Guest Contributors: Sara Jeruss (left), Robin Feldman (center) and Joshua Walker (right).
Any discussion of flaws in the United States patent system inevitably turns to the system?s modern villain: non-practicing entities. They are known more colorfully as patent trolls, although the business model of non-practicing entities has appeared in copyright markets as well as well as in patent markets.In the America Invents Act, Congress directed the nonpartisan Government Accountability Office (GAO) to conduct a study ?on the consequences of patent infringement lawsuits brought by non-practicing entities.? At the GAO?s request, we provided data on non?practicing entities for five years (2007-2011) using a database from Lex Machina, formerly the Stanford IP Clearinghouse. ?The GAO requested only the coded data without analysis, and we provided this with the understanding that we would publish our own analysis of the data at a later time.
Our current article, which is in draft form and available at SSRN?and the final study will be available from the Duke Law & Technology Review. We note that although the cases were compiled at the GAO?s request, all conclusions are our alone and not those of the GAO.
As an initial matter, we chose to use the term ?patent monetization entity,? to describe those entities whose primary focus is deriving income from licensing and litigation, as opposed to making products. The article explains the way in which we believe our new terminology creates a better definitional grouping than terms employed in the past, such as NPE or PAE. In addition to the term patent monetization entity, we also use the word ?monetizer? as a short form.
We analyzed a random sample of 100 of the patent cases filed each year from 2007 through 2011, for a total of 500 cases, hence the title The America Invents Act 500.
Chief among the conclusions of the study are the following: First, based on our sample, lawsuits filed by patent monetizers have increased significantly over the five-year period. The sheer number of cases has increased, as well as the percentage of overall case filings represented by monetizers. In other words, lawsuits filed by patent monetizers are on the rise, while lawsuits filed by operating companies have fallen.
Specifically, lawsuits filed by monetizers increased from 22% of the cases filed five years ago to almost 40% of the cases filed in the most recent year.? In addition, monetizers were also heavily represented in the list of those who filed the greatest number of lawsuits. Of the 5 parties in the sample who filed the greatest number of lawsuits during the period studied, 4 were monetizers.? Only one was an operating company.
Of additional note, universities were almost invisible in this dataset, despite sometimes being grouped with non-practicing entities on the theory that they do not make products. Universities accounted for only 0.2% of the first-named plaintiffs who filed lawsuits in our sample. The number rises slightly when second-named plaintiffs are included, but remains quite small.
The data also show that cases filed by patent monetizers were unlikely to advance very far in the trial process and often settled prior to a summary judgment decision.
The data confirm in a dramatic fashion what many scholars and commentators have suspected: Patent monetization entities play a role in a substantial portion of the lawsuits filed today. The results are even more striking, given that the study examined only disputes that progressed to the courtroom. From all appearances, lawsuits filed are only the tip of the iceberg, and a major operating company may face hundreds of invitations to license for every lawsuit. Much of the bargaining, posturing, and payment concludes without any party filing suit. Thus, one can only imagine the magnitude of the impact that patent monetization has on the patent system, and on the economy, as a whole.
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Sara Jeruss is Director of Legal Analytics at Lex Machina, Inc. Prior to working at Lex Machina, Sara was as a patent litigator at O?Melveny & Myers. Sara received her J.D. from Yale Law School and a Bachelors Degree from Cornell University, graduating summa cum laude. Sara is a member of the California Bar and the Federal Circuit Bar.
Robin Feldman is a Professor of Law at UC Hastings. She specializes in intellectual property and is the Director of the UC Hastings LAB Project. She has also served as the Herman Phleger Visiting Professor of Law at Stanford Law School. Professor Feldman has received the Rutter Award for Teaching Excellence and the 1066 Foundation Award for Scholarship.?Professor Feldman?s second book, Rethinking Patent Law, was published by Harvard in June and focuses on understanding patents form the perspective of bargaining. Her recent article on patent mass aggregators is titled The Giants Among Us and was published in Stanford?s technology journal in January. Other articles have appeared in the New England Journal of Medicine and in journals at law schools including Georgetown, Minnesota, Stanford, Texas, USC, UCLA and Virginia. Her first book, The Role of Science in Law, was published by Oxford in 2009.
Joshua Walker is IP Counsel at Simpson Thacher & Bartlett LLP. He regularly collaborates with elite technology and financial clients, IP policy-makers, judges, and leading academics to advance the state of the art in IP practice. Walker was the Founding CEO of Lex Machina, Inc.?and the Founding Executive Director of Stanford University?s CodeX, the first law and computer science lab in the United States.
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