Another Study Undercuts Claim of Soaring Patent Litigation

Proponents of further sweeping patent law changes frequently claim as justification that patent litigation rates have soared in recent years, and that this litigation is being driven by so-called “patent trolls.”

What you wouldn’t know from listening to their argument is that patent litigation rates have remained relatively constant – at about 1 percent of patents filed – for more than 100 years. The increase in the number of patent suits in recent years has occurred at a rate roughly in line with the growing number of patents issued. With an increase in patents issued, it is to be expected that there would be more infringement, and accordingly more efforts by patent holders to defend their intellectual property rights.

But there is another important factor driving the apparent increase in patent suits in recent years that is regularly omitted by those pushing for broad patent law changes. Under the 2011 America Invents Act (AIA), the ability to sue several infringers in a single suit was significantly curtailed, forcing patent holders to file multiple lawsuits to defend their patents. This change artificially increased the number of patent cases on the books, while signifying no real change in patent lawsuit activity. After conducting a detailed analysis of all patent litigation from 2010-2012, legal scholars Christopher Cotropia, Jay Kesan, and David Schwartz found this AIA change to be the primary cause for the increase in patent suits and described the supposed surge in patent troll litigation as a “mirage.”

What is even more remarkable is that several recent studies have also found that the number of patent lawsuits actually fell in 2014. For example, according to the latest update to accounting firm PwC’s annual study of patent litigation, which was released in May, the number of patent suits filed in fiscal year 2014 fell by a dramatic 13 percent. A similar study conducted last year by the litigation research firm Lex Machina found an 18 percent drop in patent litigation in calendar year 2014. Either way, it is clear that patent litigation is now going down, not up.

PwC attributes the drop largely to the U.S. Supreme Court’s June 2014 decision in Alice Corp. v. CLS Bank, which made it harder for patent holders to prove their inventions were patentable subject matter. But other recent legislative, judicial and administrative actions have also played a role. For example, the AIA, the impact of which is only now being seen, has made it easier for cases to be challenged and thrown out before even getting to court. Proposed changes to the Federal rules of civil procedure by the Judicial Conference of the United States similarly raise the bar for those seeking to defend their patents. And the Federal Trade Commission and state attorneys general are now aggressively combating patent abusers, driving away many frivolous and unwarranted patent cases. Given this powerful combination of factors, the number of patent litigation cases is likely to continue falling in the years ahead, belying the notion that we have a patent litigation crisis on our hands.

It is also notable that PwC found no “explosion” in patent troll activity, often defined as non-practicing entities (NPEs) making weak patent infringement claims to extort settlements from businesses for using widely-available technologies. Consistent with previous years, PwC found that only about 20 percent of patent cases decided in 2014 involved an NPE, and certainly not all of those were so-called “patent troll” cases.

The bottom line is that claims that further broad changes to patent laws are needed to address surging patent litigation, have no basis in reality. The truth is that overall patent litigation rates are consistent with historical trends, the recent rise in the number of patent litigation suits was brought on in part by changes in the 2011 AIA, and the most current data show that patent litigation is actually falling.

There is widespread agreement that patent litigation abuses, such as the sending of blanket demand letters in an attempt to extort settlements, have to be stopped. That is why the Innovation Alliance and similar groups strongly support passage of targeted legislation that addresses these abuses, such as the TROL Act proposed in the House and the STRONG Patents Act proposed in the Senate. But Congress should reject over-reaching measures like the Innovation Act offered in the House and the PATENT Act in the Senate, which would significantly weaken patent rights and undermine a system that has been incentivizing innovation and economic growth in our country for more than 200 years.

Brian Pomper is Executive Director of the Innovation Alliance