An empirical study of patent litigation timing: could a patent term reduction decimate trolls without harming innovators?

• Author: Love, Brian J.
• Position: Introduction through II. Results A. Two Patent Terms, p. 1309-1330

This Article conducts an empirical analysis of the relative ages of patents litigated by practicing and nonpracticing entities (NPEs). By studying all infringement claims for a sample of recently expired patents, I find considerable differences in litigation practices between these groups. Product-producing companies usually enforce their patents soon after issuance and complete their enforcement activities well before their patent rights expire. NPEs, by contrast, begin asserting their patents relatively late in the patent term and frequently continue to litigate until expiration. This variance in litigation timing is so dramatic that all claims asserting the average product-company patent are resolved before the average NPE patent is asserted for the first time. Further, I find that NPEs are the dominant source of patent enforcement in the final few years of the patent term. NPEs, enforcers of just twenty percent of all studied patents, are responsible for more than two-thirds of all suits and over eighty percent of all infringement claims litigated in the final three years of the patent term. These findings cast serious doubt on the utility of the last few years of the patent term and suggest that Congress should, at a minimum, consider increasing the frequency and magnitude of maintenance fee payments in the latter half of the term.

INTRODUCTION I. STUDY DESIGN A. Hypotheses B. Compiling a Database C. Sampling and Data Collection 1. Prosecution Data 2. Litigation Data 3. Assignment History and NPE Status 4. Technology and Industry Categories II. RESULTS A. Two Patent Terms B. Timing Per Patent C. Per Suit and Per Assertion D. Technology Areas and Litigation Outcomes III. IMPLICATIONS A. NPEs Are Mostly Not Technology Disseminators; Product-Producing Companies Are Not Entirely Blameless B. Patent Term Reform C. Limitations D. Maintenance Fee Reform CONCLUSION INTRODUCTION

The impact nonpracticing entities (NPEs), or "patent trolls," have on innovation may be the most important empirical question in patent law today. So far, however, scholars have analyzed litigation brought by various types of patent owners in a fragmented and indirect fashion. Some scholars have studied only the most litigious or easily identifiable trolls. (1) Such studies miss as much as 85% of NPE-asserted patents. (2) Others have focused exclusively on litigation filed during a handful of years in the last decade. (3) These studies fail to account for the vast differences among patents that happen to be litigated at the same time. It makes little sense, for example, to compare the first and only litigation of a one-year-old medical-device patent to the twentieth litigation of a nineteen-year-old software patent, even if both proceed contemporaneously.

Perhaps not surprisingly, these narrow studies have produced results at odds with one another. The empirical literature examining NPEs is, to put it mildly, internally inconsistent. Some studies strongly suggest that NPEs are every bit the tail that wags the dog. NPEs, for example, assert the lion's share of "most-litigated" patents (4) and are especially dominant in high-tech fields, where patents tend to be plentiful, cheap, and broad. (5) Others report the exact opposite. Trolls really don't exist at all, (6) exist but are exceedingly rare, (7) or exist in modest numbers but hold few of the traits attributed to them by their detractors. (8)

This Article fills these gaps in the existing literature by studying a broad cross-section of patents over the entire patent term. Rather than studying a subset of patents linked by litigiousness or contemporaneous court filings, I study all patent enforcement for a random sample of recently expired patents.

With this data, I can for the first time account for the relative timing of lawsuits filed by practicing and nonpracticing entities. My findings are dramatic: opposing views of NPEs in the literature ring true but at opposite ends of the patent term. Product-producing companies predominantly enforce their patents soon after they issue and complete their enforcement activities well before their patents expire. NPEs, on the other hand, begin asserting their patents relatively late in the patent term and frequently continue to litigate their patents to expiration. Indeed, I find that the average product-company patent has been shelved by its owner before the average NPE patent has even been asserted.

The degree to which NPEs dominate the final few years of the patent term is especially surprising. Though asserting just over 20% of all studied patents, NPEs account for more than two-thirds of suits and over 80% of infringement claims litigated in the final three years of the patent term. Notably, NPEs' domination of late-term litigation is almost completely attributable to firms that do nothing more than hold patents. NPEs that many do not consider trolls--universities (9) and individual inventors (10) in particular--do not drive the results reported below.

I also compare the relative litigiousness of product-producing companies and NPEs, as well as differences in the subject...