employment? Technology licensing and attracting venture capital investment are two legitimate ends of the patent system and the invalidation of patent rights would seem to damage the economic prospects of patent owners, at least, as to these legitimate business activities.

A: There is no lost economic value in appropriately conveying or maintaining patent rights. Owners of legitimate technology should be compensated and are integral to value creation. Paying for illegitimate property rights distorts the system and creates inefficiency. 

Q: Is Unified Patents aware of any patent owners who view the PTAB as a cost-effective alternative to district court?

A: Many of the largest holders of patents and leading innovators have availed themselves of the system to avoid district court when they felt that were being asked to pay others for technology that they believe not to be worthy of patent protection.

Q: An insert box on pg. 2 of the Perryman study says that “PTAB trials typically cost less to litigate and conclude within 12 months from institution, whereas district court litigation may take several years.” Does the Perryman study account for any added costs incurred at the PTAB by both petitioner and patent owner parties prior to the institution decision (petition phase) or by any post-proceeding motions for reconsideration or appeals to the Federal Circuit? Further, does the Perryman study account for any PTAB trials where patent claims have been upheld as valid and district court proceedings have been able to move forward afterwards? It would seem that, in those situations, the PTAB wouldn’t represent a cost savings if the district court case proceeds after patent claims are upheld as valid, especially if there are additional costs due to Federal Circuit appeals following the PTAB’s final decision.

A: We used all available information to account for total PTAB costs and total litigation cost and used some conservative assumptions to understate the net benefits (as detailed in the methodology section of the report. I am not sure that it is relevant and I have not seen any data (other than anecdotal narratives); litigation following a patent being upheld in a PTAB trial should be less expensive (with a greater incentive to settle, less time spent on validity, and cheaper discovery costs). In any case, we sought to measure net savings on a conservative basis.

Q: How did the Perryman study arrive at its industry-specific numbers available through the pie charts on pg. 7 and the table on pg. 8?

A: These are derived from the impact analysis using the public U.S. Input-Output Model maintained by the U.S. Department of Commerce, as described in the Appendix.

Q: The Perryman study indicates that it used trademark litigation costs as part of its methodology to estimate the cost of patent matters (pg. 11, first paragraph). Was any effort undertaken to account for any differences in patent and trademark litigation costs by industry sector in order to derive more accurate numbers for the financial figures on the PTAB’s cumulative impact on pgs. 7 and 8? Or are we assuming that the average costs of all trademark or all patent litigation are essentially the same for each industry sector?

A: What you suggest is not necessary. The way we used the trademark data is standard methodology (frequently referred to as a benchmark or yardstick approach in the antitrust world and commonly used in many applications of statistical analysis across multiple disciplines). In essence, patterns in patent and trademark litigation followed very similar patterns (and statistically significant) until AIA and then differed markedly. Thus, by examining how trademark cases evolved after AIA (which was very consistent with history) and controlling for other potential factors (most notably the Alice decision), we can observe how patent litigation would have evolved without the AIA and compare it to what actually happened. Obviously, we cannot observe the counterfactual situation, and our approach is analytically sound. As described in the report, we also examined the patterns relative to overall litigation and found them to be consistent.

Q: The Perryman study states that only 10% of patent infringement cases in district court reach late discovery or trial phases. Was any effort undertaken to account for possible differences in this percentage of cases proceeding to these later stages which might exist between different industry sectors?

A: We are not aware of that information being available, and in any case, it would not have affected the overall results. We captured the total net savings and allocated it using widely used and reliable data regarding IP in the relevant sectors. The only possible difference to the overall results from using a different allocation would be in the relative multipliers for the various sectors and there is not much variation. Thus, any difference in the results would be both minor and random (equally likely to be slightly lower or higher).      

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The Author

Steve Brachmann

Steve Brachmann is a freelance journalist located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He writes about technology and innovation. 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 and is available for research projects and freelance work.

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 as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 15 Comments comments.

  1. Anon July 27, 2020 4:55 pm

    The back and forth at the end brings to mind a particular adage, that Unified would have been better off adhering to:

    Put the shovel down.

  2. Pro Say July 27, 2020 10:34 pm

    This hand-waving, dust-kicking, camel-spitting alleged “study” is nothing more than yet another American-innovation-and-job-killing, competition-blocking Big Tech wolf in sheep’s clothing.

    Nothing. More.

  3. Benny July 28, 2020 12:13 am

    Perryman’s response to the second interview question says it all in a nutshell. I find that to be an undisputable truth. That is not to say that the study appears to combine data from both valid and meritless patents to form a numerical conclusion.

  4. Francis Rushford July 28, 2020 5:47 am

    A smart well-funded effort utilizing Civil Rico and Antitrust laws would put an end to the continued attacks on issued patents.

  5. Anon July 28, 2020 6:47 am

    Benny,

    You do not seem capable of understanding beyond ‘the nutshell’ of the Efficient Infringer mantra.

    As typical, this lack of yours is on display.

  6. Mike Pellegrino July 28, 2020 9:49 am

    I went a few rounds on LinkedIn with Shawn on the Perryman analysis. There is no need to repeat it all here. Here’s a hint from the trenches–when an expert uses the word “conservative”, the expert may be selling a specious argument. All of the responses in the back and forth at the end of this article are couched as “invalid” or “bad” patents. The language selection is verbal dancing and clearly a matter of perspective as opposed to objective analysis. Every patent that Unified challenges is “bad” in its eyes—which is fine. Unified fills an unmet market need and its customer pool clearly agree with its views and business model. However, stepping back and looking at the data objectively, is a patent still “bad” and “invalid” if Unified loses a PTAB petition? The answer is clearly not. On the other side of the trade, every NPE believes those same exact patents Unified believes are “bad” are indeed “good,” even though many may not be. “Good” or “bad” patents are subjective monikers suitable for sound bites. If objective, Perryman should rise above this and focus on objective data. Yet Perryman’s analysis necessarily cannot prove that the AIA hurt the economy, because the design of the analysis does not even recognize that possibility, let alone attempt to measure it. It’s like ignoring the fact that a new drug candidate kills 80% of the patients in a Phase I clinical trial. While my opinion is that the Perryman analysis fails miserably on several fronts (e.g., design, data, etc.) and reeks of the same lack of rigor of Bessen and Meurer a few years back, one can’t deny that Unified still chalks up the win because it grabbed a lot of earned media and headlines for the $50K-$100K it probably paid Perryman for the analysis.

  7. jacek July 28, 2020 9:55 am

    I was reading their revelations unveiled in their e-mail and then I attempted to see the study. Guess what. They deleted it. So it was just a piece of pure Goebbels’ like propaganda.

  8. Shawn Ambwani July 28, 2020 12:17 pm

    Hey Jacek. You are sadly mistaken. The report is available and always has been. Also it is directly linked in the article above if you don’t want to register. Nothing has changed.

    https://www.unifiedpatents.com/insights/2020/6/23/the-perryman-group-releases-economic-report-an-assessment-of-the-impact-of-the-america-invents-act-and-the-patent-trial-and-appeal-board-on-the-us-economy

    As for the rest of the comments. None of you are economists and this is the same expert used by Josh Malone in his litigation so I think he is more than objective, but actually sympathetic to true inventors. I actually have a great deal of respect for Josh and what he did. I don’t for people who are lazy and don’t want to actually do the work and just whine and complain. Instead of making up arguments with no foundation, I suggest actually hiring someone to do a real economic study. You might be surprised that the conclusions may not come out the way you want. Party on.

  9. Xtian July 28, 2020 12:39 pm

    Their answer to 4Q is telling: “Many of the largest holders of patents and leading innovators have availed themselves of the system to avoid district court when they felt that were being asked to pay others for technology that they believe not to be worthy of patent protection.”

    Let me rephrase more succinctly, “We think a patent is bad because we don’t want to pay for it.” I guess it all depends then on who you ask. Does the pharmaceutical industry think computer software patents are bad? Probably not, pharmaceutical companies don’t have to pay for them. Interesting rationale.

  10. mike July 28, 2020 1:59 pm

    It appears the Perryman study was not asking the question as broadly as they presented it. They were not asking the effects of the AIA on the US economy, they were asking the effects of the AIA on the costs of determining that a patent was invalid. As has become increasingly clear, all patents are actually invalid under the current system, just some of them expire before they are sufficiently examined. Under the AIA, that invalidation occurs much more rapidly and cheaply, thus saving money. They should add another question to their study to make it even more useful to Unified, namely, how much would be saved by removing the patent system altogether and simply declaring all patents invalid? According to the methodology used in this study, that number should approach infinigy.

  11. Jam July 28, 2020 2:52 pm

    How many patents pass under 101, but fail under the judicial exceptions? These are, arguably, falsely invalidated patents. How much have patent owners lost for falsely invalidated patents?

  12. Albert E. July 28, 2020 10:19 pm

    There are a finite number of bright minds in America. Whatever causes more of them to turn towards engineering and fewer towards law is good for innovation.

  13. Mike Pellegrino July 29, 2020 1:29 pm

    Hey Shawn, after all our discussions here and abroad, it never occurred to me until now, but you may want to consider picking up a copy of my IP valuation book, going into its third edition. In it, you will find many working examples of the economics of patent analysis that is relevant to this discussion. The analysis is well-grounded, deriving from my experiences that cumulatively amount to tens of billions of dollars in value for hundreds of my clients (including many Unified clients). There are some 1,200 copies in circulation and my analysis has survived remarkable peer and critical review (e.g., IRS, SEC, opposing counsel in litigation, etc.). You can get my book on Amazon for about $200, but let me know if you want an autographed copy instead. I’d welcome you as a reviewer of the third edition as well.

  14. shawn ambwani July 29, 2020 5:37 pm

    Hey Mike, always happy to have some bedtime reading. No need to autograph just provide the link in amazon and I will pick it up.