Patent Litigation Weekly: A Closer Look at a New Patent Study

Two years after Richard Frenkel—at the time an in-house Cisco Systems, Inc., lawyer and now of counsel at Wilson Sonsini Goodrich & Rosati—outed himself as the until-then-anonymous author of the controversial patent litigation blog, the Patent Troll Tracker saga appears to be over.

In January, a libel suit filed by East Texas lawyer T. John “Johnny” Ward, Jr. against Cisco over the contents of an October 2007 Troll Tracker post was settled under confidential terms. Frenkel—dismissed as a defendant in the case last August at Ward's request—has declined to comment on either Ward's suit or a second, related defamation claim filed against him and Cisco by East Texas lawyer Eric Albritton. (That suit settled in September after a week-long trial; see earlier coverage on The Prior Art here, here, and here.)

While it’s clear now that at least a few high-level Cisco employees knew the Troll Tracker’s identity, company lawyers say no one there besides Frenkel contributed to the blog. Still, because Cisco is helping to lead the lobbying charge in favor of reforming the nation's patent laws—with a particular focus on lowering litigation payouts to non-practicing entities (a.k.a. NPEs, or "patent trolls")—those who advocate for small patent holders sensed a Frenkel-Cisco conspiracy.

Putting aside the conspiracy theories aside and drama—two lawyers with a high profile in the Eastern District of Texas's lucrative patent litigation scene suing Cisco and one of its in-house lawyers for libel and defamation—it seems like an opportune time to take a broad look at the big issue at the heart of the Troll Tracker tale: that the huge piles of money at stake in patent litigation has created an independent class of IP professionals? As it happens, a PricewaterhouseCoopers study released in January on just that topic has some answers.

"Patent trolling" has its rewards.

Tech-sector executives and lawyers say privately—and an informed review of court dockets confirms—that so-called trolls aren't just surviving, they're thriving. The essential NPE tactic—suing a broad swath of companies for patent infringement, then settling with each defendant for less than the cost of fighting such a suit—is now an established business model. It's so solid, in fact, that patent-holders are starting to delve into previously untouched economic sectors, suing small retailers and even photographers.

One surprising statistic contained in the PwC study that supports this: since 2002, NPEs have consistently won larger damage awards than operating companies. That suggests NPE lawyers are learning new techniques for maximizing payouts, says one of the study's authors, forensic accountant Chris Barry.

Patent suits are rarely tied to marketplace competition.

PwC looked at more than 1,400 patent cases that resulted in a decision by either a judge or jury. Depending on the district, NPEs brought between 15 and 46 percent of such cases. The district with the highest rate of NPE litigation might surprise you: Washington, D.C. where 46 percent of verdicts came in cases brought by NPEs.

Also worth noting: A chart included in the study shows that NPEs won four of the top ten patent judgments reached between 2005 and 2008. But that doesn't tell the whole story.

Under a broader definition of what constitutes "NPE-style litigation"—one that draws a distinction between suits brought by actual competitors and those brought be patent-holders in search of royalty payments but either uninterested or incapable of competing in the market—the number rises to seven out of the top ten judgments.

(Two of the ten judgments went to Alcatel-Lucent as a result of suits brought against Microsoft. While Alcatel-Lucent can certainly be considered an operating company in general, in the context of the Microsoft litigation, it was not in competition with the software giant, but simply trying to monetize the patent portfolio it had inherited from Bell Laboratories. A third "operating company," Freedom Wireless, is tiny. While Freedom has profited handsomely from its many patent suits against international phone carriers, it's unlikely that it could seriously compete against any of those larger companies.)

That leaves just three of the ten largest patent litigation awards handed out between 2005 and 2008 going to patent-holders that compete with their alleged infringers. (Interestingly, those suits between real rivals all involved patents on medical devices.)

So what's going on here? It's possible that a split is emerging, with a small, select group of industries—including medical device, pharmaceutical, and chemical companies—using patents as tools to fight over market share, while across a broader swath of the economy, patents are used mainly (or even solely) to generate revenue for those who hold them. Falling into the latter category are classic "patent trolls," but also research universities and big companies with standalone patent-licensing operations.

Transparency is still lacking.

Historically, it's been extremely difficult to uncover even basic facts about patent plaintiffs lining up for their day in court. How difficult? It took "several hundred man hours" for PWC to put together its study, Barry says. And with many plaintiffs suing via shell companies, patent litigation can look less like inventors demanding just rewards, and more like shady operators seeking an easy payday.

Most people believe true innovators deserve compensation, and understand that patents can help them get it. But to a lot of tech industry insiders who learned the details of patent litigation by reading the Patent Troll Tracker, the system looked broken, if not corrupt.

Notes on other data contained in the PwC study:

•NPEs don't fare well on summary judgment, but do just fine at trial, where they and operating companies both win two out of every three verdicts. Still, because of their poor performance on summary judgment, NPEs have an overall "win rate" of just 29 percent, compared to 41 percent for operating companies.

•In general, alleged infringers fare best when they preemptively seek declaratory judgments against patent holders (in other words, when they shoot first and ask questions later).

•Certain federal district courts (particularly the eastern districts of Texas and Virginia) continue to be more favorable to patent-holders, with shorter times-to-trial, higher success rates, and higher median damages awards.

•Five federal district courts accounted for one out of every three identified decisions involving an NPE as the patent holder: the Northern District of California, Delaware, the Northern District of Illinois, the Southern District of New York, and, of course, the Eastern District of Texas.

See the full PwC patent litigation report.

Image via Wikimedia

 

Comments

[Gena777]

NPEs, or so-called patent trolls, are merely the natural, and perhaps inevitable, result of our current patent system. Can anyone really blame them for obtaining valuable assets and then figuring out how to profit from those assets? The truth is that they're actually the envy of many CEOs. Many in the anti-troll crowd -- i.e., multi-national corporations -- seem to be angriest about the fact that, due to the trolls' aggressive patent enforcement tactics, the big businesses can no longer get away with infringing for free.
For more on this:
http://www.generalpatent.com/media/videos/patent-troll