INTELLECTUAL
PROPERTY
Assessing Factors
That Affect Patent
Infringement
Litigation Could Help
Improve Patent
Quality
Report to Congressional Committees
August 2013
GAO-13-465
United States Government Accountability Office
United States Government Accountability Office
Highlights of GAO-13-465, a report to
congressional committees
August 2013
INTELLECTUAL PROPERTY
Assessing Factors That Affect Patent Infringement
Litigation Could Help Improve Patent Quality
Why GAO Did This Study
Legal commentators, technology
companies, Congress, and others have
raised questions about patent
infringement lawsuits by entities that
own patents but do not make products.
Such entities may include universities
licensing patents developed by
university research, companies
focused on licensing patents they
developed, or companies that buy
patents from others for the purposes of
asserting the patents for profit.
Section 34 of AIA mandated that GAO
conduct a study on the consequences
of patent litigation by NPEs. This report
examines (1) the volume and
characteristics of recent patent
litigation activity; (2) views of
stakeholders knowledgeable in patent
litigation on key factors that have
contributed to recent patent litigation;
(3) what developments in the judicial
system may affect patent litigation; and
(4) what actions, if any, PTO has
recently taken that may affect patent
litigation in the future. GAO reviewed
relevant laws, analyzed patent
infringement litigation data from 2000
to 2011, and interviewed officials from
PTO and knowledgeable stakeholders,
including representatives of companies
involved in patent litigation.
What GAO Recommends
GAO recommends that PTO consider
examining trends in patent
infringement litigation and consider
linking this information to internal
patent examination data to improve
patent quality and examination. PTO
commented on a draft of this report
and agreed with key findings and this
recommendation.
What GAO Found
From 2000 to 2010, the number of patent infringement lawsuits in the federal
courts fluctuated slightly, and from 2010 to 2011, the number of such lawsuits
increased by about a third. Some stakeholders GAO interviewed said that the
increase in 2011 was most likely influenced by the anticipation of changes in the
2011 Leahy-Smith America Invents Act (AIA), which made several significant
changes to the U.S. patent system, including limiting the number of defendants in
a lawsuit, causing some plaintiffs that would have previously filed a single lawsuit
with multiple defendants to break the lawsuit into multiple lawsuits. In addition,
GAO’s detailed analysis of a representative sample of 500 lawsuits from 2007 to
2011 shows that the number of overall defendants in patent infringement lawsuits
increased by about 129 percent over this period. These data also show that
companies that make products brought most of the lawsuits and that
nonpracticing entities (NPE) brought about a fifth of all lawsuits. GAO’s analysis
of these data also found that lawsuits involving software-related patents
accounted for about 89 percent of the increase in defendants over this period.
Stakeholders knowledgeable in patent litigation identified three key factors that
likely contributed to many recent patent infringement lawsuits. First, several
stakeholders GAO interviewed said that many such lawsuits are related to the
prevalence of patents with unclear property rights; for example, several of these
stakeholders noted that software-related patents often had overly broad or
unclear claims or both. Second, some stakeholders said that the potential for
large monetary awards from the courts, even for ideas that make only small
contributions to a product, can be an incentive for patent owners to file
infringement lawsuits. Third, several stakeholders said that the recognition by
companies that patents are a more valuable asset than once assumed may have
contributed to recent patent infringement lawsuits.
The judicial system is implementing new initiatives to improve the handling of
patent cases in the federal courts, including (1) a patent pilot program, to
encourage the enhancement of expertise in patent cases among district court
judges, and (2) new rules in some federal court districts that are designed to
reduce the time and expense of patent infringement litigation. Recent court
decisions may also affect how monetary awards are calculated, among other
things. Several stakeholders said that it is too early to tell what effect these
initiatives will have on patent litigation.
The U.S. Patent and Trademark Office (PTO) has taken several recent actions
that are likely to affect patent quality and litigation in the future, including agency
initiatives and changes required by AIA. For example, in November 2011, PTO
began working with the software industry to develop more uniform terminology
for software-related patents. PTO officials said that they generally try to adapt to
developments in patent law and industry to improve patent quality. However, the
agency does not currently use information on patent litigation in initiating such
actions; some PTO staff said that the types of patents involved in infringement
litigation could be linked to PTO's internal data on the patent examination
process, and a 2003 National Academies study showed that such analysis could
be used to improve patent quality and examination by exposing patterns in the
examination of patents that end up in court.
View GAO-13-465. For more information,
contact Frank Rusco at (202) 512-3841 or
Page i GAO-13-465 Patent Litigation
Letter 1
Background 7
Number of Patent Infringement Lawsuits Increased Significantly in
2011 and the Number of Defendants Increased between 2007 and
2011 14
Stakeholders Identified Three Key Factors Contributing to Many
Recent Patent Infringement Lawsuits 28
New Initiatives in the Courts May Affect Patent Litigation 36
PTO Has Taken Actions to Improve Patent Quality and Implement
New AIA Proceedings That May Affect Patent Litigation in the
Future 39
Conclusions 45
Recommendation for Executive Action 46
Agency Comments and Our Evaluation 46
Appendix I Objectives, Scope, and Methodology 48
Appendix II Comments from the Patent and Trademark Office 55
Appendix III GAO Contact and Staff Acknowledgments 56
Table
Table 1: Evidence or Information Used to Review Lex Machina’s
Plaintiff Classifications 52
Figures
Figure 1: Number of Software-Related Patents Granted per Year by
PTO, 1991 to 2011 12
Figure 2: Patent Infringement Lawsuits, 2000 to 2011 14
Figure 3: Estimated Number of Defendants in Patent Infringement
Lawsuits, 2007 to 2011 16
Figure 4: Estimated Patent Infringement Lawsuits by Type of
Plaintiff, 2007 to 2011 18
Contents
Page ii GAO-13-465 Patent Litigation
Figure 5: Estimated Number of Patent Infringement Lawsuits and
Defendants Associated with Software-Related Patents,
2007 to 2011 21
Figure 6: Estimated Percentage of PME and Operating Company
Lawsuits and Defendants Associated with Software-
Related Patents, 2007 to 2011 22
Figure 7: Distribution of Total Patent Infringement Lawsuits across
U.S. District Courts from 2000 to 2011 24
Abbreviations
AIA Leahy-Smith America Invents Act
AIPLA American Intellectual Property Law Association
AOUSC Administrative Office of the U.S. Courts
CPC Cooperative Patent Classification
EPO European Patent Office
FTC Federal Trade Commission
ITC International Trade Commission
NPE nonpracticing entities
PAE patent assertion entities
PME patent monetization entities
PTO Patent and Trademark Office
R&D research and development
SEC Securities and Exchange Commission
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Page 1 GAO-13-465 Patent Litigation
441 G St. N.W.
Washington, DC 20548
August 22, 2013
Congressional Committees
History is filled with examples of successful inventors who did not develop
products based on the technologies they patented. For example, Elias
Howe patented a key component of the sewing machine––a mechanism
for making a lockstitch––but it was Isaac Singer who most successfully
brought these machines into the homes of thousands of Americans by
obtaining crucial patents of his own and paying Howe and other inventors
to license the technology described in their patents.
1
In the United States,
the party that owns a patent––the patent owner––is not required to put
the patent to use in order to profit from it; he can also license others to
use it.
2
In some instances, patent owners may need to actively assert
their patents in an adversarial context if another firm’s product infringes
their patents.
3
For example, Singer initially refused to obtain a license to
Howe’s patent, but when Howe sued Singer for infringing his patent, the
two parties ultimately entered a licensing agreement.
4
1
A patent is an exclusive right granted for a fixed period of time to someone who invents
or discovers (1) a new and useful process, machine, manufacture, or composition of
matter or (2) any new and useful improvement of such items.
2
In this report, when we use the term “patent owner,” it includes the real party in interest
when that party is not the patent owner. A real party in interest may be, among other
things, an entity that has a legal right to enforce the patent, such as a parent entity or
exclusive licensee.
3
Anyone who makes, sells, offers to sell, uses, or imports the patented invention during
the term of the patent without the patent owner’s permission infringes the patent. Patent
infringement is a strict liability offense—the alleged infringer’s intent to copy or act of
copying the patented invention are not relevant to the outcome of an infringement
lawsuit—so an individual who independently develops an invention that falls within the
scope of a patent may infringe the patent. A patent owner can grant permission to use a
patented invention by licensing others to use, make, sell, or import the patented invention.
Patent owners can also transfer title to their patents by assigning their patent rights to
others.
4
For more information on the dispute between Howe and Singer, see: Adam Mossof, The
Rise and Fall of the First American Patent Thicket: The Sewing Machine War of the
1850s, 53 Ariz. L. Rev.165 (2011). See also Ryan L. Lampe & Petra Moser, Do Patent
Pools Encourage Innovation? Evidence from the 19th-Century Sewing Machine Industry,
NBER Working Paper No. 15061 (June 2009).
Page 2 GAO-13-465 Patent Litigation
According to economists who have studied these issues, the U.S. patent
system—authorized by the U.S. Constitution—aims to promote innovation
by making it more profitable.
5
In addition to individual inventors who may choose not to develop
products based on their patents, there are other types of “nonpracticing”
patent owners, or nonpracticing entities (NPE). For example, some
universities are NPEs, as they develop technologies in campus
laboratories, and rather than producing and selling products that
incorporate these technologies, they license their patents on these
technologies to companies who use them in their products. In addition,
some private firms are NPEs as they specialize in R&D, and rather than
selling products, they license the patents for those products to fund
further research. Some NPEs simply buy patents from others for the
purpose of asserting them for profit; these NPEs are known as patent
monetization entities (PME).
For example, a patent owner can generally
exclude others from making, using, selling, or importing the patented
technology for 20 years from the date on which the application for the
patent was filed. By restricting competition, patents can allow their owners
to earn greater profits on their patented technologies than they could earn
if these technologies could be imitated freely. Due to the exclusive rights
provided by patents, patents can help their owners recoup the costs of
the research and development (R&D) of new technologies. On the other
hand, any limiting effects on competition caused by the exclusive nature
of patents may result in higher prices for products having patented
technologies. The patent system, therefore, gives rise to complex trade-
offs involving innovation and competition. These trade-offs can be
affected by decisions made by the United States Patent and Trademark
Office (PTO), which issues patents; the federal courts, which decide
patent infringement lawsuits; and the International Trade Commission
(ITC), which can order imports that infringe U.S. patents to be excluded
from entering the country.
6
5
The Constitution grants to Congress the power “[t]o promote the Progress of Science and
useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to
their respective Writings and Discoveries.” U.S. Const., art. I, § 8, cl. 8.
Other PMEs include companies that
produced products at one time and still own patents on the technologies
6
The Federal Trade Commission uses the related term “patent assertion entities” to focus
on entities whose business model solely focuses on asserting typically purchased patents.
As such, the PME term also encompasses entities that might use third-party NPEs to
assert patents for them.
Page 3 GAO-13-465 Patent Litigation
for those products. Experts agree that NPEs have a variety of business
models, which makes it difficult to fit them neatly into any one of these
categories. For example, even companies that produce products related
to their patents—known as practicing patent owners, or operating
companies—sometimes assert patents that they own but that are not
related to the products they produce, which further complicates defining
an NPE.
Some legal commentators, technology companies, the Federal Trade
Commission (FTC),
7
and Congress, among others, have raised concerns
that patent infringement litigation by NPEs is increasing and that this
litigation, in some cases, has imposed high costs on firms that are
actually developing and manufacturing products, especially in the
software and technology sectors. Among the concerns of some
technology companies and legal commentators is that because NPEs
generally face lower litigation costs than those they are accusing of
infringement, NPEs are likely to use the threat of imposing these costs as
leverage in seeking infringement compensation.
8
The Leahy-Smith America Invents Act (AIA), signed into law September
16, 2011, made several significant changes to the U.S. patent system.
Section 34 of the AIA
These technology
companies and legal commentators also have noted that NPEs often
claim that their patent covers an entire technology when in fact it may
cover just a small improvement in an existing technology, and that it can
be difficult for judges and juries to determine the patent’s scope when
complex technologies are involved.
9
7
FTC’s mission includes prevention of and enforcement against anticompetitive, unfair, or
deceptive business practices including, potentially, patent assertion activities.
mandates that GAO conduct a study on the
8
This is not unique to patent infringement litigation. As discussed later in the report, in civil
lawsuits, the parties must exchange certain information relevant to the litigation, a process
known as discovery. Discovery costs in complex litigation, including patent infringement
litigation, can run into the millions of dollars. Because NPEs do not make products, they
generally have less information to disclose and thus have lower discovery costs. They
also cannot be countersued for patent infringement. This asymmetry in litigation costs
(which exists in other types of complex litigation) can give NPEs leverage in seeking
financial compensation from operating companies.
9
Pub. L. No.112-29 § 34 (2011).
Page 4 GAO-13-465 Patent Litigation
consequences of patent litigation by NPEs.
10
To address all four objectives, we reviewed relevant laws, including the
AIA, and interviewed officials from PTO, FTC, ITC, and 44 stakeholders
knowledgeable about patent litigation. These included representatives
from companies and industry groups that were recently sued for patent
infringement, PMEs, judges, various legal commentators (including law
professors and patent litigators representing operating companies and
PMEs), economists, representatives from research universities that
license patents, patent brokers who help others buy and sell patents,
venture capitalists, and individual inventors.
Our objectives in conducting
this study were to determine: (1) what is known about the volume and
characteristics of recent patent litigation activity; (2) the views of
stakeholders knowledgeable in patent litigation on what is known about
the key factors that have contributed to recent patent litigation; (3) what
developments in the judicial system may affect patent litigation; and (4)
what actions, if any, has PTO recently taken that may affect patent
litigation in the future.
11
10
As noted in a September 7, 2011, letter from the Comptroller General to the chairs and
ranking members of the congressional committees with jurisdiction over patents, the bill
being considered at that time would have required a GAO study involving several
questions for which reliable data were not available or could not be obtained. The bill was
enacted without change, but the Chair of the Senate Judiciary Committee, responding to
these concerns, stated that GAO should note data and methodology limitations in its
report prepared in response to the mandate. 157 CONG. REC. S 5402, S5441 (daily ed.
Sept. 8, 2011) (statement of Sen. Leahy). Consequently, we developed report objectives
consistent with these limitations, and we have noted specific data limitations in appendix I
and throughout this report, as appropriate.
To describe what is known
about the volume and characteristics of recent patent litigation activity for
2007 to 2011, we analyzed patent infringement litigation data from Lex
Machina, a firm that collects and analyzes data on patent litigation. Lex
Machina provided data for all patent infringement lawsuits filed in federal
district court from 2000 to 2011. From these data, Lex Machina selected a
random, generalizable sample of 500 lawsuits (100 per year from 2007 to
2011), which allows us to estimate percentages with a margin of error of
11
We identified some of these stakeholders from patent infringement litigation data from
2000 through 2011 that we reviewed. Representatives of companies and PMEs we talked
with had regularly been sued or had regularly sued others over the past decade. Other
stakeholders we identified through our review of academic literature on patent litigation
and the patent system and were knowledgeable in the issues we were asked to study.
Because stakeholders varied in their expertise with various topics, not every stakeholder
provided an opinion on every topic.
Page 5 GAO-13-465 Patent Litigation
no more than plus or minus 5 percentage points over all these years and
no more than plus or minus 10 percentage points for any particular year.
12
Lex Machina used a variety of characteristics from court records, U.S.
Securities and Exchange Commission (SEC) filings, and corporate
websites to categorize litigants, including as an operating company or
likely operating company, PME or likely PME, university, or an individual
or trust.
13
A limitation of this categorization is that litigants were not
contacted to verify their identity, so there is some uncertainty about the
accuracy of the category in which Lex Machina placed them. We also
obtained patent infringement data from RPX, another firm that collects
data on patent infringement lawsuits, in an effort to verify Lex Machina’s
litigant categorizations.
14
12
This sample allowed us to draw conclusions about the broader population of patent
infringement lawsuits for each of these years and is therefore generalizable to all patent
infringement lawsuits filed in federal district court from 2007 to 2011. However, as noted,
estimates from the Lex Machina sample are subject to a 5 percent margin of error. This
means that an estimate of 50 percent, for example, based on all years of data, would have
a 95 percent confidence interval of between 45 percent and 55 percent. The margin of
error is 10 percent when looking at individual years, which means that an estimate of 50
percent, for example, looking at an individual year, would have a 95 percent confidence
interval of between 40 percent and 60 percent. Because Lex Machina followed a
probability procedure based on random selections, the sample is only one of a large
number of samples that might have been drawn. Since each sample could have provided
different estimates, we express our confidence in the precision of our particular sample’s
results as a 95 percent confidence interval. This is the interval that would contain the
actual population value for 95 percent of the samples that could have been drawn. Unless
otherwise noted, the margin of error associated with the confidence intervals of our survey
estimates is no more than plus or minus 10 percentage points at the 95 percent level of
confidence.
Also to describe what is known about the
volume and characteristics of recent patent litigation activity, we reported
data collected by the American Intellectual Property Law Association
13
Definitions of these categories are discussed below and detailed in appendix I. We
found that it was difficult to reliably identify the type of NPEs through analysis of data from
court records because, among other things, firms do not identify themselves as such in
these records. Lex Machina did not include patent owners that primarily seek to develop
and transfer technology, such as universities and research firms, as PMEs. See appendix
I for more detail on Lex Machina’s categorizations and our review of them.
14
RPX also purchases patents itself, to prevent them from being asserted against its
members. RPX provided us with summary data on the number of patent infringement
lawsuits filed in federal district court since January 2005. RPX’s data identified NPEs and
other types of plaintiffs in these lawsuits by using a variety of factors, such as whether
there was evidence that an entity sells or develops products. RPX representatives said
that they used professional judgment to some extent in making these determinations. We
were not able to fully assess the reliability of the judgments RPX used in making these
classifications.
Page 6 GAO-13-465 Patent Litigation
(AIPLA) on the costs of patent litigation.
15
In addition to the steps we took to address all four objectives, in order to
describe views of stakeholders on what is known about the key factors
that contribute to recent patent litigation trends, we reviewed academic
literature on the patent and judicial systems and the benefits and costs of
patent assertion, including economic and legal studies. To describe
developments in the judicial system that may affect patent litigation, we
interviewed officials and judges from the U.S. District Courts for the
District of Delaware and for the Eastern District of Texas. We selected
these district courts because they had high levels of patent infringement
lawsuits according to Lex Machina data. We also interviewed judges with
the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) in
Washington, D.C., which hears appeals of patent cases decided in
federal district courts, as well as officials from the Administrative Office of
the U.S. Courts (AOUSC) and the Federal Judicial Center––organizations
that provide broad administrative, legal, and technological services and
support to the judicial branch. We also reviewed documents and data
from the courts, as well as economic and legal studies. To describe what
actions, if any, PTO has recently taken that may affect patent litigation in
the future, we conducted interviews with officials from PTO and reviewed
documents and data from the agency, as well as economic and legal
studies. Appendix I provides more details on our scope and methodology.
We also reviewed academic
literature on patent litigation and the patent system in general and
assessed the methodology of the studies we reported on for soundness.
To assess the reliability of data from Lex Machina, we met with Lex
Machina staff, examined documentation, and tested and reviewed the
data provided for completeness and accuracy. To assess the reliability of
data from PTO, AIPLA, and RPX, we conducted interviews and reviewed
relevant methodology documentation. We found these data to be
sufficiently reliable for purposes of this report.
We conducted this performance audit from November 2011 to August
2013 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
15
AIPLA is a national, voluntary bar association constituted primarily of patent lawyers in
private and corporate practice, in government service, and in the academic community.
See AIPLA, Report of the Economic Survey 2011 (Arlington, Va.: July 2011). AIPLA
surveyed its members during 2011 and asked them to estimate legal costs for typical
patent infringement cases. AIPLA’s findings are based on an 18 percent response rate.
Page 7 GAO-13-465 Patent Litigation
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
When PTO receives a patent application, it assigns it to a team of patent
examiners with relevant technology expertise. PTO does not begin
examining patent applications upon receiving them and PTO’s data
shows that, as of June 2013, the average time between filing and an
examiner’s initial decision on the application was about 18 months.
16
The focus of patent examination is determining whether the patent
application satisfies the statutory requirements for a patent, including: (1)
novelty, (2) nonobviousness, (3) utility, and (4) patentable subject
matter.
On
average, it takes 30 months for PTO to issue a patent once an application
is submitted.
17
Generally, other patents, publications, and publicly disclosed but
unpatented inventions that pre-date the patent application’s filing date are
known as prior art. During patent examination, the examiner, among other
things, compares an application’s claims to the prior art to determine
whether the claimed invention is novel and nonobvious.
18
U.S. patents include the specification and the claims:
The examiner
then decides to reject or grant the claims in the application and deny the
application or grant a patent.
16
PTO’s data show that the current inventory of new applications that have not yet
received an initial decision was around 600,000 applications. PTO refers to these initial
decisions as a “first action on the merits.”
17
To be patentable subject matter, the invention must be a (1) process; (2) machine; (3)
manufacture; (4) composition of matter; or (5) improvement of a process, machine,
manufacture, or composition of matter. To be nonobvious, the claimed invention’s
improvements to the prior art must be more than the predictable use of prior art elements
according to their established functions. Specifically, at the time of the invention, the
differences between the scope and content of claimed invention and the prior art cannot
render the claimed invention as a whole obvious to a person having ordinary skill in the
art.
18
During the patent examination, the applicant and the examiner communicate about the
application, including aspects that might be deficient. For example, the examiner may
inform the applicant that one of the claims is not novel because of prior art, and the
applicant might revise the claim to distinguish it from the prior art the examiner found.
Background
Page 8 GAO-13-465 Patent Litigation
• The specification is a written description of the invention that, among
other things, sufficiently discloses the invention and the manner and
process of making and using it. The specification must be written in
full, clear, concise, and exact terms so as to enable any person skilled
in the art to make and use the invention. As an example, an excerpt
from the specification for a cardboard coffee cup and insulator
invention describes “corrugated containers and container holders
which can be made from existing cellulosic materials, such as paper.”
• The claims define the scope of the invention for which protection is
granted and must be definite. There are often a dozen or more claims
per patent, and they can often be difficult for a layperson to
understand, according to legal commentators. For example, one claim
for the cardboard coffee cup insulator begins by referring to “a
recyclable, insulating beverage container holder, comprising a
corrugated tubular member comprising cellulosic material and at least
a first opening therein for receiving and retaining a beverage
container.” A patent’s claims can be written broadly or be more
narrowly defined, according to legal commentators, and applicants
can change the wording of claims—which can affect their scope—
during examination based on examiner feedback. Patents are a
property right and—like land—their claims define their boundaries.
When a property right is not clearly defined, it can lead to boundary
disputes, although to some extent uncertainty is inherent.
Consequently, legal commentators define high-quality patents as
those whose claims clearly define and provide clear notice of their
boundaries.
Once issued by PTO, a patent is presumed to be valid. However, the
patentability of its claims can be challenged in administrative proceedings
before PTO or its Patent Trial and Appeal Board and its validity can be
challenged in federal court. For example, the AIA established three new
administrative proceedings for entities to challenge the patentability of a
patent’s claims:
• Inter partes review.
19
19
Inter partes is Latin for “between the parties.”
This proceeding allows anyone who is not the
patent owner to request review of an issued patent by presenting prior
art to PTO—either patents or other publications—to challenge the
claimed invention’s patentability as obvious or not novel. This review
proceeding became available on September 16, 2012, 1 year after the
enactment of the AIA, but entities cannot request this review until the
Page 9 GAO-13-465 Patent Litigation
later of (1) 9 months after a patent is granted or (2) completion of
post-grant review, if such a proceeding is held.
• Post-grant review. This proceeding allows anyone who is not the
patent owner to request a review of an issued patent that challenges
at least one of the claims’ patentability in more circumstances than
inter partes review—such as the invention not being useful—and not
solely based on prior art. This proceeding is available for patents
issued from patent applications with a filing date of March 16, 2013, or
later and requests must be filed within 9 months of the patent’s
issuance.
• Transitional program for covered business method patents.
20
In addition, a patent’s validity can be challenged in the 94 federal district
courts throughout the country by, for example, presenting additional prior
art that PTO may have been unaware of when it granted the patent.
Challenges to a patent’s validity are often brought by an accused infringer
who has been sued for infringing the patent.
This
proceeding allows anyone who is sued or charged with infringing a
covered business method patent to request a review of the patent to
challenge a claim’s patentability in generally the same circumstances
as post-grant review. This review proceeding became available on
September 16, 2012, and requests must be filed within 9 months of
the patent’s issuance.
21
20
A covered business method patent is a patent that claims a method or corresponding
apparatus for performing data processing or other operations used in the practice,
administration, or management of a financial product or service but does not include
patents for technological inventions. This transitional program is subject to a sunset
provision that will repeal the program on September 16, 2020.
Patent owners can bring
infringement lawsuits against anyone who uses, makes, sells, offers to
sell, or imports the patented invention without authorization because a
patent is a right to exclude others from practicing the invention. Exactly
what a patent covers and whether another product infringes the patent’s
claims are rarely easy questions to resolve in litigation, according to legal
commentators. As noted, appeals of district court decisions in
infringement cases are heard in the U.S. Court of Appeals for the Federal
Circuit in Washington D.C.
21
In patent infringement lawsuits, the accused infringer often challenges the patent’s
validity as an “affirmative defense,” meaning that even if the infringement allegations are
true, the would-be infringer is not liable because the patent is invalid. A party accused of
infringement can also file a lawsuit to obtain a court decision on whether they are
infringing or whether the patent is valid, which is known as a declaratory judgment action.
Page 10 GAO-13-465 Patent Litigation
If a patent infringement lawsuit is not dismissed in the initial stages, it
proceeds to discovery (a process that exists in all federal civil litigation)
and claim construction. Discovery requires the accused infringer to
produce documents or other information that shows, among other things,
how the allegedly infringing product is made and operates to help the
patent owner establish infringement. Similarly, the patent owner must
produce documents or other information that the accused infringer can
use to challenge the patent’s validity, among other things. However,
parties that do not offer products or services using the patents at issue
often have far fewer documents to disclose—because they do not have
any documents related to their products or services—than patent owners
or accused infringers who do offer products or services.
22
With this information the patent owner specifies which patent claims
allegedly are infringed and the alleged infringer responds by explaining
why the allegedly infringing product is not covered by the patent’s claims.
This identifies the patent claims the court needs to interpret. Known as
claim construction, this is a fundamental issue in patent cases, and each
party tries to persuade the court to interpret the patent claims in its favor.
The court has broad discretion in how it goes about this process, which
can involve a hearing with testimony from witnesses, according to legal
commentators.
23
Once the judge interprets the claims, the claims are then applied to the
allegedly infringing product, to determine infringement, and to the prior
art, to determine the patent’s validity if it is challenged. If the patent is
found to be both valid and infringed, the court can award the patent owner
monetary damages, issue an injunction to prohibit further infringement, or
both. The court is required to award damages adequate to compensate
In addition, if the patent’s validity is being challenged,
the alleged infringer specifies why the patent allegedly is not valid,
including any prior art.
22
As noted, asymmetrical discovery demands, burdens, and costs are not unique to NPE
patent infringement litigation. For example, parties in class actions and antitrust litigation
typically face the same asymmetry. See, e.g.,Thorogood v. Sears, Roebuck & Co., 624
F.3d 842, 849-50 (7
th
Cir. 2010) (class action discovery); Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 558-559 (2007) (antitrust discovery).
23
This hearing is often referred to as a Markman hearing after the Supreme Court’s
decision in Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996).
Page 11 GAO-13-465 Patent Litigation
for the infringement that are at least what a reasonable royalty would be
for the use made of the invention by the infringer.
24
In addition to being enforced in the federal courts, patents can also be
enforced at ITC, which handles investigations into allegations of certain
unfair practices in import trade. Specifically, certain patent owners can file
a complaint with ITC if imported goods infringe their patent or are made
by a process covered by the patent’s claims.
25
If ITC determines after an
investigation that an imported good infringes a patent, the agency can
issue an exclusion order barring the products at issue from entry into the
United States, which the President can disapprove for policy reasons. ITC
decisions can be appealed to the U.S. Court of Appeals for the Federal
Circuit. Legal commentators have reported that a 2006 Supreme Court
decision led to increased complaints alleging imported goods infringed
U.S. patents being filed with ITC, and recent ITC data show that the
number of investigations instituted by ITC increased from 32 in 2006 to 37
in 2012.
26
According to PTO data, applications for all types of patents have
increased in recent years, and patents granted for software-related
technologies have seen dramatic increases over the past 2 decades (see
24
The judge has the authority to increase damages up to three times the amount initially
awarded, called treble damages, for cases of willful infringement. In “exceptional cases”
the court is authorized to award the prevailing party reasonable attorney fees.
25
In order for ITC to have jurisdiction to hear the complaint, there must be an industry in
the United States in existence or in the process of being established that relates to the
articles protected by the patent concerned. An industry in the United States is considered
to exist if there is in the country, with respect to the articles protected by the patent: (1) a
significant investment in plant and equipment; (2) significant employment of labor or
capital; or (3) substantial investment in its exploitation, including engineering, research
and development, or licensing. This is known as the domestic industry requirement.
26
Prior to this 2006 Supreme Court case, the Federal Circuit’s general rule was for district
court judges to issue injunctions in patent cases once validity and infringement had been
determined except in unusual cases under exceptional circumstances and in rare
instances to protect public interest. In the 2006 eBay decision, the Supreme Court ruled
that district courts should not assume an injunction was automatically needed in patent
infringement cases and instead should use the same test used in other cases to
determine whether to award the plaintiff an injunction. eBay, Inc. v. MercExchange, L.L.C.,
547 U.S. 388 (2006). According to several legal commentators we spoke with, this
decision has generally made it more difficult for NPEs to obtain injunctions in the courts
and has led them to pursue exclusion orders at ITC—although there may have been other
reasons for the increase in filings, including the relative speed of proceedings at ITC.
Page 12 GAO-13-465 Patent Litigation
fig. 1).
27
Figure 1: Number of Software-Related Patents Granted per Year by PTO, 1991 to
2011
Software-related patents occur in a variety of technologies
containing at least some element of software, and cover things like
sending messages or conducting business over the Internet (e.g. e-
commerce). Patents related to software can, but do not generally, detail
computer software programming code in the specification, but often
provide a more general description of the invention, which can be
programmed in a variety of ways.
Note: Software-related patents include a number of patent classes that are most likely to include
patents with software-related claims, and this includes business method patents.
According to legal commentators, the number of software-related patents
grew as computers were integrated into a greater expanse of everyday
27
Although PTO does not have a specific “software-related” patent class, we combined a
number of entire patent classes that PTO economists have said are most likely to include
patents with software-related claims, and this includes business method patents. For the
list of these classes, see S. Graham, , and S. Vishnubhakat, Of Smart Phone Wars and
Software Patents, Journal of Economic Perspectives, v. 27 no.1 (2013), pp. 67-86.
Page 13 GAO-13-465 Patent Litigation
products. By 2011 patents related to software made up more than half of
all issued patents. Software was not always patentable, and Supreme
Court decisions in the 1970s found mathematical formulas used by
computers were not patentable subject matter.
28
However, a 1981
Supreme Court decision overturned PTO’s denial of a patent application
for a mathematical formula and a programmed digital computer because,
as a process, it was patentable subject matter.
29
Subsequently, in 1998,
the Federal Circuit ruled that a mathematical formula in the form of a
computer program is patentable if it is applied in a useful way.
30
According to PTO officials, the agency interpreted these cases as limiting
their ability to reject patent applications for computer processes. Legal
commentators also said that after these decisions, particularly the 1998
Federal Circuit decision, software-related patenting grew as many
technology companies made the conscious effort to generate more
patents for offensive or defensive purposes—that is, to use them to sue
or countersue competitors in infringement lawsuits, rather than use them
to recoup R&D costs. As recently as 2010, the Supreme Court has noted
that the patent statute acknowledges that business methods are
patentable subject matter.
31
28
Gottschalk v. Benson, 409 U.S. 63 (1972) (finding a mathematical formula that had no
substantial practical application except in connection with a digital computer was not
patentable because it is like a law of nature, which cannot be the subject of a patent);
Parker v. Flook, 437 U.S. 584 (1978) (finding a method for updating alarm limits through
computerized calculations was not patentable because the alarm limit is a number and the
patent application was for a formula to compute it).
29
Diamond v. Diehr, 450 U.S. 175 (1981) (finding a patent claim containing a
mathematical formula that implements or applies that formula in a structure or process,
which, when considered as a whole, is performing a function which the patent laws were
designed to protect, to be patentable).
30
State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed.
Cir. 1998).
31
Bilski v. Kappos, __ U.S. __, 130 S. Ct. 3218 (2010).
Page 14 GAO-13-465 Patent Litigation
From 2000 to 2010, the number of patent infringement lawsuits fluctuated
slightly, and from 2010 to 2011, the number increased about 31 percent.
Our more detailed analysis of a generalizable sample of 500 lawsuits
estimates that the overall number of defendants in these cases increased
from 2007 to 2011 by about 129 percent over the 5-year period. This
analysis also shows that operating companies brought most of these
lawsuits and that lawsuits involving software-related patents accounted
for about 89 percent of the increase in defendants during this period.
Some stakeholders we interviewed said that they experienced a
substantial amount of patent assertion without firms ever filing lawsuits
against them.
From 2000 to 2011, about 29,000 patent infringement lawsuits were filed
in U.S. district courts. The number of these lawsuits fluctuated slightly
until 2011, when there was a 31 percent increase (see fig. 2).
Figure 2: Patent Infringement Lawsuits, 2000 to 2011
Specifically, about 900 more lawsuits were filed in 2011 than the average
number of lawsuits filed in each of the previous years. Some stakeholders
Number of Patent
Infringement Lawsuits
Increased
Significantly in 2011
and the Number of
Defendants Increased
between 2007 and
2011
Number of Patent
Infringement Lawsuits
Fluctuated Slightly before
Increasing in 2011, but
Number of Defendants
Increased from 2007 to
2011
Page 15 GAO-13-465 Patent Litigation
we interviewed generally attributed the increase in 2011 to patent owners’
anticipation of the passage of AIA, which restricts the number of accused
infringers who can be joined in a single lawsuit.
32
Prior to the enactment
of AIA, plaintiffs could sue numerous defendants in a single lawsuit. AIA
restricts this practice by prohibiting joining unrelated defendants into a
single lawsuit based solely on allegations that they have infringed the
same patent. According to the legislative history of AIA, this provision was
designed to address problems created by plaintiffs joining defendants,
sometimes numbering in the dozens.
33
32
Pub. L. No. 112-29, § 19(d)(1) (2011). Specifically, accused infringers may be joined, or
have their actions consolidated for trial, only if (1) questions of fact common to all will arise
in the action; and (2) any right to relief is asserted against the parties jointly and severally
or with respect to or arising out of the same transaction, occurrence, or series of
transactions or occurrences relating to the same accused product or process. AIA Section
19(d)(1), however, allows an accused infringer to waive these restrictions.
As a result, some stakeholders we
interviewed generally agreed that the increase in 2011 was due to the fact
that plaintiffs had to file more lawsuits at the end of 2011 after AIA’s
enactment in order to sue the same number of defendants or anticipated
this change and rushed to file lawsuits against multiple defendants before
it was enacted. In addition, our analysis of a generalizable sample of data
from 2007 through 2011 estimates that the number of overall defendants
in patent infringement suits increased by about 129 percent over the 5-
year period (see fig. 3).
33
H. Rep. No. 112-98, at 54 (2011).
Page 16 GAO-13-465 Patent Litigation
Figure 3: Estimated Number of Defendants in Patent Infringement Lawsuits, 2007 to
2011
Note: Defendant estimates are representative of all patent infringement lawsuits and error bars
display 95 percent confidence intervals.
Representatives of several operating companies that we interviewed said
they are being sued more often since the mid-2000s. For example, one
former official at a large technology company told us that, in 2002, the
company was a defendant in five patent infringement lawsuits, but in
2011, it was a defendant in more than 50. However, a few legal
commentators we interviewed said that such increases are common
during periods of rapid technological change—new industries lead to
more patents and the number of patent infringement lawsuits also
increases because there are more patents to be enforced. Similarly, one
researcher working on these issues told us that, historically, major
technological developments—such as the development of automobiles,
airplanes, and radio—have also led to temporary, dramatic increases in
patent infringement lawsuits.
Page 17 GAO-13-465 Patent Litigation
Operating companies brought most of the patent infringement lawsuits
from 2007 to 2011. According to our analysis of data for this period,
operating companies and related entities brought an estimated 68 percent
of all lawsuits.
34
PMEs and likely PMEs brought 19 percent of the
lawsuits.
35
PMEs and likely PMEs brought 17 percent of all lawsuits in
2007 and 24 percent in 2011, although this increase was not statistically
significant. In contrast, operating companies and related entities filed 76
percent of the lawsuits in 2007 and 59 percent in 2011, a statistically
significant decrease.
36
34
The evidence that Lex Machina used to classify an entity as an operating company and
that we then used to review Lex Machina’s classifications is described in appendix I.
Related entities included subsidiaries of operating companies—see appendix I for more
information. We did not verify whether the companies practiced the patents at issue in the
lawsuit.
Individual inventors brought about 8 percent of the
lawsuits, and research firms and universities brought less than 3 percent
over the 5 year span. In about 3 percent of the lawsuits there was
insufficient evidence to determine the type of plaintiff (see fig. 4).
35
The evidence that Lex Machina used to classify an entity as a PME or likely PME and
that we then used to review Lex Machina’s classifications is described in appendix I.
Another paper using data from Lex Machina presented different proportions of patent
monetizing plaintiffs, and these differences may be due to differences in methodology. For
example, this study included other plaintiff groups as patent monetizers, including
individuals and trusts. See Robin Feldman, Tom Ewing, and Sara Jeruss, The AIA 500
Expanded: The Effects of Patent Monetization Entities, UCLA Journal of Law &
Technology (forthcoming).
36
Our analysis of litigation data from RPX showed similar results. Specifically, RPX’s
classification of all infringement suits from 2007 to 2011 shows that operating companies
brought 69 percent of lawsuits, and firms that RPX classified as patent assertion entities
(PAE) brought 25 percent. RPX’s PAE category excluded universities and individual
inventors acting as NPEs, making it similar to Lex Machina’s PME category. Individual
inventors brought about 6 percent of the lawsuits, and universities brought less than 1
percent. Operating companies litigating patents that do not relate to the technology of their
primary business sector—classified as noncompeting entities by RPX—brought less than
1 percent of all lawsuits. Additionally, lawsuits filed by PAEs increased by about a third
from 2007 to 2010 and, in 2011, doubled over the previous year, and lawsuits brought by
operating companies decreased by about 6 percent from 2007 to 2010 and, in 2011,
increased by about 3 percent over the previous year.
Characteristics of
Plaintiffs in Recent Patent
Litigation
Page 18 GAO-13-465 Patent Litigation
Figure 4: Estimated Patent Infringement Lawsuits by Type of Plaintiff, 2007 to 2011
Note: Lawsuit estimates are subject to a margin of error of up to plus or minus 10 percentage points.
Our analysis of the data from 2007 through 2011 shows that PMEs
tended to sue more defendants per suit than operating companies. For
this period, there were about 1.9 defendants on average for suits filed by
operating companies, and about 4.1 defendants on average for suits filed
by PMEs. In addition, a disproportionate share of PMEs sued a relatively
large number of defendants. For example, about 12 percent of PMEs
sued 10 defendants or more in a single lawsuit, compared to about 3
percent of operating companies, a statistically significant difference. Thus,
even with bringing about a fifth of all patent infringement lawsuits from
2007 to 2011, PMEs sued close to one-third of the overall defendants,
accounting for about half of the overall increase in defendants.
Additionally, the estimated total number of defendants sued by PMEs
more than tripled from 834 in 2007 to 3,401 in 2011, while the increase in
Page 19 GAO-13-465 Patent Litigation
the total number of defendants sued by operating companies was not
statistically significant.
37
To further explore the characteristics of PMEs and other NPEs, we
interviewed stakeholders knowledgeable about patent infringement
lawsuits. According to some stakeholders we interviewed, NPEs have
many different characteristics and there are a spectrum of NPE business
models and behaviors, including operating companies that partner with
NPEs to file infringement suits.
38
• PMEs and likely PMEs. PMEs we spoke with did not develop
technology or sell products but, instead, derived most of their revenue
from asserting patents against operating companies. Some of these
PMEs told us that they acquired patents from a variety of sellers, such
as universities, individual inventors, failed companies, or operating
companies. A few of these PMEs told us they were able to get patents
on their own even with minimal R&D investments, especially for
software-related processes. Some PMEs we spoke with said that they
formerly produced patented products and now simply assert those
patents, and others said that they sued on behalf of individual
inventors who did not have the resources to enforce patents on their
own.
These different types of NPEs include
the following:
• Entities Related to Operating Companies. Our analysis of patent
infringement lawsuit data shows that some entities were subsidiaries
of or had other corporate relationships with operating companies,
although they did not produce products themselves. In addition, some
stakeholders we interviewed said that operating companies
sometimes partner with PMEs to monetize patents. In some cases,
these partnerships may allow an operating company to sue its
competitors with less risk of countersuits. A few operating companies
we spoke with acknowledged that they are aware of such
partnerships, although none said they engaged in this practice. The
two patent brokers we interviewed told us that they have structured
37
Our analysis of RPX data showed similar results. Specifically, RPX’s data show that
from 2007 to 2011 operating companies sued about 51 percent of all defendants and that
firms RPX classified as PAEs sued about 42 percent of all defendants. Additionally,
defendants sued by these firms almost tripled, while defendants sued by operating
companies decreased by about 20 percent. RPX identified more than 200 NPEs that sued
more than 20 defendants since 2005, suing 12 defendants per suit on average.
38
Often both the NPE and operating company appear as plaintiffs in the same suit.
Page 20 GAO-13-465 Patent Litigation
agreements where they transfer patents from an operating company
to a PME, and one legal commentator who also structured such deals
told us that operating companies often retain an interest in the gains
from any lawsuits the PME files. This commentator also said that
there are many PME lawsuits in which the identity of interested
operating companies is intentionally hidden; our review of court
records indicates that corporate relationships may not be easily
deciphered. In some cases, business relationships were easily
identifiable from court records and in other cases the links were more
difficult to identify.
39
Further, some operating companies, like PMEs,
also assert patents not related to products they produce, according to
some stakeholders.
40
• Research firms. Representatives from a few of the companies we
interviewed said that they invested heavily in R&D and made efforts to
share their technology with other companies and to help them develop
new products. Specifically, these representatives told us that their
companies did not focus on producing products but, rather, mainly
developed new technologies and then licensed them to operating
companies to pay for continued R&D.
41
• Universities. Many universities license their patented technologies to
companies who use them in their products, according to a
representative from each of two large research universities we spoke
with, although they said that the licensing revenue is generally small
in relation to other sources of university revenue. They also noted that
licensing at many universities is mostly driven by life sciences
research and that, sometimes before research begins, universities
develop partnerships with private sector firms, such as
These representatives also
said that they provided technical support to the firms they license
patents to helping them to make the best use of their patented
technologies, which distinguishes them from PMEs.
39
For example, some operating companies owned patent monetization subsidiaries that
shared their name, and others were linked to outside monetization entities with different
names.
40
RPX collects data on these types of lawsuits and, according to RPX’s data, these
lawsuits accounted for less than 1 percent of lawsuits in RPX’s database from 2007 to
2011.
41
These research firms told us that they file patent infringement lawsuits if their patented
technologies are used without or in violation of licensing agreements. Economic literature
suggests that this division of labor is valuable because companies that specialize in R&D
can often innovate more nimbly and create new, innovative technologies that other
companies can then incorporate into products they manufacture.
Page 21 GAO-13-465 Patent Litigation
pharmaceutical companies, who have the first right to bring patented
ideas into the marketplace.
Our analysis of patent infringement lawsuit data from 2007 to 2011 shows
that on average about 46 percent of the lawsuits involved software-
related patents. Between 2007 to 2011, 64 percent of defendants were
sued over software-related patents, and these patents were at issue in
the lawsuits that accounted for about 89 percent of the increase in
defendants over this period (see fig. 5). About 49 percent of the patents in
our sample were asserted within 5 years of being granted, and there was
no statistically significant difference between software-related patents and
other patents in this regard.
Figure 5: Estimated Number of Patent Infringement Lawsuits and Defendants Associated with Software-Related Patents, 2007
to 2011
Notes: Lawsuit and defendant estimates are representative of all patent infringement lawsuits and
error bars display 95 percent confidence intervals. Software-related patents include a number of
patent classes that are most likely to include patents with software-related claims, and this includes
business method patents.
Our analysis of patent infringement lawsuit data from 2007 to 2011 shows
that operating companies and PMEs both asserted software-related
patents, although PME lawsuits involved these patents to a much greater
Types of Patents Involved in
Recent Patent Infringement
Litigation
Page 22 GAO-13-465 Patent Litigation
extent. Specifically, about 84 percent of PME lawsuits from 2007 to 2011
involved software-related patents, while about 35 percent of operating
company lawsuits did. However, operating companies brought a greater
number of lawsuits involving software-related patents, given that they filed
more lawsuits overall.
42
Figure 6: Estimated Percentage of PME and Operating Company Lawsuits and Defendants Associated with Software-Related
Patents, 2007 to 2011
By defendant, software-related patents were used
to sue 93 percent of the defendants in PME suits and 46 percent of the
defendants in operating company suits (see fig. 6).
Note: Percentage of lawsuit and defendant estimates are subject to a margin of error of up to plus or
minus 10 percentage points. Software-related patents include a number of patent classes that are
most likely to include patents with software-related claims, and this includes business method
patents. PMEs focus solely on asserting typically purchased patents.
Technology-related operating companies were not the only companies
sued for infringing software-related patents; other sectors were also sued
42
We estimate that, from 2007 to 2011, operating companies and related entities brought
3,037 lawsuits involving software-related patents, while PMEs and likely PMEs brought
2,093 such lawsuits.
Page 23 GAO-13-465 Patent Litigation
for infringing such patents, including retail companies and local
governments. We estimate that 39 percent of suits involving software-
related patents were against firms in nontechnology sectors, according to
our analysis of 2007 to 2011 data. One representative from a retail
company noted that historically, all of the patent infringement lawsuits
brought against the company used to be related to products they sold.
However, as of mid-2012, the representative said that half of the lawsuits
against the company were related to e-commerce software that the
company uses for its shopping website—such as software that allows
customers to locate their stores on the website—and were brought by
PMEs. Representatives of retail and pharmaceutical companies told us
they also defend lawsuits brought by PMEs related to features on their
websites––typically software that outside vendors provide to them, rather
than something they developed. Additionally, city public transit agencies
have been sued for allegedly infringing patents by using software for real-
time public transit arrival notifications, according to a few stakeholders we
interviewed.
For 2007 to 2011, an estimated 32 percent of patent infringement lawsuits
were filed in 3 of the 94 federal district courts: the Eastern District of
Texas, the District of Delaware, and the Central District of California.
These districts also had the most lawsuits filed for the period of 2000 to
2011 (see fig. 7).
Common Venues of Recent
Patent Litigation
Page 24 GAO-13-465 Patent Litigation
Figure 7: Distribution of Total Patent Infringement Lawsuits across U.S. District Courts from 2000 to 2011
In addition, our review of 2007 to 2011 litigation data shows that PMEs
filed more lawsuits in the Eastern District of Texas than other types of
plaintiffs. Specifically, from 2007 to 2011, 39 percent of PME and likely
PME lawsuits were filed in the Eastern District of Texas, compared to
about 8 percent of lawsuits filed by all other plaintiffs. Some stakeholders
Page 25 GAO-13-465 Patent Litigation
we interviewed said that in their view this occurs because juries in this
district favor patent owners over alleged infringers.
43
In addition, one
study we reviewed that looked at all decisions for all patent lawsuits from
1995 to 2011, showed that the Eastern District of Texas, the Eastern
District of Virginia, and the District of Delaware were among the top
districts for quicker trials, higher success rates, and higher damage
awards for patent owners.
44
An estimated 21 percent of patent infringement cases from 2007 to 2011
were still ongoing. Of the remaining cases, our analysis shows that about
86 percent either ended or likely ended in a settlement. This occurred
because both parties agreed to a judgment that the judge sanctioned,
both parties agreed to end the lawsuit, or the plaintiff, who had brought
the lawsuit, asked for it to be dismissed.
45
Lawsuits brought by both
operating companies and PMEs settled or likely settled at similar rates.
46
We were not able to determine litigation cost information from our sample
data, and we found very little information on the costs of patent
Less than 3 percent of the cases that were not ongoing ended in a trial
and judgment, or were on appeal, which was consistent with what some
representatives of operating companies told us—very few of their lawsuits
go to trial because they settle quickly to avoid high litigation costs.
43
Defendants can request that the district court transfer the case to another court in
certain circumstances. If the district court denies the defendant’s request, the defendant
can ask the Federal Circuit to order the district court to transfer the lawsuit. For example,
in 2008, the Federal Circuit ordered the Eastern District of Texas to transfer a case
because none of the parties had an office and no witnesses or evidence were located in
the district. In re: TS Tech, 551 F.3d 1315 (Fed. Cir. 2008). According to one legal
commentator, the precedent in this case and other Federal Circuit transfers likely resulted
in fewer lawsuits being filed in the Eastern District of Texas.
44
PricewaterhouseCoopers, 2012 Patent Litigation Study: Litigation continues to rise amid
growing awareness of patent value. www.pwc.com/us/en/forensic-
services/publications/2012-patent-litigation-study.jhtml. Pricewaterhouse looked at
decisions identified through the WestLaw database.
45
We estimate that 46 percent of all patent infringement lawsuits filed between 2007 and
2011 ended or likely ended in a settlement within 1 year of being filed.
46
Of the lawsuits that were not ongoing, 86 percent of PME suits and 87 percent of
operating company suits settled, which was not a statistically significant difference.
However, our analysis showed a statistically significant difference between suits involving
software-related patents, of which 82 percent settled compared with 89 percent of suits
that did not involve software-related patents.
Outcomes and Costs of Recent
Patent Litigation
Page 26 GAO-13-465 Patent Litigation
infringement lawsuits in court records. Further, as one stakeholder we
interviewed noted, all litigation is expensive, not just patent infringement
litigation. According to a 2011 nongeneralizable survey of patent lawyers
by AIPLA, the cost of defending one patent infringement lawsuit, which
excludes any damages awarded, was from $650,000 to $5 million in
2011, depending on how much was at risk.
47
As for damages awarded, a
2012 study that looked at all district court patent decisions that proceeded
through trial from 1995 to 2011 found that the median damage award was
over $5 million dollars and that damage awards in NPE cases were
higher than in other types of suits.
48
The authors of a 2012 paper who
collected data from a nonrandom, nongeneralizable set of 82 operating
companies noted that total litigation costs for NPE suits, including
damages awarded and legal fees, were around $300,000 for small and
medium companies and $600,000 for large companies.
49
The author of
another 2012 paper sought to examine the impacts of NPE litigation on
small companies and collected data from a nonrandom, nongeneralizable
set of 223 small technology companies.
50
Of the 79 companies that
indicated that they had received a patent demand, 31 reported that the
demand affected the company in various ways, including reduced hiring
or a reduced value of their company—which the author collectively
described as “significant operational impacts.”
In addition to lawsuits, patent assertion occurs without firms ever filing
lawsuits, but the extent of this practice is unclear because we were not
able to find reliable data on patent assertion outside of the court system.
According to representatives of some operating companies we spoke
with, they often get letters from patent owners offering licenses for the
47
For the 18 percent of those lawyers that responded, AIPLA reports that the median legal
cost for one patent infringement lawsuit was $650,000 when less than $1 million was at
risk for damages; $2.5 million when between $1 million and $25 million was at risk for
damages; and $5 million when more than $25 million was at risk for damages. These
costs include legal fees and exclude damage awards.
48
PricewaterhouseCoopers, 2012 Patent Litigation Study: Litigation continues to rise amid
growing awareness of patent value. Pricewaterhouse looked at decisions identified
through the WestLaw database.
49
James E. Bessen and Michael J. Meurer, The Direct Costs from NPE Disputes, Law and
Economics Research Paper No. 12-34 (Boston University School of Law: June 28, 2012).
50
Colleen Chien, Startups and Patent Trolls, Santa Clara Univ. Legal Studies Research
Paper No. 09-12 (Sept. 28, 2012).
Stakeholders Reported
That Patent Assertion
Occurs Without Firms
Ever Filing Lawsuits
Page 27 GAO-13-465 Patent Litigation
use of their patents. They said that these letters, which they refer to as
“demand letters,” sometimes threaten lawsuits if the parties do not reach
a licensing agreement. These company representatives told us that for
every patent infringement lawsuit filed against them, they might receive
many times more letters notifying them of potential infringement and
offering licenses.
51
However, a few PME representatives told us that operating companies
generally ignore their letters, thus leading the PMEs to sue the companies
first to get their attention. A few of these PMEs also told us that they are
more likely to sue without sending a demand letter after a 2007 Supreme
Court decision expanded accused infringers’ ability to file preemptive
declaratory judgment lawsuits seeking determinations that the patent is
invalid, unenforceable, or not being infringed.
Representatives from a few operating companies we
spoke with said that these letters can sometimes help to resolve issues
without litigation, but that at times the letters can be so vague that they do
not reference the patents at issue or what products the operating
company sells that may be infringing these patents.
52
Because licenses or payments resulting from out-of-court patent
assertions are almost always confidential, it is difficult to know the cost of
these settlements. The authors of the 2012 study noted above of a
nonrandom, nongeneralizable set of 82 operating companies attempted
to identify this cost. The 46 companies that provided data on costs
reported that they spent an average of about $30 million on NPE suits,
including both legal fees and settlements, which were settled without
litigation from 2005 to 2011.
The threat of a declaratory
judgment lawsuit can derail patent owners’ attempts to reach a licensing
agreement, according to a few PMEs we spoke with.
51
The author of a 2012 study of a nonrandom, nongeneralizable set of 223 small
technology companies noted above found that about two-thirds of the 79 companies that
reported that they had received a demand from an NPE were not sued.
52
MedImmune Inc. v. Genentech, 549 U.S. 118 (2007).
Page 28 GAO-13-465 Patent Litigation
Stakeholders we spoke with identified three key factors that likely
contributed to many recent patent infringement lawsuits: (1) unclear and
overly broad patents, (2) the potential for disproportionately large damage
awards, and (3) the increasing recognition that patents are a valuable
asset.
Several of the stakeholders we spoke with, including representatives from
PMEs, operating companies, and legal commentators, said that many
recent patent infringement lawsuits are related to the prevalence of low-
quality patents; that is, patents with unclear property rights, overly broad
claims, or both. Although there is some inherent uncertainty associated
with all patent claims, several of the stakeholders with this opinion noted
that claims in software-related patents are often overly broad, unclear or
both. Unclear and overly broad patents do not provide notice about their
boundaries and the uncertainty of a patent’s scope then usually needs to
be resolved in court, according to some stakeholders we spoke with.
Stakeholders we interviewed identified several reasons why patents may
be overly broad, unclear, or vague:
• Some stakeholders representing different interests, including
operating companies, PMEs, and legal commentators, said the use of
unclear terminology in patents can lead to a lack of understanding of
patent claims and, therefore, what constitutes infringement, which
needs to be resolved in court. For example, two of these stakeholders
said the computer software industry does not have clear terminology
or common vocabularies for describing concepts, innovations, and
ideas. Language describing emerging technologies, such as software,
may be inherently imprecise because these technologies are
constantly evolving. In contrast, pharmaceutical drug patents are
relatively clear because they use standardized scientific terminology,
according to a few stakeholders.
• Some stakeholders, including operating companies and legal
commentators, emphasized that claims in software patents
sometimes define the scope of the invention by encompassing an
Stakeholders
Identified Three Key
Factors Contributing
to Many Recent
Patent Infringement
Lawsuits
Stakeholders Said That
Some Patents Have
Unclear Property Rights
and Make Overly Broad
Claims
Page 29 GAO-13-465 Patent Litigation
entire function––like sending an e-mail––rather than the specific
means of performing that function.
53
According to a few stakeholders
we spoke with, functional claims and other overly broad claims may
allow patent owners who sue for infringement to argue in court that
their patent covers (1) an entire technology when it may only cover a
small improvement, or (2) future technologies that their patent did not
originally intend to cover. For example, representatives from one PME
we spoke with said they had successfully sued companies for
infringement even though the companies were implementing their
idea in a completely different manner than described in their patent––
noting that they had patented their invention before the technology to
best implement it was actually available. In addition, a few
stakeholders noted that in certain circumstances patent owners can
file a reissue application with PTO, which can sometimes broaden the
scope of patents after they are issued.
54
In addition, a few
stakeholders noted that patent owners can also file continuation
applications during patent examination, which, depending on the type
filed, allow new subject matter to be added to the patent application.
55
• According to some stakeholders—including PMEs and
representatives of operating companies that were sued for patent
infringement—broad patents on concepts they would not expect to be
patented make it easy to infringe a patent without intending to do so,
although this is not a defense since patent infringement is a strict
53
In addition, FTC recently reported that reliance on describing what an invention does
rather than how it is created contributes to overly broad patents and a 2012 study also
supports that view. U.S. Federal Trade Commission, The Evolving IP Marketplace:
Aligning Patent Notice and Remedies with Competition (Washington, D.C.: March 2011).
Mark A. Lemley, Software Patents and the Return of Functional Claiming (Stanford
University, 2012).
54
Applications for reissuance of defective patents—those which, through error, are
deemed wholly or partly inoperative or invalid by reason of a defective specification or
drawing or by reason of the patentee claiming more or less than he or she had a right to
claim in the patent—cannot introduce new matter and must be filed within 2 years of the
patent issuance if the reissued patent enlarges the scope of the original patent’s claims.
55
PTO recognizes three types of continuations and only one type allows the patent owner
to claim subject matter not previously disclosed in the application. One patent owner told
us he filed a continuation so that his patent would closely match software that was already
being used but that his original application did not anticipate; he later won large
settlements from the allegedly infringing companies.
Page 30 GAO-13-465 Patent Litigation
liability offense.
56
Unclear boundaries make it hard to determine whether a patent is actually
related to a particular technology. Several diverse stakeholders, including
PMEs, operating companies, legal commentators, and judges we
interviewed said that many overly broad or vague patent claims do not
sufficiently identify the scope of the patent’s coverage. This lack of notice
makes it difficult for entities to identify relevant existing patents and prior
art before developing new products, according to some legal
commentators and operating companies. This difficulty reduces the
effectiveness of searching for existing patents to ensure the product being
developed does not infringe on valid patents and, according to several
stakeholders, including PMEs, legal commentators, and venture capital
and start-up firms, entities do not always conduct patent searches. For
example, representatives from a software start-up company we spoke
with told us that searching for relevant patents before developing new
products is unrealistic and diverts already scarce resources, particularly
because their product development process can be as short as 2 months.
In contrast, pharmaceutical company representatives we spoke with said
that development of new drugs is so expensive that patent searches are a
necessity and that they can conduct thorough searches because their
patents are described clearly and are easy to find in industry databases.
For example, the software start-up and venture
capital firms we spoke with said that many software-related patents
they encountered were for obvious concepts and did not represent
any real contribution to new technology. Other stakeholders, including
operating companies, judges, and legal commentators, also said
some patents, particularly software-related patents, should never
have been issued because they were obvious, not novel, or lacked
definiteness.
In addition, a few stakeholders we spoke with told us that the sheer
volume of patents makes searching for relevant patents before
developing new products particularly difficult, especially for products that
combine many patented technologies. For example, these stakeholders
56
One study we reviewed looked at a sample of 193 complaints from two federal courts
districts, the District of Delaware and the Eastern District of Texas, and found that
allegations of copying occurred in 21 of the 193 complaints. The authors suggested this
means that most accused infringers came up with the idea independently; however, as
noted, patent infringement liability does not require proof of copying so patent owners do
not need to allege it. Christopher A. Cotropia and Mark A. Lemley, Copying in Patent Law,
87 N.C.L. Rev. 1421 (2009).
Page 31 GAO-13-465 Patent Litigation
we spoke with estimated that a typical smartphone uses from 50,000 to
250,000 patented technologies because such devices incorporate
technologies from digital cameras, global positioning systems, and
wireless communication. In contrast, pharmaceutical company
representatives we spoke with said they are able to conduct thorough
patent searches, in part, because there are fewer patents per drug.
Determining the licenses a new product needs can be costly when many
patents are involved; according to data from the AIPLA survey, the
median cost for a legal validity and infringement opinion is $15,000 per
patent.
57
Even if an entity conducts a patent search, identifies a relevant patent,
and wants to avoid infringing it by obtaining a license to use it, according
to several diverse stakeholders we spoke with, including PMEs, legal
commentators, and operating companies, identifying the owner could be
difficult because patent owners are not required to notify PTO of changes
in assignment or ownership. According to some stakeholders we spoke
with, finding patent owners is further complicated by the fact that some of
these patent owners create subsidiary companies solely to hold their
patent rights. In fact, several stakeholders we interviewed, including legal
commentators, operating companies, and a PME, said that some entities
intentionally hide the existence of their patents until a sector or company
are using the patented invention without authorization and can be sued
for infringement. Further, some economic literature we reviewed suggests
that the numerous technologies in many products are sometimes
patented by many different patent owners and can have overlapping
rights, making it difficult and costly to determine which patents the
operating company needs to license. We discuss PTO’s current efforts to
address these notice problems later in the report.
Additionally, a technology start-up company told us that they
may avoid patent searches because damage awards can be tripled for
willful infringement, and by not searching for existing patents, they can
claim ignorance.
Most of the representatives from operating companies we interviewed
said that PMEs specifically have played a role in the rise in patent
infringement litigation. Some of the representatives from operating
57
AIPLA, Report of the Economic Survey 2011 (Arlington, Va.: July 2011). Entities can
seek patent validity and infringement opinions on patents found during a patent search. A
patent validity opinion is a legal opinion as to whether a patent is valid and a patent
infringement opinion is a legal opinion as to whether a product infringes a patent.
Page 32 GAO-13-465 Patent Litigation
companies also said that PMEs are often more willing to bring lawsuits
based on a broad interpretation of their patents’ claims because they
cannot be countersued for patent infringement since they do not produce
a product. Some economic literature we reviewed suggests that accused
infringers have an incentive to settle quickly to avoid the uncertainty of
claim construction and high litigation costs, particularly if they face very
high costs of changing their products to avoid infringement.
58
Although a
few stakeholders said that operating companies have also brought
lawsuits alleging infringement of poor quality patents that they do not
practice, and several stakeholders, including PMEs, operating
companies, and legal commentators, said they believe the prevalence of
low quality patents was driving recent increases in litigation more than
PME suits.
59
Disproportionately large damages awarded by the courts can motivate
patent owners to file lawsuits, according to several stakeholders, we
spoke with, including operating companies, PMEs, and legal
commentators. According to some stakeholders, the potential for large
damage awards may encourage some patent owners to file lawsuits in
the hope that the accused infringer settles to avoid going to court. A few
representatives of operating companies told us that companies prefer to
settle lawsuits before trial for smaller amounts of money rather than risk
having to pay large damage awards and legal fees, even if they know the
case against them is weak. They said that some patent owners file
infringement lawsuits knowing that defendants will settle the case before
the court determines whether infringement occurred or the patents are
valid. In addition, some operating company representatives said that
patent owners often sue operating companies that have purchased
licenses to use software in order to get settlements from numerous
infringers rather than suing the vendor. One PME we spoke with said that
although it tries to sue technology vendors whenever possible, it sues end
58
This practice imposes social costs to businesses that are sued in this manner, according
to economists. We were not able to identify suits associated with overly broad patents in
our analysis of Lex Machina data, or the extent to which overly broad patents were
associated with PME lawsuits, and were not able to estimate the overall economic social
costs of this type of patent infringement litigation.
59
As noted earlier, our analysis of litigation data showed that PME suits accounted for
about half of the increase in defendants between 2007 and 2011, while suits involving
software-related patents accounted for around 89 percent of the increase in defendants.
Stakeholders Believe the
Potential for
Disproportionately Large
Damage Awards from the
Courts Can Incentivize
Litigation
Page 33 GAO-13-465 Patent Litigation
users most of the time because these are usually profitable companies,
and there is greater potential for larger settlements.
Until 2011, damage awards could be calculated using the 25 percent
rule—whereby the alleged infringer would pay a royalty rate equivalent to
25 percent of the expected profits for the product that incorporates the
patent at issue. As a result, according to some stakeholders, damage
awards were outsized and did not reflect the value of the patent or the
patent’s contribution to the product at issue, making it possible for the
owner of only a few patents to capture most of the profit from a product,
even though thousands of other patents also contributed to the
development of the product. In a 2011 report, FTC noted that some legal
rules for calculating damages were not grounded in economic analysis
and therefore may under- or overcompensate patent owners for
infringement in comparison to the market.
60
In its 2011 report, FTC made a number of recommendations to courts,
including that damage awards—since they are based on reasonable
royalties—should not be higher than the incremental value of the
patented invention over the next best alternative and should not be
punitive. Some stakeholders noted that changes to damage awards
occurred after a 2011 Federal Circuit decision eliminated the use of the
25 percent rule because it was fundamentally flawed and established a
rule of apportionment whereby damages are apportioned according to the
patent at issue’s contribution to the product.
FTC reported that
overcompensation can overincentivize patenting and patent litigation.
Moreover, the FTC report included concerns from some industry
participants that the value added by one patented technology may be
very small relative to the price of the entire product for complex products.
61
60
U.S. Federal Trade Commission, The Evolving IP Marketplace: Aligning Patent Notice
and Remedies with Competition (Washington, D.C.: March 2011).
These stakeholders noted
this 2011 decision and other decisions have had the effect of lowering
damage awards to reflect a patent’s value or eliminated the potential for
61
Uniloc USA, Inc., v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011).
Page 34 GAO-13-465 Patent Litigation
enhanced damages.
62
Despite some of this progress, a few stakeholders
noted that there is still a need for improvement in the way damages are
calculated.
Several stakeholders, including PMEs and legal commentators, we
interviewed said that the recognition that patents are a more valuable
asset than once assumed may have contributed to recent patent issuance
trends and patent infringement lawsuits. Within the last 10 years,
technology companies in particular have increasingly realized that patents
are valuable and can be important to their corporate strategy, according
to some of these stakeholders. This trend may have started, according to
literature we reviewed, when Texas Instruments Inc. was looking for
additional sources of revenue in the 1980s and started to more
aggressively assert its patents to increase revenue.
63
Despite the new value placed on patents, some industries may have
slightly different approaches to patenting. For example, a few
representatives of venture capital and software start-up firms told us that
they do not always apply for patents until their companies are well
established because patent attorneys are expensive, and the process is
Prior to this, entities
used patents to protect inventions rather than to generate revenue,
according to some stakeholders, including legal commentators and a
PME, we spoke with.
62
Enhanced damages can be awarded for willful infringement but some stakeholders said
that recent Federal Circuit decisions made it harder to prove willful infringement and
obtain enhanced damages. Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana,
383 F.3d 1337 (Fed. Cir. 2004) (alleged patent infringers who invoke attorney-client
privilege or work product protection over advice of counsel regarding whether its activities
would be an infringement of a valid patent does not give rise to an adverse interference
and failure to obtain legal advice does not give rise to an adverse inference with respect to
willful infringement); In re: Seagate Technology, 497 F.3d 1360 (Fed. Cir. 2007) (proof of
willful infringement permitting enhanced damages requires the patent owner (1) to show
by clear and convincing evidence that the infringer acted despite an objectively high
likelihood that its actions constituted infringement of a valid patent and (2) demonstrate
that this objectively-defined risk was either known to the accused infringer or so obvious
that it should have been known but there is no affirmative obligation to obtain opinion of
counsel).
63
See Colleen V. Chien, From Arms Race to Marketplace: The Complex Patent
Ecosystem and Its Implications for the Patent System, 62 Hastings L.J. 297 (2010); Kevin
Rivette and David Kline, Rembrandts in the Attic: Unlocking the Hidden Value of Patents,
(Boston, Ma.: Harvard Business School Press, 2000).
Stakeholders Noted the
Recognition of Patents as a
Valuable Asset May Have
Contributed to Recent
Patent Issuance and
Litigation
Page 35 GAO-13-465 Patent Litigation
time consuming. They told us that the cost of R&D is low relative to the
cost of applying for a patent, so there is minimal incentive in the software
industry to patent in order to recoup R&D costs. For example,
representatives from one small software company we spoke with said that
they could develop a product in a little as 2 months with only a few
programmers. They also noted that it is relatively easy to get patents on
their software even with their minimal R&D efforts—it is just a matter of
paying the patent attorney’s fees. On the other hand, several
representatives from the pharmaceutical industry told us that patents are
actually critical to their ability to recoup the costs of developing a new
drug, which can cost as much as $1 billion and take from 10 to 15 years.
Further, several stakeholders, including operating companies, PMEs, and
legal commentators, we interviewed said that investors have played a role
in the increasing number of patent infringement lawsuits. Specifically,
according to some of these stakeholders, some PMEs have financial
backers who fund the purchase and enforcement of patents and expect to
see a return on their investment, sometimes turning to contingency fee
law firms to carry out the lawsuits, where the law firm pays all of the
litigation costs but shares in any award or settlement.
64
Furthermore, economic literature suggests that inventors who do not have
the resources or skills to enforce patents on their own benefit from
partnering with PMEs that specialize in patent monetization, and this was
confirmed by some of the stakeholders we spoke with. For example, one
inventor we spoke with said that he was able to sell his patents to a PME
that specialized in patent litigation when his start-up company failed,
which allowed him to fund a new company. Representatives from a
university we spoke with also said universities look to outside entities,
such as PMEs, to finance patent infringement litigation because
universities cannot cover the up-front costs of filing a lawsuit.
Representatives from one PME we spoke with said that they helped a
small inventor get the attention of large technology companies that were
infringing his patent and ignoring his licensing requests. In addition, one
64
For example, one PME we spoke with said its business model was to value patents
based on legal, financial, and technical factors and then either (1) offer an inventor no up-
front payment but a large cut of a settlement with accused infringers, (2) offer the inventor
a small payment up front and a medium-sized portion of the settlement, or (3) pay the
inventor up front and retain all of the settlement. One legal commentator, however, noted
that contingency fee lawsuits are not unique to patent infringement litigation.
Page 36 GAO-13-465 Patent Litigation
patent broker we spoke with said that well-known operating companies
often do not want to file patent infringement suits because of potential
public backlash, so they sell or transfer their patents but retain an interest
in any settlement or award.
The federal court system is implementing some new initiatives to improve
the handling of patent cases. A pilot program was established for certain
U.S. district courts to encourage the enhancement of expertise in patent
cases among district court judges and a model order was issued in
response to high discovery costs for e-mails and other electronic
documents in patent cases—known as e-discovery. In addition, some
recent decisions in the Federal Circuit and the Supreme Court may also
affect future patent infringement litigation.
In January 2011, Congress established a pilot program in certain U.S.
district courts to encourage the enhancement of expertise in patent cases
among district court judges.
65
This pilot program would create a cadre of
judges who have advanced knowledge of patents due to more intensified
experience in handling the cases, according to a statement made during
the congressional debate for the law. Specifically, the law required
AOUSC to designate at least 6 district courts that met certain eligibility
requirements to participate in a 10-year pilot program.
66
As of December
2012, AOUSC had designated all 14 federal district courts that applied as
participants. Currently, 7 of the 14 district courts participating in the pilot
program have adopted case management rules to govern patent cases,
such as how cases are allocated to judges in the program, although some
districts’ rules predated the program.
67
65
Pub. L. No. 111-349 (2011).
66
To be eligible for designation, district courts had to: (1) be among the 15 district courts in
which the largest number of patent cases were filed in 2010; or (2) have adopted, or
intend to adopt, local rules for patent cases.
67
The law requires patent cases to be randomly assigned to judges in districts
participating in the pilot program regardless of whether they are designated by the court’s
chief judge to hear patent cases. Nondesignated judges may decline to accept the case,
which would then be randomly assigned to one of the designated judges.
New Initiatives in the
Courts May Affect
Patent Litigation
Efforts to Improve Courts’
Handling of Patent Cases
Page 37 GAO-13-465 Patent Litigation
Some legal commentators and other stakeholders we interviewed said
they were hopeful that the pilot program would lead to some meaningful
improvements in patent case management in the courts. However, a few
judges we interviewed said that more resources are needed to improve
the handling of patent cases and that the needed resources were not
appropriated to implement the pilot program.
68
For example, they told us
that hiring additional law clerks would help with the increased workload
and processing of patent cases resulting from participation in the pilot
program. Because participation in the pilot program does not come with
additional resources, some districts decided not to participate, according
to the judges we spoke with. For example, a district court judge told us
that his district court did not volunteer for the pilot program because funds
were not appropriated to implement it. In general, several stakeholders
we spoke with agreed that it is too early to tell what impact the patent pilot
project will ultimately have on patent litigation.
In response to high discovery costs, in September 2011, the Advisory
Council for the U.S. Court of Appeals for the Federal Circuit issued a
model order regarding discovery for e-mail and other electronic
documents (known as e-discovery) targeted to patent cases.
69
According
to some legal commentators and judges we interviewed, the technical
complexity of patent cases leads to expansive discovery requests that are
time consuming and expensive and, as is typically the case with most
documents produced in discovery, do not necessarily produce documents
used at trial. For example, a study conducted by AIPLA found that
discovery costs can range from $350,000 to $3 million, depending on the
size of the potential settlement.
70
68
The law also requires AOUSC to keep certain congressional committees informed on a
periodic basis while the pilot project is in effect and to submit a report to those committees
in 2016 and 2021.
One judge we spoke to said that only a
few of the documents in discovery are actually used at trial—often less
69
The Advisory Council was established to review, study, and make recommendations on
the rules of practice and internal operating procedures of the court. The Chief Judge of the
court unveiled the model order at a meeting of the Federal Circuit Bar Association and the
Eastern District of Texas Bar Association. The model order is a template, or model, for
judges to adopt and issue in patent infringement lawsuits.
70
AIPLA, Report of the Economic Survey 2011 (Arlington, Va.: July 2011). The estimated
cost of litigation through discovery was $350,000 when the damage stakes are less than
$1 million, $1.5 million when the stakes are between $1 million and $25 million, and $3
million when the stakes are over $25 million.
Efforts to Reduce
Discovery Costs
Page 38 GAO-13-465 Patent Litigation
than one document in 10,000—and representatives from one operating
company told us that about 2,000 of the 10 million documents they were
asked to produce were actually used in a recent trial.
After the issuance of the e-discovery model order, a few federal district
courts have adopted similar rules to streamline e-discovery in patent
cases, according to legal commentators we spoke with. Courts with e-
discovery rules are more efficient and reduce litigation costs for everyone
involved, according to a few judges we spoke with. For example, under
the model order, discovery begins with an exchange of core
documentation concerning the patent, allegedly infringing product, prior
art, and finances before an exchange of e-mails.
71
In general, several stakeholders we spoke with agreed that it is too early
to tell what impact e-discovery rules will ultimately have on patent
litigation.
However, at least one
federal district court that handles a large volume of patent infringement
cases declined to adopt specific discovery rules, noting that it would be a
mistake for the courts to bind themselves to specific rules given
differences among cases.
Several federal judges and other stakeholders we interviewed said that
the judiciary had the ability to address some of the aforementioned
factors contributing to patent infringement litigation in court decisions and
that certain recent court decisions have helped to address some of these
problems. In the future, they said the courts would continue working to
address them. Specifically, these stakeholders said that recent court
decisions about what constitutes patentable subject matter and what
satisfies the obviousness and definiteness requirements would help
combat overly broad and ill-defined patent claims once the decisions
were incorporated into PTO’s patent examination guidelines and
implemented by examiners. For example, two stakeholders said that a
2012 Supreme Court decision restricted what constitutes a patentable
process and a 2007 Supreme Court decision made it easier to combine
separate pieces of prior art to prove a patented invention was obvious
71
The model order presumptively limits the number of each party’s e-mail requests, but
the parties may jointly agree to modify the limits or request court modification for good
cause.
Evolving Case Law
Page 39 GAO-13-465 Patent Litigation
and, thus, not eligible for a patent.
72
In addition, as we discussed earlier,
some stakeholders also identified several decisions that have changed
damages law. Despite these cases, some stakeholders said that the
judicial system has contributed to recent problems in patent infringement
litigation and is either unable or unwilling to rectify them. For example,
they noted that judges should be more willing to award attorney fees in
exceptional cases to the winning party in order to address the growing
number of patent infringement lawsuits.
PTO has taken several recent actions that are likely to affect patent
quality and patent litigation in the future, including agency initiatives and
changes required by AIA. For example, PTO is implementing initiatives to
continue to improve the quality of software-related patents and to improve
patent examination searches. The agency is also implementing the new
administrative trial proceedings created by AIA.
We identified four initiatives that PTO is currently undertaking to address
patent quality and patent search:
• In February 2011, PTO issued supplemental guidelines to assist in the
examination of claims in applications for compliance with the
definiteness requirement and began training patent examiners in how
to implement them. PTO often updates its patent examination manual
or issues guidance to patent examiners in response to changes in
case law and these recently issued supplemental guidelines try to
ensure that all technologies receive consistent examination practices,
according to PTO officials. These guidelines specifically address
examination of claims with functional language—which recites a
feature by what it does rather than by what it is—in computer-
implemented claims. For example, the guidelines state that examiners
72
Mayo Collaborative Servs. v. Prometheus Labs, _ U.S. _, 132 S. Ct. 1289 (2012); KSR
International Co. v. Teleflex, Inc., 550 U.S. 398 (2007).
PTO Has Taken
Actions to Improve
Patent Quality and
Implement New AIA
Proceedings That May
Affect Patent
Litigation in the
Future
PTO Is Implementing
Initiatives to Address
Problems with Unclear
Patents and Patent Search
Page 40 GAO-13-465 Patent Litigation
should determine whether the application discloses the computer and
algorithm that perform the claimed function in sufficient detail that
someone of ordinary skill in the art would know how to program the
computer to perform the claimed function, and that the inventor was in
possession of the claimed invention. The guidelines further noted that
the algorithm may be expressed in any understandable terms and
generally do not call for the application to contain actual computer
code. The supplemental guidelines attempt to make examination of
applications consistent and resulting patents clearer across all
technologies, according to PTO officials. In May 2012, an internal
PTO review showed that PTO examiners were making 4 to 6 percent
more rejections in patent applications across all technology areas
based on claims not being clear and definite than before the
supplemental guidelines were issued. PTO officials said patent
requirements are established by statute and case law, which
constrains the agency’s ability to alter requirements for patent
applications. PTO officials told us that only court decisions or statutory
changes could change the law to require more detail for algorithms in
software-related patents, for example.
• In November 2011, in response to the recommendations from FTC’s
2011 report, PTO acknowledged that more uniform terminology would
help to improve the quality of software-related patents and began
working to establish a partnership with the software industry to
address this issue.
73
In January 2013, PTO announced the Software
Partnership—a cooperative effort with the software industry to explore
ways to enhance the quality of software-related patents, including
through the use of more uniform terminology. Subsequently,
roundtable meetings with the software industry were held in New York
City, New York and Stanford, California in February 2013.
74
• Additionally, PTO is working to implement a new patent classification
system, called the Cooperative Patent Classification (CPC), which
launched in January 2013. Since October 2010, PTO and the
European Patent Office (EPO) have been collaborating to develop the
CPC, which is a joint patent classification system that is intended to
allow companies and patent applicants to conduct more effective
73
U.S. Federal Trade Commission, The Evolving IP Marketplace: Aligning Patent Notice
and Remedies with Competition (Washington, D.C.: March 2011), (FTC Report
Recommends Improvements in Patent System to Promote Innovation and Benefit
Consumers).
74
PTO announced these public meetings by public notice. 78 Fed. Reg. 292 (Jan. 3,
2013).
Page 41 GAO-13-465 Patent Litigation
searches for patents that might be related to technologies they are
developing or planning to use, which may reduce some of the
infringement that contributes to current patent litigation, according to
documents we reviewed. CPC is also designed to allow for more
frequent updating of patent classes, so that similar technologies can
be grouped together, which should improve PTO’s ability to adapt to
emerging technologies quickly, according to agency documents we
reviewed.
• PTO is also working to provide greater transparency on patent
ownership by and issued a notice in November 2012 to obtain public
input on regulations it was considering to require patent ownership
information to be verified and updated at certain times during patent
examination and after patent issuance. Specifically, PTO is currently
considering issuing regulations that would require ownership
information to be verified and updated periodically. In addition, PTO
held a round table discussion in January 2013 to obtain public input
on how the agency could collect and provide such information to the
public. Since holding the round table, PTO officials have been
considering the input and written comments and have been
discussing what the appropriate next steps should be. PTO officials
noted, however, that the agency does not have substantive
rulemaking authority so its ability to issue regulations requiring
updates to the ownership information is limited without additional
statutory authority.
In addition to these initiatives, in 2009 PTO began a patent quality
initiative to measure and improve overall patent quality. After public
comment and round table discussions, PTO released a set of new metrics
in 2010 for fiscal year 2011 to assess patent quality throughout
examination, rather than solely at the end of examination, which had been
its practice. These metrics include, among other things, looking at the
timeliness of patent examiners’ decisions and whether examiners reject
claims for the right reasons.
75
75
According to PTO, the new metrics expand the previous procedures for measuring
examination quality and will reveal quality issues arising during the examination and
identify their sources so that problems may be remediated by training. See the following
for more information on PTO’s patent quality metrics:
http://www.uspto.gov/dashboards/patents/main.dashxml.
However, the agency generally does not
review patent examination quality after patents are issued. PTO officials
said that they did not examine the nature of patent infringement litigation
and issues in dispute or review trends in such litigation. In 2003, the
Page 42 GAO-13-465 Patent Litigation
National Academies reported that litigation rates could be a useful
measure of post-grant patent quality, presuming that litigated patents
define less clear boundaries.
76
One study in the National Academies’
report examined the link between examiner inputs, including the number
of hours used to examine a patent, and the likelihood that the patent
would end up in a lawsuit. The study found a statistically significant result,
implying that patents that examiners spend more time examining are less
likely to be involved in litigation, suggesting the patents are of higher
quality.
77
In February 2013, PTO officials said that they generally try to adapt to
developments in patent law and industry to improve patent quality, as
they are doing with their new examination guidelines and their software-
related patent partnership. However, the agency does not currently use
information on patent litigation in initiating actions like these. However,
some staff in PTO’s Office of the Chief Economist have suggested that
analyzing relationships between the types of patents involved in
infringement litigation and internal patent examination data, including the
timeline between the filing and grant of a patent and changes in the
wording of claims could potentially benefit patent quality and examination
by identifying meaningful patterns in the examination of patents that end
up in court.
78
76
National Academy of Sciences, Committee on Intellectual Property Rights in the
Knowledge-Based Economy, National Research Council, Patents in the Knowledge-
Based Economy, Wesley M. Cohen and Stephen A. Merrill, eds. (Washington, D.C.,
National Academies Press, 2003).
As noted, our analysis of litigation data showed that about
two-thirds of patent infringement defendants were sued for infringing
software-related patents. Given the extent of litigation associated with
these patents, examining trends in patent infringement litigation, including
the types of patents and issues in dispute, and linking this information to
internal data on patent examination, could provide PTO with information
to improve patent quality and the examination process. However, PTO
77
The results suggested that an additional hour of patent examination per application
would be associated with a decrease in litigation by as many as 24 to 26 infringement
complaints annually. The study, using data from 1996 and 1997, estimated that the
savings associated with this reduction in suits would have been greater than the cost of
the additional examiner hours.
78
PTO’s Office of the Chief Economist was created in 2010. See also J. Lanjouw. and M.
Schankerman, Characteristics of Patent Litigation: A Window on Competition, The RAND
Journal of Economics, vol. 32, no. 1 (Spring 2001), pp. 129-151.
Page 43 GAO-13-465 Patent Litigation
staff economists said that looking at litigation trends was not without
challenges. For example, they said that less than 2 percent of patents
end up in court. In addition, patents usually end up in court long after they
are issued, and examination procedures may have long since changed.
PTO officials and a few stakeholders also noted that there are other
factors that affect litigation trends, including economic conditions and
inherent differences among industries.
PTO is in the process of implementing the three new post-grant review
proceedings created by AIA and described previously—inter partes
review, post-grant review, and a transitional program for covered
business method patents. These proceedings replace or supplement
certain reexamination proceedings conducted by patent examiners with
proceedings conducted by judges at PTO’s Patent Trial and Appeal
Board—making them more closely resemble a patent trial, according to
PTO officials we spoke with.
79
According to some stakeholders, these
proceedings are most likely to be used by companies that have been
sued for patent infringement. PTO issued rules to govern the proceedings
in August 2012 and hired additional judges soon after AIA was passed.
Specifically, PTO’s Patent Trial and Appeal Board plans to move from
100 to more than 200 judges on staff by the end of 2013, according to
PTO documents we reviewed. In addition, judges at the Board have been
coordinating with stakeholders in the patent community to create a
streamlined discovery process for these proceedings. The judges told us
they want to avoid the massive discovery requests that add time and
expense to patent trials in federal district courts, but said that details of
how they handle discovery will continue to evolve over time.
80
79
Prior to AIA’s provisions taking effect on September 16, 2012, patent reexamination
proceedings consisted of:(1) inter partes reexamination conducted by patent examiners,
which AIA replaced with inter partes review, a proceeding conducted by the Patent Trial
and Appeal Board and (2) ex-parte reexamination.
The
director of PTO is required to study and report to Congress on how these
and other provisions of AIA are being implemented no later than
September 16, 2015. According to agency officials, PTO plans to meet
this 2015 deadline, and the agency has started collecting and publishing
information on the number of times the new AIA proceedings are being
80
In addition, judges at the Board told us they are working with stakeholders in the patent
community to balance some stakeholders’ need for additional pages in their written
submissions with the Board’s need to complete the post-grant reviews in a timely way.
PTO Is Implementing AIA
Post-Grant Review
Proceedings
Page 44 GAO-13-465 Patent Litigation
used and the timing of implementation. As of July 31st, 2013, there had
been 395 requests for inter partes reviews and 39 requests for review
under the transitional program for covered business method patents,
according to data from PTO.
Given that challenging a patent’s validity is a common defense for those
who have been accused of patent infringement, PTO officials we spoke
with mentioned that the new post-grant proceedings may have the
potential to reduce future patent litigation because they offer a less costly
and faster alternative to settling patent disputes in federal district courts.
For example, a representative of a number of technology companies we
spoke with estimated that the legal and filing fees for using one of these
proceedings would be between $166,000 and $390,000, depending on
the proceeding, for an average patent, while legal fees could be upwards
of $5 million for an infringement case filed in district court. According to
the Board judges we spoke with, these proceedings will be faster than
most litigation in district court—which takes 2-½ years for the patent
infringement trial to begin on average, according to a recent study—
because the regulations stipulate that they normally are to conclude
within 1 year of being initiated.
81
However, representatives from some
operating companies said that they will not use these post-grant review
proceedings if federal judges do not consistently delay the costly trials
until the Board completes its review.
82
81
PricewaterhouseCoopers, 2012 Patent Litigation Study: Litigation continues to rise amid
growing awareness of patent value.
In the past, federal judges have not
always been willing to suspend a lawsuit while waiting for PTO to conduct
reexaminations, but may be more likely to do this given the regulatory 1
year timeline, according to these representatives. Judges at the Board
told us they are working to ensure that the post-grant review proceedings
are completed within 1 year. In addition, some operating company
representatives we spoke with said that post-grant review in particular
would be of limited utility since they only have 9 months after a patent is
82
Under AIA, if an entity submits a request for inter partes or post-grant review and then
subsequently files a lawsuit, but not a counterclaim, challenging the validity of a patent
claim in federal district court, the lawsuit is automatically suspended until certain events
occur. In addition, AIA specifies factors judges are to consider in deciding whether to
suspend a lawsuit alleging patent infringement at the request of a party because of a
transitional covered business method patent proceeding. Requests for inter partes review
and post-grant review cannot be granted if the requester (or real party in interest)
previously filed a lawsuit challenging the validity of the patent’s claims—but not a
counterclaim—before the date on which the request is filed.
Page 45 GAO-13-465 Patent Litigation
issued to file a request for review, but usually only learn about a patent’s
existence after being sued or receiving a demand letter, which is often
many years after the patent has been issued.
Finally, representatives from some operating companies said they are not
planning to use post-grant review to challenge a patent’s validity because
an adverse final decision by the Board generally prohibits them from
challenging the patent’s validity again in court.
83
These representatives
said that they consider this to be a major flaw in post-grant review.
However, a few other stakeholders said that patent owners need certainty
in their patent’s validity and that the same party should not be able to
challenge the patent’s validity through post-grant review and in the federal
courts. Judges at the Board said they were aware of this issue and would
continue to monitor it.
Public discussion surrounding patent infringement litigation often focuses
on the increasing role of NPEs. However, our analysis indicates that
regardless of the type of litigant, lawsuits involving software-related
patents accounted for about 89 percent of the increase in defendants
between 2007 and 2011, and most of the suits brought by PMEs involved
software-related patents. This suggests that the focus on the identity of
the litigant—rather than the type of patent—may be misplaced. PTO’s
recent efforts to work with the software industry to more uniformly define
software terminology and make it easier to identify relevant patents and
patent owners may strengthen the U.S. patent system. Further, PTO has
available internal data on the patent examination process that could be
linked to litigation data, and a 2003 National Academies study reported
that using these types of data together could provide useful insights into
patent quality. Examining the types of patents and issues in dispute
represents a potentially valuable opportunity to improve the quality of
issued patents and the patent examination process and to further
strengthen the U.S. patent system.
83
Specifically, parties who request post-grant or inter partes reviews that result in a final
written decision may not assert in federal court or before ITC that a claim is invalid on any
ground the party raised or reasonably could have raised during the review. Similarly,
parties who receive a final written decision in a transitional program for covered business
method patent proceedings are prohibited from subsequently asserting in federal court or
before ITC that the claim is invalid on any ground that was raised during the proceeding.
Conclusions
Page 46 GAO-13-465 Patent Litigation
We are recommending that the Secretary of Commerce direct the
Director of PTO to consider examining trends in patent infringement
litigation, including the types of patents and issues in dispute, and to
consider linking this information to internal data on patent examination to
improve the quality of issued patents and the patent examination process.
We provided a copy of our draft report to PTO for review and comment.
PTO concurred with key findings and our recommendation in its written
comments, which are reproduced in appendix II. PTO also provided
additional clarifying comments, which we incorporated as appropriate.
We are sending copies of this report to the Secretary of Commerce, the
Federal Trade Commission, the International Trade Commission, the
Administrative Office of the U.S. Courts, the appropriate congressional
committees, and other interested parties. In addition, the report will be
available at no charge on the GAO website at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact
me at (202) 512-3841 or [email protected]. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this report
are listed in appendix III.
Frank Rusco
Director, Natural Resources and Environment
Recommendation for
Executive Action
Agency Comments
and Our Evaluation
Page 47 GAO-13-465 Patent Litigation
List of Addressees
The Honorable Patrick J. Leahy
Chairman
The Honorable Charles E. Grassley
Ranking Member
Committee on the Judiciary
United States Senate
The Honorable Bob Goodlatte
Chairman
The Honorable John Conyers, Jr.
Ranking Member
Committee on the Judiciary
House of Representatives
Appendix I: Objectives, Scope, and
Methodology
Page 48 GAO-13-465 Patent Litigation
Section 34 of the Leahy-Smith America Invents Act (AIA)
1
mandated that
GAO conduct a study on the consequences of patent litigation by
nonpracticing entities (NPE).
2
To address all four of these objectives, we reviewed relevant laws,
including AIA, and interviewed officials from PTO, the Federal Trade
Commission (FTC), and the International Trade Commission (ITC). We
also interviewed the following 44 stakeholders knowledgeable about
patent litigation:
Our objectives were to determine: (1) what
is known about the volume and characteristics of recent patent litigation
activity; (2) what is known about the key factors that contribute to recent
patent litigation trends; (3) what developments in the judicial system may
affect patent litigation; and (4) what actions, if any, has the Patent and
Trademark Office (PTO) recently taken that may affect patent litigation in
the future.
• Ten representatives from operating companies and industry groups
from an array of industries, including software, computer hardware,
retailers, and pharmaceuticals, who had been regularly sued in recent
years for patent infringement. We identified these operating
companies and industry groups by using patent infringement litigation
data from 2005 through 2011, which we discuss below.
• Eight representatives of patent monetization entities (PME) and
research firms that had regularly sued others in the past 10 years. We
identified these PMEs by using patent infringement litigation data from
2005 through 2011, and they represent a range of business models.
• Fourteen legal commentators, economists, and consultants that had
conducted research closely related to our objectives. We identified
them through our review of academic literature on patent litigation and
1
Pub. L. No.112-29 § 34 (2011).
2
As noted in a September 7, 2011, letter from the Comptroller General to the chairs and
ranking members of the congressional committees with jurisdiction over patents, the bill
being considered at that time would have required a GAO study involving several
questions for which reliable data were not available or which could not be obtained. The
bill was enacted without change, but the Chair of the Senate Judiciary Committee,
responding to these concerns, stated that GAO should note data and methodology
limitations in its report prepared in response to the mandate. 157 CONG. REC. S 5402,
S5441 (daily ed. Sept. 8, 2011) (statement of Sen. Leahy). Consequently, we developed
report objectives consistent with these limitations, and we have noted specific data
limitations throughout this report, as appropriate.
Appendix I: Objectives, Scope, and
Methodology
Appendix I: Objectives, Scope, and
Methodology
Page 49 GAO-13-465 Patent Litigation
the patent system and they each had done work related to the issues
we were asked to study.
• We also interviewed one representative each from two large research
universities that license patents, two patent brokers who help others
buy and sell patents, four venture capitalists, and four individual
inventors at software start-up companies and at a small inventor
advocacy group. We identified these universities, brokers, venture
capitalists, and start-up companies based on our review of academic
literature on patent litigation and the patent system and they were
knowledgeable of the issues we were asked to study.
Because stakeholders varied in their expertise with various topics, not
every stakeholder provided an opinion on every topic.
We were not able to find reliable data on patent assertion outside of the
court system—which often consist of patent owners sending letters
demanding licensing fees to potential infringers before filing suit and, as a
result, our data analysis focuses on patent infringement litigation rather
than patent assertion more broadly.
In addition to steps we took to address all four objectives, to describe
what is known about the volume and characteristics of recent patent
infringement litigation activity, we reported data from the American
Intellectual Property Law Association’s (AIPLA) 2011 survey on the costs
of patent litigation.
3
We also analyzed patent infringement litigation data that we purchased
from Lex Machina, a firm that collects and analyzes data on patent
litigation.
We also reviewed academic literature on patent
litigation and the patent system in general and assessed the methodology
of the studies we reported on for soundness. To assess the reliability of
data from PTO, AIPLA, and RPX, we conducted interviews and reviewed
relevant methodology documentation. We found that these data were
sufficiently reliable for purposes of this report.
4
3
AIPLA is a national, voluntary bar association constituted primarily of lawyers in private
and corporate practice, in government service, and in the academic community. See
AIPLA, Report of the Economic Survey 2011 (Arlington, Va.: July 2011). AIPLA surveyed
patent lawyers during 2011 and asked them to estimate legal costs for typical patent
infringement cases. Their findings are based on an 18 percent response rate.
Lex Machina maintains a database created from public
4
We selected Lex Machina through a competitive contracting process to provide us patent
infringement litigation data, select a sample of cases, and classify the plaintiffs in those
cases.
Appendix I: Objectives, Scope, and
Methodology
Page 50 GAO-13-465 Patent Litigation
electronic court filings for all patent infringement lawsuits filed in U.S.
federal district courts, beginning in the year 2000. From this database,
Lex Machina selected a random, generalizable sample of 100 lawsuits
per year from 2007 through 2011, identifying for each lawsuit the
patent(s) being litigated, the court hearing the lawsuit, and the lawsuit’s
outcome. The sample size allowed us to draw conclusions about patent
infringement lawsuits filed in each of these years, with a margin of error of
no more than plus or minus 5 percentage points over all these years and
no more than plus or minus 10 percentage points for any particular year.
5
Each sample element was subsequently weighted in the analysis to
account statistically for all the members of the population, including those
that were not selected. To assess the reliability of data from Lex Machina,
we met with Lex Machina staff, examined documentation, and tested and
reviewed the sample data for completeness and accuracy. We found the
data to be sufficiently reliable for our purposes. We also obtained patent
infringement data from RPX, another firm that collects data on patent
infringement lawsuits, in an effort to verify Lex Machina’s litigant
categorizations.
6
5
This sample allowed us to draw conclusions about the broader population of patent
infringement lawsuits for each of these years and is therefore generalizable to all patent
infringement lawsuits filed in federal district court from 2007 to 2011. However, as noted,
estimates from the Lex Machina sample are subject to a 5 percent margin of error. This
means that an estimate of 50 percent, for example, based on all years of data, would have
a 95 percent confidence interval of between 45 percent and 55 percent. The margin of
error is 10 percent when looking at individual years, which means that an estimate of 50
percent, for example, looking at an individual year, would have a 95 percent confidence
interval of between 40 percent and 60 percent. Because Lex Machina followed a
probability procedure based on random selections, the sample is only one of a large
number of samples that might have been drawn. Since each sample could have provided
different estimates, we express our confidence in the precision of our particular sample’s
results as a 95 percent confidence interval. This is the interval that would contain the
actual population value for 95 percent of the samples that could have been drawn. Unless
otherwise noted, the margin of error associated with the confidence intervals of our survey
estimates is no more than plus or minus 10 percentage points at the 95 percent level of
confidence.
6
RPX also purchases patents itself, to prevent them from being asserted against its
members. RPX provided us with summary data on the number of patent infringement
lawsuits filed in federal district court since January 2005. RPX’s data identified NPEs and
other types of plaintiffs in these lawsuits by using a variety of factors, such as whether
there was evidence that an entity sells or develops products. RPX representatives said
that they used professional judgment to some extent in making these determinations. We
were not able to fully assess the reliability of the judgments RPX used in making these
classifications.
Appendix I: Objectives, Scope, and
Methodology
Page 51 GAO-13-465 Patent Litigation
For the plaintiffs named in each lawsuit, Lex Machina also provided an
entity description, classifying the plaintiffs as follows:
• an operating company, or a likely operating company;
• an entity related to an operating company;
• a PME or a likely PME;
• a university;
• an individual or trust; or
• a research firm.
7
To classify a plaintiff, Lex Machina placed more weight on statements
made by the plaintiff in official documents, such as its own court and
Securities and Exchange Commission (SEC) filings, and statements
appearing on a website maintained by the plaintiff. From these sources
Lex Machina obtained information that would help it to determine the
entity type, such as statements indicating that the plaintiff made or sold a
product or offered services, or evidence that the plaintiff shared corporate
ownership with such an entity. Some statements, such as a statement
describing a plaintiff’s business as focused on patent licensing, indicated
that the plaintiff was in the business of patent monetization.
In some cases, the plaintiffs’ own statements did not lead to a definitive
classification, and Lex Machina consulted other sources to obtain relevant
information about the plaintiff’s business activities. To the extent possible,
Lex Machina relied on additional sources they characterized as “verified
and objective,” such as corporate databases and articles of incorporation.
To the extent that Lex Machina lacked official information, it used
professional judgment to classify plaintiffs based on information from
other sources, such as news articles, blogs, court filings by opposing
parties, and Lex Machina’s own database. Examples of information from
these other sources that were used to classify plaintiffs include: (1) the
number of patent infringement lawsuits filed by the plaintiff; (2) whether
the plaintiff had been sued for patent infringement in other lawsuits or
counterclaims; (3) whether the plaintiff had been subject to a declaratory
judgment lawsuit for noninfringement or invalidity; (4) the number of
defendants sued in each lawsuit and in total; (5) statements about the
7
Lex Machina originally labeled these “other entity,” but we determined that research firm
was a better descriptive term for these companies, although in a few cases the entity was
government sponsored.
Appendix I: Objectives, Scope, and
Methodology
Page 52 GAO-13-465 Patent Litigation
plaintiff in news articles, blogs, or in court filings by an opposing party,
such as a statement characterizing the plaintiff as a patent monetization
entity; (6) whether the plaintiff was represented by an attorney known to
represent patent monetization entities; and (7) evidence of linkages
between the plaintiff and a patent monetization entity, such as a common
principal or a street address shared in common. In some cases, the
difficulty of finding information about the plaintiffs, their business activities,
and their corporate relationships led Lex Machina to choose no entity
classification at all. Such plaintiffs were classified as “Insufficient
Evidence.”
We reviewed Lex Machina’s classifications of first named plaintiffs to
ensure their reliability and consistency. We found 29 cases where we
differed with Lex Machina’s original classification. They adjusted their
classifications in all but five of the cases. We agreed on different labels in
these cases mainly based on our preference for the “entity related to
operating company” label. Table 1 presents the evidence or information
we used to review Lex Machina’s classifications of first named plaintiffs.
Table 1: Evidence or Information Used to Review Lex Machina’s Plaintiff Classifications
Plaintiff classification Evidence or information used to review plaintiff classification
Operating company The plaintiff’s website, court filings, or SEC filings indicated that the plaintiff made a product,
sold a product, or offered a service at the time the lawsuit was filed.
Likely operating company In the absence of information from the plaintiff’s website, court filings, or SEC filings, other
sources indicated that the plaintiff made a product, sold a product, or offered a service at
the time the lawsuit was filed.
Entity related to an operating company
•
There was no available evidence that the plaintiff made a product, sold a product, or
offered a service but there was evidence that its parent corporation, subsidiary, or other
related entity made a product, sold a product, or offered a service; or
• The plaintiff was a holding company that did not itself make a product, sell a product, or
offer a service but owned the stock of a company that did; or
• The plaintiff was a parent company to at least one subsidiary that made a product, sold
a product, or offered a service; or
• The plaintiff’s business consisted of patent monetization but its parent, subsidiary, or
other company with shared corporate ownership made a product, sold a product, or
offered a service.
• This category did not include plaintiffs if the only known association between it and the
operating company was a licensing agreement.
Appendix I: Objectives, Scope, and
Methodology
Page 53 GAO-13-465 Patent Litigation
Plaintiff classification Evidence or information used to review plaintiff classification
Patent monetization entity
•
The plaintiff indicated that it, or a corporate parent, was in the patent monetization
business, by stating that its or its parent’s purpose was to license patents or generate
revenue from licensing patents; or
• There was no available evidence of the plaintiff making, selling, or offering a product or
service, and the plaintiff had never been sued for patent infringement, and the plaintiff
had filed 8 or more patent infringement lawsuits;
a
or
• There was no available evidence of the plaintiff making, selling, or offering a product or
service, and the plaintiff had never been sued for patent infringement, and the plaintiff
had sued a large number of defendants (around 20 or more, which put them in the top
5 percent of cases); or
• There was no available evidence of the plaintiff making, selling, or offering a product or
service, the plaintiff had never been sued for patent infringement, and there were at
least 4 pieces of different types of other evidence supporting classification as a patent
monetization entity.
Likely patent monetization entity
•
There was no available evidence of the plaintiff making, selling, or offering a product or
service, the plaintiff had not been sued for patent infringement, and there were 2 or 3
pieces of different types of other evidence supporting the plaintiff’s classification as a
patent monetization entity.
University The plaintiff is an institution of higher education.
Individual/trust The plaintiff identified itself in court documents as an individual or a trust.
Research firm The plaintiff’s business focus or purpose was on research and development, even if it also
produced or marketed a product or service.
Insufficient evidence
•
There was conflicting information about whether, at the time the lawsuit was filed, the
plaintiff made or sold a product, offered a service, or was in the business of patent
monetization; or
• There was no more than 1 piece of other evidence supporting the plaintiff’s
classification as a patent monetization entity.
Source: GAO.
a
The 106 most-asserted patents from January 2000 through February 2009 were litigated eight times
or more. See John R. Allison et al., Patent Quality and Settlement Among Repeat Patent Litigants, 99
Geo. L. J. (2011).
In addition to steps we took to address all four objectives, to describe
what is known about the key factors that contribute to recent patent
litigation trends, we reviewed academic literature on the patent and
judicial system and the benefits and costs of patent assertion, including
economic and legal studies.
In addition to steps we took to address all four objectives, to describe
developments in the judicial system that may affect patent litigation, we
interviewed officials and judges from the U.S. District Courts for the
District of Delaware and for the Eastern District of Texas. We selected
these district courts because they had high levels of patent infringement
lawsuits according to Lex Machina data. We also interviewed judges with
the U.S. Court of Appeals for the Federal Circuit in Washington, D.C.,
Appendix I: Objectives, Scope, and
Methodology
Page 54 GAO-13-465 Patent Litigation
which hears appeals of patent cases decided in federal district courts. We
also interviewed officials from the Administrative Office of the U.S. Courts
(AOUSC), and the Federal Judicial Center––organizations that provide
broad administrative, legal, and technological services and support to the
judicial branch. We also reviewed documents and data from the courts,
as well as economic and legal studies.
In addition to steps we took to address all four objectives, to describe
what actions, if any, PTO has recently taken that may affect patent
litigation in the future, we conducted interviews with officials from PTO
and reviewed documents and data from this agency, as well as economic
and legal studies.
Appendix II: Comments from the Patent and
Trademark Office
Page 55 GAO-13-465 Patent Litigation
Appendix II: Comments from the Patent and
Trademark Office
Appendix III: GAO Contact and Staff
Acknowledgments
Page 56 GAO-13-465 Patent Litigation
In addition to the individual named above, Tim Minelli (Assistant Director),
Justin Fisher, Cindy Gilbert, Karen Keegan, Rob Marek, Susan Offutt,
Alison O’Neill, Nalylee Padilla, Dan Royer, Susan Sawtelle, Jeanette
Soares, Ardith Spence, Kiki Theodoropoulos, and Jacqueline Wade made
key contributions to this report.
Appendix III: GAO Contact and Staff
Acknowledgments
GAO Contact
Staff
Acknowledgments
(361366)
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