New Data Show There Is a Problem with the U.S. Patent System—But It’s Not Patent Trolls

“The report shows that injunction grants (excluding default judgments) have fallen from a peak of 80 in the period 2008 to 2012 to just 36 in the period 2018 to 2022. That is an average of just seven injunctions per year—less than half the average in the earlier period.”

patent litigationIf the headlines are to be believed, every aspect of American life, from farming to football, is under threat due to excessive patent litigation. While these anecdotes may seem compelling, it is important to look at the underlying data before drawing any conclusions about the state of the U.S. patent system. As an economist and one of the authors of the Federal Trade Commission’s study of patent assertion entities (PAEs), I understand the value data can bring to patent policy debates, and have also seen firsthand the damage evidence-free policymaking has on America’s innovation ecosystem. On World IP Day, Marcum, LLP, a leading accounting and advisory firm, released a report that examines 20 years of patent infringement decisions at U.S. district courts. A careful reading of their report reveals that not only is patent litigation not excessive, but patent owners struggle to enforce their patents against infringers. The report shows that overall patent litigation is declining, injunction grants are low, and litigation by non-practicing entities (NPEs) is not pervasive.

Patent Litigation Is Declining

Source: Marcum Report

The first graph in the report clearly dispels the notion that patent litigation is excessive. It shows the trends over time in the number of patent grants and the number of patent infringement complaints filed in U.S. district courts. As seen in the graph, there is a sharp increase in the number of complaints filed after 2011 due to the anti-joinder provisions of the America Invents Act (AIA). As astute observers of the U.S. patent system understand, this increase in complaints does not represent new disputes but merely a separation of defendants into individual lawsuits thereby mechanically increasing the number of complaints. Therefore, the decline in complaints observed after 2013 is more impressive than it appears as the decline would have been even greater were it not for the anti-joinder provision. Even still, complaints are only about a third higher than they were in the period leading up to the AIA. Furthermore, patent infringement complaints as a share of granted patents is low and is also declining. Marcum reports this share averaged 1.7% from 2013 to 2017 and is less than 1% today.

Injunction Grants Are Low

The Marcum report provides further evidence of the pernicious effect the U.S. Supreme Court’s eBay decision has had on the ability of patent owners to enforce the exclusionary right embodied in their patent. Prior research has shown that patent owners are less likely to seek injunctions and those injunctions are less likely to be granted following eBay. It should be no surprise then that there has been a significant decline in injunction grants over the last 15 years. The Marcum report focuses on injunction grants excluding default judgments. They note that “cases with default judgments do not typically represent contested disputes” as the defendant has failed “to take required actions or respond to court proceedings.” The report shows that injunction grants (excluding default judgments) have fallen from a peak of 80 in the period 2008 to 2012 to just 36 in the period 2018 to 2022. That is, in the most recent period, there is an average of just seven injunctions per year—less than half the average in the earlier period. In addition to a low level of injunctions, enhancement of damages is rare. Only 22% of remedies awards were enhanced due to a finding of willful infringement.

NPE Litigation Is Not Pervasive

If the anecdotes are to be believed, not only is patent litigation excessive but it is being driven by “patent trolls.” Patent trolls or, less pejoratively, PAEs, are patent owners who acquire patents and then assert them against alleged infringers. The Marcum report casts a broader net and examines the remedies available to all NPEs which includes PAEs but also includes individuals, universities, and research entities. They find that over the 20 years of their study, only 23% of remedies were awarded to NPEs. Furthermore, the impact of eBay has been even more dramatic for NPEs. As a result of eBay, injunctions are effectively unavailable to NPEs with only 12 injunction grants (excluding default judgments) over the last 10 years of the study. As damages are effectively the only remedy available to NPEs, it is unsurprising that Marcum finds that median damage awards to NPEs tend to be higher than the awards to practicing entities. However, the median damage awards to NPEs (excluding default judgments) have declined approximately 25-30%from their peak in the period 2008 to 2012.

The Marcum report shows that there is indeed something wrong with the patent system in the United States but it’s not excessive litigation or patent trolls. The real problem is the inability of patent owners to enforce their rights against infringers. Given the difficulty of obtaining injunctive relief and the limited enhancement of damages, it is unsurprising that predatory infringement has become a standard business practice when, at worst, all an infringer can be expected to pay is a reasonable royalty and, at best, nothing at all.

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Author: sputanski
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15 comments so far. Add my comment.

  • [Avatar for Josh Malone]
    Josh Malone
    May 22, 2024 11:29 am

    With median damages of $3.7 million, good faith patent enforcement cannot be sustained. The ONLY business model that works in this environment is nuisance suits.

  • [Avatar for N J Thomas, Esq.]
    N J Thomas, Esq.
    May 18, 2024 09:15 am

    You forgot to mention the effect of the Alice decision, which was incoherent, incomprehensible gibberish written by Justice Clarence Thomas, also the author of the eBay decision, which substituted the more restrictive “four-factor test” for the “exceptional circumstances test“ which was equity jurisprudence for 200 years In the US or over 300 years of English equity jurisprudence is taken into account. Alice and eBay, were the product of conservative efforts to stifle competition by large corporations and Justice Thomas was the vehicle by which they have sought to accomplish their goal.

  • [Avatar for Lab Jedor]
    Lab Jedor
    May 10, 2024 12:07 pm

    Of course. But independent inventors are faced with the need to create some runway to launch a new company or a new technology. And valid and enforceable patents are or would/should be a critical tool. Established companies are in a different situation, with presumably more capital to finance R&D.

    In a previous job, I have done prosecution of a large number of advanced digital signal and image-processing patents. Many were incredibly brilliant. Some were merely a variation on a theme. For instance, there was a period that Bayesian learning was extremely popular in image segmentation inventions. And the claimed invention was how to get the Bayesian condition into the segmentation algorithm. So, yes, there were concurrent trends in research, definitely. Many of these inventions would end up in large medical imaging machines and as such are not available to be easily reversed engineered (well, in general).

    One reason for patenting these inventions, was the wish by inventors/researchers to establish a publication record and a name for themselves in academia. And a belief by employers that patents are useful. As such it is part of “established” business practice and not many companies are willing to change that. IBM was an exception in deliberately lowering its patent count.

    Nowadays the potential loss of Intellectual Property due to publication, let alone inability to effectively counter infringement, seems not worth the cost and effort to pursue patents.

    Especially in difficult to reverse-engineer and process-oriented innovation for established companies, it seems more effective to treat these as trade secrets and benefit from a short, perhaps 5 year period of product/process market advantage. And only patent the crown jewels so to speak and then go all out on application preparation only after considerable assessment if decent protection is even likely.

    Our current patent system has become an unwitting extension of the Open Source movement, with just much higher cost and byzantine procedures. But essentially with the same results. And that is the reality we are faced with in our current patent system.

  • [Avatar for Paul F. Morgan]
    Paul F. Morgan
    May 10, 2024 10:16 am

    Re: ” ..it must hurt to see millions of dollars of R&D being shared with competitors, due to an inability to keep a patent valid and/or enforce it..”
    Indeed, but note that long before recent changes in patent law, a significant patents asserted in litigation did not survive invalidity or non-infringement challenges by defendants. Another problem is that there is a fairly common tendency for companies to be doing R&D on the same hot topics, and filing patent applications unaware of somewhat earlier, as yet unpublished, patent applications of others.

  • [Avatar for Lab Jedor]
    Lab Jedor
    May 9, 2024 10:42 pm

    Sean, I am not saying that obviousness determination should depend on R&D money spent. I suggest it must hurt when a company spends millions of dollars on R&D and then have the issued patent invalidated due to obviousness.

    You say “The common public understanding of the Obviousness Doctrine is that any patent which does not significantly improve upon or distance from existing patents or traditional knowledge cannot be granted or enforced under any circumstances.” I find that very reasonable criteria for obviousness (except perhaps for the undefined “significantly”), but that is not what the standard is or how obviousness is determined.

  • [Avatar for Anon]
    Anon
    May 9, 2024 09:07 am

    With all due respect, Mr. Morgan,

    Bite me.

  • [Avatar for Paul F. Morgan]
    Paul F. Morgan
    May 8, 2024 11:13 am

    Let’s not misslead the small inventors that read this blog and its comments by expressions of personal opinions as to what the law should be, versus what is now Supreme Court law and reality. E.g., here, personal views that there should be no difference in who gets injunctions in patent litigation between holders of patents that do not make or sell anything and those who do.

  • [Avatar for Paul F. Morgan]
    Paul F. Morgan
    May 8, 2024 10:52 am

    Sen, the problem of patents issued in spite of discoverable prior art that you refer to is almost entirely and naturally due to the unwillingness of most USPTO applicants to pay for more than a very inexpensive brief prior art search by examiners or themselves at any time before allowance, or even before litigation assertion. Worse, for any patent owner to somehow think that there is, or should be, some kind of government guarantee that such clearly inadequately funded [by only a few hundred dollars] examiner prior art searchs were adequate, in spite of quantum increases in the body of searchable prior art.

  • [Avatar for Anon]
    Anon
    May 8, 2024 08:09 am

    Paul F. Morgan,

    Please stop cheerleading – you are fully aware that the appeal to “we make a product” is quite distinct from what the patent right actually is.

  • [Avatar for Sean Gilpin]
    Sean Gilpin
    May 7, 2024 05:42 pm

    I would agree with Paul that the datum of how many NPE suits are filed but withdrawn or abandoned, or dismissed without issue prior to hearing, is a very vital statistic, as bad faith threats of that very sort have long been used as political and economic suppressants and to distract from better connected entities filing alternative patents to supersede those awaiting approval.

    Lab brings up an interesting point, as well, although I would question your conclusion. The financial sum spent in R&D rightly should hold no bearing on whether a patent is granted or, once granted, is enforcable regardless of propriety. The common public understanding of the Obviousness Doctrine is that any patent which does not significantly improve upon or distance from existing patents or traditional knowledge cannot be granted or enforced under any circumstances. Unfortunately, the common public perception is also that patents are frequently – and in some perceptions increasingly – granted in job lots that are identical in form and in function to traditional knowledge, to naturally occurring processes and chemicals, or to existing prior art either in public forums or in patents that exist in other categories than the one filed for. Too often, the public hears about patent litigation in a field such as additive manufacturing or software programming and when they look into the details the overwhelming public reaction is to provide examples of where the object of contention has been in use elsewhere long before the patent was granted and ask how it ever passed Obviousness.

  • [Avatar for Paul F. Morgan]
    Paul F. Morgan
    May 7, 2024 01:14 pm

    Re: “The Marcum report casts a broader net and examines the remedies available to all NPEs which includes PAEs but also includes individuals, universities, and research entities. They find that over the 20 years of their study, only 23% of remedies were awarded to NPEs.”
    That’s interesting, but not relevant to the question of what percentage of patent suits are FILED by PAE’s. Because PAEs have no need, or benefit, to go to trial to obtain the cash settlements they are seeking, as compared to companies making or selling actual products needing an injunction to stop harmful competition.
    Furthermore, the emphasis on eBay re litigation is ignoring the far more significant impact of thousands of IPR cancellations of pre-trial litigation asserted claims over many years now.

  • [Avatar for Sheng Tai (Ted) Tsao]
    Sheng Tai (Ted) Tsao
    May 7, 2024 12:08 pm

    “The real problem is the inability of patent owners to enforce their rights against infringers.”

  • [Avatar for Disgusted]
    Disgusted
    May 6, 2024 02:45 pm

    What patent system?

    It’s non existent today.

    It’s pure nonsense.

    I’m trying to be nice.

  • [Avatar for Pro Say]
    Pro Say
    May 6, 2024 02:00 pm

    “The real problem is the inability of patent owners to enforce their rights against infringers.”

    Yes — that.

    Thanks Julie for shining the spotlight of truth into the innovation-crippling, dark cave of lies.

  • [Avatar for Lab Jedor]
    Lab Jedor
    May 6, 2024 11:56 am

    “The real problem is the inability of patent owners to enforce their rights against infringers.” Absolutely.

    A first problem is the inability to obtain a reasonable injunction against infringers.

    A second problem is the immense turnover of R&D investments to infringers due to “obviousness” invalidations. The likelihood to lose a patent in a post issuance procedure is enormous.

    As an independent inventor, I understand that many people are underwhelmed when small inventors lose a patent due to “obviousness.” It seems (unreasonably) reasonable that a large company could have/could have invented the same technology as a small inventor.

    But for a large company like Qualcomm it must hurt to see millions of dollars of R&D being shared with competitors, due to an inability to keep a patent valid and/or enforce it to match its inherent value.

    Welcome to the real world of inventors. And I very much welcome this evidence based article. Thank you Julie Carson.

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