Vast Majority Of Software Patents In Lawsuits Lose

from the as-you-suspected,-they're-really-bad dept

Well, this is interesting (and quite surprising). A new study by John Allison, Mark Lemley, Joshua Walker looked at highly litigated patents to see how well they did in court, and came up with some really unexpected findings. The summary of the findings are as follows:

We designed this study to explore the effects of repeat play on litigation behavior, contributing to a literature on the economics of civil procedure as well as the substance of patent law. But what we found was dramatic and unexpected: The patents and patentees that occupy the most time and attention in court and in public policy debates — the very patents that economists consider the most valuable — are astonishingly weak. Non-practicing entities and software patentees almost never win their cases. That may be a good thing, if you believe that most software patents are bad or that NPEs are bad for society. But it certainly means that the patent system is wasting more of its time than expected dealing with weak patents. And it also suggests that both our measures of patent value and our theories of litigation behavior need some serious reconsideration.

Digging deeper into the report, it looks at and tests a variety of different concepts around patents and litigation. In theory, if a patent is used in multiple patent cases, you tend to think that it must be a pretty solid patent, and one that has been vetted plenty of times. And yet, when the researchers looked at the 106 patents that have been involved in eight or more lawsuits since 2000, they found that the patent holder wins such cases only 10.7% of the time. For patents that have only been brought to litigation once, the patent holder wins 47.3% of the time — an astounding difference.

My first thought on hearing such numbers is that the data could be misleading in that many companies may be a lot more willing to settle when sued by a serial patent litigator. However, the researchers tested that and while they did find that a higher percentage of those sued will settle in cases involving a “most-litigated” patent as compared to a “once-litigated” patent, the higher settlement rates don’t offset the huge difference in win rates.

The study also looked at the differences in entities doing the suing as well as the types of patents involved in the lawsuits. And, once again, there are some interesting finding. Patents that initially came from big companies “represent only 22.4% of the assertions in the most-litigated group.” I don’t find this all that surprising. Big companies tend not to be serial patent litigators over the same patent. There certainly are some exceptions, but in general, it does seem like big companies tend to view proactively suing for patent infringement as a “last resort.” However, patent hoarders and non-practicing entities who base their entire business model on demanding money from patents are probably a lot more likely to sue. But where it gets interesting, is the fact that they’re also a lot more likely to lose their patent infringement lawsuits: only 12.3% of “small entity plaintiffs” win their lawsuits (excluding default judgments).

Of course, size doesn’t necessarily indicate whether or not the company is a “product” company or a non-practicing entity (commonly called a patent troll). In the “most-litigated” patent group, not surprisingly only 16.7% of the assertions came from actual product companies — meaning a whopping 83.3% of the assertions in the most-litigated group came from patent trolls. So how do the trolls do? Not so well. If they fail to settle, patent trolls win just 8% of their lawsuits (9.2% if you include default judgments). For comparison’s sake, companies that actually make stuff, win 40% of their cases and 50% if you include defaults. It certainly sounds like juries are a lot more sympathetic to companies that actually make stuff.

Of course, it’s important to point out that patent lawsuits almost always settle. The settlement rates tend to hover near 90%, because the cost of litigation is often so high that it’s cheaper to settle. But, if anything, this data suggests that patent trolls probably are better off not pursuing the lawsuit if they can’t get the companies they sue to settle (and, correspondingly, it may make more sense for those sued to actually fight back).

The final part of the study breaks down the different patents by type — and provides some interesting info for those who dislike software patents. Once again, litigating frequently over a software patent tends to be a loser’s game — even though software patents were 93.7% of the most-litigated assertions. And yet… software patent litigants in the most-litigated group only win 12.9% (with or without default judgments) of the time. Non-software patents, however, win at much higher rates: 37.1% without defaults and 51.10% if you include defaults. In other words, the feeling most people have is probably true: the software patents that we see in various lawsuits tend to be of dreadful quality, and the results of the lawsuits support that view.

The authors do try to analyze the data — and one key missing data set in all this are licensing deals outside of settlements. Oftentimes, lawsuits won’t even be filed if companies realize it’s cheaper to pay up on the threat of litigation. From there, the authors note that once a patent has a few licensing agreements, the patent holder will probably be a lot less interested in suing anyone else, because if the patent gets invalidated, that patent holder will likely lose the licensing revenue stream.

As for what this means for the overall patent system, the authors note two possible (contradicting) interpretations, and then split the difference:

On the one hand, it should give substantial ammunition to those who argue against software patents and who want to restrain patent trolls. If software and NPE patents are overwhelmingly bad — either invalid or overclaimed — the social benefit of allowing them may well be outweighed by the harm they cause. At the same time, however, one could read this evidence as proof that the system is working — that the bad patents are being weeded out of the system and are not stifling innovation.

The truth probably lies somewhere in between. The latter claim — that the widespread invalidation of software and NPE-owned patents shows that the system is working — seems altogether too facile. After all, roughly 90% of those cases settled without judgment. While those settlements are confidential, we expect that the vast majority involved some sort of payment to the patent plaintiff — a payment that the outcomes data suggests might represent not the acquisition of real legal rights but a nuisance settlement over a likely-invalid patent. At the same time, the fact that these patents are so weak should — at least once exposed — limit the value of those settlements, and quiet concerns that software or troll patentees will actually shut down very many innovative products.

I’d argue that when you include license agreements based on threats of legal action along with all the settlements it helps to dilute the value of the data even more, to suggest the idea that the “system is working” is false. The number of companies who pay up without a legal ruling is many, many, many times the number who actually go through to the end of a lawsuit. And, while the authors hope that exposing this data might convince more companies to push back against weak patents, I’m not convinced that will actually happen. It’s still going to be cheaper for many companies to just take out a license or to settle than to fight. And, finally, as the authors point out later in the report, when you see the massive size of a few patent awards, the patent holders may view them as lottery tickets. Quoting the paper:

If the payoff for victory at the end of the day is $1 billion, a 10% chance of success doesn’t sound so bad.

On the whole, the results certainly seem to suggest that patent trolls with software patents do very much view the system as a lottery ticket, and they’re willing to use really weak patents to try to win that prize. That is not at all what the patent system is designed to do, but it’s how the incentives have been structured — and that seems like a pretty big problem that isn’t solved just by showing how many of these lawsuits fail. The amount of time and resources wasted on those lawsuits, as well as the number of companies who pay up without completing a lawsuit, suggest that there is still a major problem to be dealt with.

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Comments on “Vast Majority Of Software Patents In Lawsuits Lose”

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staff says:

a shill is a shill

According to you, all patents in lawsuits are “dreadful” or “weak”. Yea, yea, yea. zzzzzzzzzzzzzzz. What do you think of the Wright Bros airplane patent, or Bell’s telephone patent? Were they “weak” too? Just admit you’re biased and move onto things you know something about, like putting us to sleep.

By the way, in the past Lemley was funded by Microsoft.

Anonymous Coward says:

Re: a shill is a shill

What do you think of the Wright Bros airplane patent,

A well documented over-broad disaster which destroyed the US aircraft industry for almost a decade and was responsible for the premature death of one of the Wrights

or Bell’s telephone patent?

The result of some corrupt dealings with the patent office which denied the real inventor his just rewards.

Just admit you’re biased and move onto things you know something about,

Pot, meet kettle.

Anonymous Coward says:

Mr. Lemley and several of his academic colleagues who present papers such as this (each of which papers tends to cite each other) never cease to surprise me that they devote so much time and energy to arrive at conclusions already well known to virtually all who actually practice the full gamut of these areas of law.

Perhaps some day he might deign to sit down and talk with a well seasoned senior partner in one of more notable law firms within the Bay Area, at which point he would likely come to the realization that being insightful is most certainly not limited to academics whose primary exposure to patent law is limited having read Title 35 and court cases.

There are welcome exceptions within academia, persons with the legal, technical and business background necessary to thoroughly understand all aspects patent law (e.g., they have actually read and understand the Manual of Patent Examining Procedure, Title 37 to the Code of Federal Regulations, internal USPTO policies and guidance, counseled and represented clients in both administrative and judicial proceedings, etc.). Sadly, they are in the distinct minority.

How someone who is not even eligible to practice before the bar of the USPTO can view themselves as legal experts in patent law eludes me. Not that it cannot be done, but it requires a whole lot more than reading the US Code, various cases. It requires rolling-up your sleeves and becoming thoroughly immersed and conversant in the entirety of the patent process from beginning to end.

Mike Masnick (profile) says:

Re: Re:

Mr. Lemley and several of his academic colleagues

You do realize that Lemley is a practicing attorney, right? He’s been involved in a bunch of recent cases.

I find it amusing that you go through four paragraphs slamming Lemley, when you don’t even realize that he’s actually involved in a bunch of these cases… and NO WHERE do you respond to the information in the actual study.

As per usual, you are full of attacks on the person, not what they have said. I do not quite understand your disgust for academics either. Perhaps it’s because they present evidence that proves you wrong time and time again?

Anonymous Coward says:

Re: Re: Re:

You overlooked the phrase “full gamut”.

Virtually all federal law, including patent law, encompasses much more that just the federal statutes. An equally significant component is administrative law, i.e., regulations implemented under the Administrative Procedure Act (APA) found in Title 5. It is under the APA that the Code of Federal Regulations is promulgated, Title 37 in the case of patent law. In addition to regulations, each federal agency promulgates internal policies that put the statutes and regulations into daily practice. In the case of patent law this is the MPEP, as well as various interim policy pronouncements/guidance for “fresh off the press” matters such as KSR, Bilski, etc., matters that will ultimately be added to the MPEP as it undergoes amendment.

When I read the work of most academics who purport to be experts in the field of patent law, only rarely do I find even a passing reference to the full body of law (atatutes, cases, regulations, guidance/policy).

Under our legal system two of the above are entitled to the full force and effect of law, the statutes and the regulations. How one can wax poetic on the law and rarely even mention fully 1/2 of what it comprises eludes me entirely.

You state that nowhere did I respond to the information in the actual study. It seemed to me that any such response was unnecessary since my point was that the study reflects no more than what is already known to those who have long practiced within this area of law.

I have on occasion read an academic article that truly was thought provoking, an article providing unique insight. These are, however, the exception and not the rule. For example, an article I read a couple or so years ago by Professor Miller from Harvard Law School was easily the most thought provoking article I have read in that it exhibited a legal acumen and understanding of law far surpassing most of which passes today as legal scholarship.

BTW, I and colleagues are well aware of the work by Lemley and others before our courts, though such work tends to be limited to the appellate level, and usually in the form of amicus briefs. Again, this is not, to use my phraseology, the “full gamut”, but only a small portion thereof.

Anonymous Coward says:

Re: Re: Re:2 Re:

This is not a “legal” blog in the sense of blogs such as those by Mr. Volokh, Mr. Crouch, Mr. Sheffner, Mr. Lichtman, Mr. Patry, etc., etc., which blogs are primarily directed to those associated with the legal profession (though others are more than welcome to chime in). As such I generally prefer to stay away from detailed, substantive comments concerning the works/studies/papers of other members of the legal profession, be they in academia, private law, corporate law, etc.

I do, however, feel quite comfortable making general observations, and in the case of the study identified here it is, in fact, largely an academic discovery of sorts that has long been well known to those outside academia who engage in the full gamut of patent law and have done so for an extended period of time.

If you are ever inclined to review substantive comments that I provide, I typically post such comments on “legal” blogs under either “MLS”, “M. Slonecker”, or “Michael L. Slonecker”. On some I am unfortunately limited to commenting as an AC because of particular login procedures that require accounts on sites with which I have not established an account. Mr. Sheffner’s is one such blog that quickly comes to mind.

One example of substantive comments can be found at Patently-O and its ongoing discussion on a case known as Zoltek v. US. In that discussion I was pilloried by one academic for the mere suggestion that the legal principles being relied upon by the associated courts would result in the transfer of jurisdiction for patent infringement under government contracts from the Court of Federal Claims to the Federal District Courts. I was told in no uncertain terms that there was no legal basis for what I suggested. Apparently someone forgot to tell this to the Court of Federal Claims, which in March of last year did precisely that, transferring Zoltek’s claim to the Federal District Court sitting in Atlanta so that a claim could be asserted under 35 USC 271(g) against the allegedly infringing government contractor. To say this came as a surprise to those within the private sector performing government contracts would be an understatement as it completely cut against what they had for many decades assumed was the conventional wisdom.

Bilski and Warsaw is yet another case decided by the Supreme Court that may come back to haunt the software industry (a largely undefined term since it seems no one is able to articulate a definition for “software”). Now that we know that apparently some types of business methods patents are outside the scope of Title 35, and, hence, Title 35 is of no applicability, I have posited the possibility that the Supreme Court may have inadvertantly opened an new avenue for such business methods being protectable under state law since Title 35 only pertains to “inventions” that qualify for admittance under the current interperation of 35 USC 101.

Given the above two examples, perhaps it is a bit clearer why I generally refrain here from engaging in substantive discussions of the type I noted at the beginning of this post.

Anonymous Coward says:

Re: Re:

“Mr. Lemley and several of his academic colleagues who present papers such as this (each of which papers tends to cite each other) never cease to surprise me that they devote so much time and energy to arrive at conclusions already well known to virtually all who actually practice the full gamut of these areas of law.”

So then you agree with their conclusions.

So then what’s the problem? That they’re redundant? Isn’t that sorta a very important hallmark of science, repeatability. That others can repeat the same experiment and receive similar results? Imagine if I said that I know for certain that if I threw a ball at exactly a 49.45 degree angle from the horizon it will fly into outer space and said that no one should repeat the experiment because it would be unnecessarily redundant. That’s kinda silly. OF COURSE PEOPLE SHOULD REPEAT THE EXPERIMENT!!!! That’s part of the point of science, that when others repeat the experiment the results are confirmed. What’s wrong with that? What’s your problem? You’re complaining that someone repeated what everyone already knows and got the same results? Uhm… yeah, so?

Pete Austin says:

@Anonymous Coward. It never ceases to depress me when people dismiss the work of others, based on opinions which they claim are “already well known to virtually all”, but without a single reference.

If you are right about your assertions, there will be lots of evidence, and it would only have taken a few seconds to link to some of it. That should have been trivial for someone used to “rolling-up your sleeves”.

I assume you’re wrong. If you disagree, show some evidence!

Anonymous Coward says:

Just to be clear, I have expressed the same criticism of many who privately practice law who likewise hold themselves out as experts in the field, much of which has been directed to those whose only association with patent law has been in litigation because that is where the $$$ are to be found. The same can be said of many who practice within the confines of a corporate legal department, i.e., general practitioners having (except in rare cases) virtually no understanding of technology and business. Yet, these are the ones who are inclined to send a patent matter to a litigation firm with instructions to pursue an action without the slightest thought being given to the business ramifications of doing so.

I believe it is fair to say that I would eschew medical treatment by a doctor who wants to perform brain surgery by making the first incision through one’s foot. The very same can be said of many who purport to practice patent law with only a modest and imperfect understanding of what the law actually entails. Does this mean I view as experts only those who are actually involved in the patent process? Emphatically…No! This is precisely why I used the phrase “full gamut” and made a general reference to senior partners. They tend to know the law, they tend to know the wide diversity of situations that can arise, and they can present cogent arguments on both sides any any issue precisely because they are steeped in what the practice of patent law actually entails.

Gene Cavanaugh (profile) says:

Software patents and NPEs

Excellent article, and as an IP attorney, I completely agree. I will say, though, that asking a company not to do business with someone for possible ethics problems is naive. The USPTO is self-supporting, so essentially a “profit making business”, since the people calling the shots are expected to “grow the business”. Meanwhile, the USPTO is also controlled by Congress; and by and large Congress is at least partially owned by the people abusing the system.
With campaign finance reform and the USPTO as a PUBLIC service, that is, financed by the Government, we would have a chance on not running our economy into the ground this way.

Rex Alfie Lee (user link) says:

Patent trolls...

I guess this just goes to show that patent trolls are as most open software supporters believe are low-life companies that impede the development progress & therefore should be abolished. That China just doesn’t care about them, NZ has dismissed their validity, not to mention all the African countries that just ignore them as well maybe sounds the tolling of the bell for software patents.

There is little built today that doesn’t depend on many prior designs. How can these be new when all they are is a mixed use of so many prior designs? Also, many of these are not actually made, rather they are just patent trolls who don’t build it they just had a vague idea & patented that. An idea shouldn’t be patentable at all.

Software patents should be dumped completely.

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