The Layered Patent System

Author:Michael Risch
Pages:1535-1579
SUMMARY

The patent system is usually described in terms of opposites, like producers versus trolls or software versus pharma. But the reality is a far more complex set of layers, including enforcers, patentees, and technology. This study of 25 years of patent litigation by highly litigious non-practicing entities (“NPEs”) and randomly selected plaintiffs explores each of these layers and shows ways that... (see full summary)

 
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1535
The Layered Patent System
Michael Risch*
ABSTRACT: The patent system is usually described in terms of opposites, like
producers versus trolls or software versus pharma. But the reality is a far more
complex set of layers, including enforcers, patentees, and technology. This
study of 25 years of patent litigation by highly litigious non-practicing entities
(“NPEs”) and randomly selected plaintiffs explores each of these layers and
shows ways that each interacts with the others, using patent validity as a
primary exemplar.
Data related to more than 1000 patent outcomes in more than 2000 cases
leads to some surprising findings. For example, while the litigious NPEs
enforced many patents from product companies and public companies, the
patents enforced by random companies were more likely to come from larger
and better-funded companies. Additionally, the data implies that patents
obtained by individuals fared worse in litigation, regardless of who enforced
them. Most surprisingly, once patentee and enforcer type is considered,
software patents are no longer a statistically significant predictor of
invalidation.
The layering of the system shows that simple stories describing one layer at a
time cannot answer the questions that face the patent system. The
interconnections between the layers of the patent system point the way.
* Professor of Law, Villanova University Charles Widger School of Law. The author thanks
Colleen Chien, Richard Epstein, Naomi Lamoreaux, Noel Maurer, David Schwartz, Ted
Sichelman, Rosemarie Ziedonis, and participants of the 2015 Hoover IP2 Conference on
Innovation, and 2013–2014 Edison Fellowship Program for their helpful comments and
feedback. The author further thanks Patent Freedom, Lex Machina, John Allison, and Brian
Corcoran for providing (or assisting in providing) some of the data used in this study. Valuable
research assistance for this study was provided by Dus tin Be dnarz , Doug Behre ns, Ja mey Co llidg e,
Brian Corcoran, Jarina D’Auria Richard Eiszner, Adam Fenstermaker, Amanda Garger, Nate
Griffith, Simran Kaur, Christie Larochelle, Meredith Lussier, Josh Nightingale, Samantha Peruto,
Jessica Watkins, Molly Yingling, and Brett Zakeosian. Data collection efforts were supported by
an Edison Fellowship and a Da Vinci Fellowship from the Center for the Prot ection of Intellectual
Property. The author thanks the Hoover Institution IP2 Program for pre-publication support.
1536 IOWA LAW REVIEW [Vol. 101:1535
I. INTRODUCTION ........................................................................... 1536
II. THE CONVENTIONAL NARRATIVE: ONE LIMB AT A TIME ............ 1540
III. THE TAIL: ENFORCERS ................................................................ 1544
A. SUMMARY OF CASES AND PATENT IDENTIFICATION .................. 1544
B. SELECTION EFFECTS ............................................................... 1545
C. ENFORCER OUTCOMES ........................................................... 1547
IV. THE TRUNK: PATENTEES ............................................................. 1549
V. THE LEGS: TECHNOLOGY ............................................................ 1553
A. PTO TECHNOLOGY CLASSES .................................................. 1554
B. TECHNOLOGY ART GROUPS ................................................... 1556
C. SOFTWARE ............................................................................ 1564
D. POLICY IMPLICATIONS ........................................................... 1569
VI. THE WHOLE ELEPHANT .............................................................. 1570
VII. CONCLUSION: BEYOND THE PATENT TROLL NARRATIVE ............ 1577
I. INTRODUCTION
As patent reform looms, debate continues between different factions.
Our patent system appears divided by technology, both in theory1 and in
practice.2 Or maybe it is divided by types of inventors and patentees: large,
small, and individual.3 Litigants surely create division, with a variety of
1. See generally DAN L. BURK & MARK A. LEMLEY, THE PATENT CRISIS AND HOW THE COURTS
CAN SOLVE IT (2009) (arguing that patent policy should differ for different industries);
Christopher M. Holman, Is Lilly Written Description a Paper Tiger?: A Comprehensive Assessment of the
Impact of Eli Lilly and Its Progeny in the Courts and PTO, 17 ALB. L.J. SCI. & TECH. 1 (2007)
(discussing generally differing written description and enablement rules in nonmechanical arts);
Sean B. Seymore, Heightened Enablement in the Unpredictable Arts, 56 UCLA L. REV. 127 (2008).
2. See generally John R. Allison, Mark A. Lemley & David L. Schwartz, Our Divided Patent
System, 82 U. CHI. L. REV. 1073 (2015) (presenting data about different litigation outcomes in
different industries and technologies).
3. Timo Fischer & Joachim Henkel, Patent Trolls on Markets for Technology—an Empiric al
Analysis of NPEs’ Patent Acquisitions, 41 RES. POLY 1519, 1520–27 (2012) (examining the source
of NPE patents); Michael Risch, Patent Troll Myths, 42 SETON HALL L. REV. 457, 485 (2012)
(same); see also B. Zorina Khan & Kenneth L. Sokoloff, Institutions and Technological Innovatio n
During Early Economic Growth: Evidence from the Great Inventors of the United States, 1790–1930, in
INSTITUTIONS, DEVELOPMENT, AND ECONOMIC GROWTH 123, 140–41 tbl.5.3 (Theo S. Eicher &
Cecilia García-Peñalosa eds., 2006) (describing a table showing that a majority of patent holders
starting in 1739 sold or licensed their patents); Naomi R. Lamoreaux et al., Patent Alchemy: The
Market for Technology in US History, 87 BUS. HIST. REV. 3, 5 (2013) (“The bulk of the patents came
from inventors who exploited their intellectual property by selling off or licensing the rights.”).
2016] THE LAYERED PATENT SYSTEM 1537
acronyms—or worse—used to describe different types of plaintiffs.4 While
these divisions are real, each alone does not capture the layered connections
between inventors, enforcers, and technologies. Instead, head-to-head
comparisons present themselves in the aggregate, mere snapshots of the
bigger picture. Like the proverbial elephant identified by three blind
observers, one commentator feels a leg and identifies a technology problem,
another feels a tail and finds a litigant problem, and a third feels the trunk
and discovers a patentee problem.
This Article uses a novel dataset of 25 years of litigation to examine how
these layers form the whole elephant. It begins with enforcement, moves to
patentees, and finishes with technology. Finally, it uses statistical modeling to
further explore the connections between different layers.
The results reveal a far more complex puzzle than any one dichotomy
allows. One must look deeper than patent trolls versus product companies, or
information technology versus pharmaceuticals, for explanation. Instead, the
story begins with how invention is achieved, who has the resources to
complete what types of inventions, and how this affects who eventually
enforces patent rights.
For example, the data shows that, litigation tactics aside, the identity of
the initial patentee is better correlated with patent invalidation than the
identity of the party bringing the suit. It is well known that individual plaintiffs
win less often than other plaintiffs. The data presented here suggests that the
problem may not be individual plaintiffs, but patents obtained by individuals.
The problem seems to dissipate if the inventor is savvy enough to form a
company.5 Patents issued to inventor companies do not fare as poorly, while
patents issued directly to the inventor fare worse, regardless of technology.
This is a surprising outcome that affects how we should think about individual
inventors and their companies, patent plaintiffs, and patent quality.
4. PRICEWATERHOUSECOOPERS LLP, 2014 PATENT LITIGATION STUDY: AS CASE VOLUME
LEAPS, DAMAGES CONTINUE GENERAL DECLINE 1 (2014), http://www.pwc.com/en_US/us/
forensic-services/publications/assets/2014-patent-litigation-st udy.pdf (studying litigation outcomes
by plaintiff type); Colleen V. Chien, Of Trolls, Davids, Goliaths, and Kings: Narratives and Evidence in
the Litigation of High-Tech Patents, 87 N.C. L. REV. 1571 (2009) (describing different patent litigant
plaintiff and defendant narratives and pairs and exploring their prevalence); Jay P. Kesan &
Gwendolyn G. Ball, How Are Patent Cases Resolved? An Empirical Examination of the Adjudication and
Settlement of Patent Disputes, 84 WASH. U. L. REV. 237, 258 (2006); Michael J. Mazzeo et al., Do NPEs
Matter? Non-Practicing Entities and Patent Litigation Outcomes, 9 J. COMPETITION L. & ECON. 879
(2013) (studying litigation outcomes by plaintiff type); Gwendolyn G. Ball & Jay P. Kesan,
Transaction Costs and Trolls: Strategic Behavior by Individual Inventors, Small Firms and Entrepr eneurs
in Patent Litigation 14 (U. Ill. Coll. of Law, Research Paper Nos. 08-21 & LE09-005, 2009), http://
ssrn.com/abstract=1337166 (examining case outcomes by litigant size).
5. This is consistent with Ashish Arora et al., The Acquisition and Commercialization of
Invention in American Manufacturing: Incidence and Impact 13–14 (Nat’l Burea u of Econ. Research,
Working Paper No. 20264, 2014), http://www.nber.org/papers/w20264.pdf (finding that
independent inventor inventions are commercially valuable and most often assigned to small firms).

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