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In the US, patent infringement cases nearly doubled from the year 2010 to 2014. Sixty-one percent were filed by non-practicing entities (NPEs), which are entities holding a patent for a product or a process, but which have no intention of developing it.
Most NPEs are categorized as patent assertion entities (PAEs), which are companies whose business model is based primarily on buying patents and generating revenue by asserting them against businesses that already practice the patented technologies.
Though much NPE patent litigation takes place in the IT sector, it happens in pharmaceuticals as well. Patent litigation is also pursued by practicing entities, and it only makes sense that pharmaceutical investors understand trends in patent litigation outcomes so they can make strategic decisions.
Can outcomes be predicted with patent litigation? Some aspects of patent litigation outcomes can be anticipated, and the topic is a primary focus of developing artificial intelligence engines. However, there are some trends that investors can use already when making investment decisions. Here are five methods that can be used to help predict patent litigation outcomes.
Non-practicing entities prefer to settle earlier and are generally more averse to trials. When they go to trial, the trials tend to be shorter. When adjudicated on merits, NPE patents were invalidated about thrice as often as non-NPE patents. Approximately 12 percent of patents asserted by NPEs were invalidated, compared to approximately 4 percent of patents asserted by non-NPEs. It is important to bear in mind that patent invalidation occurred in only around 3 percent of NPE cases, and less than 2 percent of non-NPE cases.
Backward citations are prior patents cited by a particular patent, and forward citations are patents that cite a particular patent. You might think that the more backward citations a patent cites, the likelier the citing patent would be to be ruled valid. However, the reverse appears true; the more backward citations, the more likely a patent was to be ruled invalid, according to a 2014 study of patent litigation. This may mean that patents with plenty of backward citations are likelier to be controversial and therefore likelier to be challenged.
Until recently, the Eastern District of Texas was a venue of choice for patent litigation, but a recent Supreme Court decision found that the proper venue for bringing an infringement suit against an American corporation is where the defendant is incorporated, or where the defendant allegedly committed infringement and regularly conducts business.
For pharmaceutical cases, however, the general trend is slightly different from that with patent litigation in other sectors. In 2015, cases decided in the New Jersey District Court slightly favored plaintiffs. Delaware District Court, Texas Eastern District Court, and Virginia Eastern District Court were all approximately split 50-50 between deciding for the plaintiff and for the defendant.
Where a patent case is filed can affect the outcome.
A 2012 study of individual factors predictive of outcomes in patent litigation found that the number of patents litigated in a single case matters. In the study, anywhere from one to 29 patents were litigated in a given case, and researchers found that the higher the number, the less likely a case would be to settle. The study speculates that portfolios of patents are typically more valuable than individual patents, so damage awards could be expected to be higher. Hence, the likelier such a case would be to go to trial in pursuit of higher damage awards.
In the study referenced above, the age of a patent was also found to help predict the size of damage awards. In cases where numerous patents were included, the age of all the patents in a given case were averaged. Researchers found that cases involving more mature patents were statistically more likely to have higher damage award values.
Patent litigation is dynamic, and subject to changes in legislation and rulings by the Supreme Court. The Supreme Court ruling that limited cases brought in “magnet” districts (like the Eastern District of Texas) did not apply to cases brought to the US International Trade Commission (ITC). Does this mean that the ITC will become a more attractive venue for NPEs? It is possible.
Legislation has been introduced in the House of Representatives designed to update definitions of “domestic industry” to prevent abuse of the ITC process. In short, be aware of predictive factors in patent litigation, but stay apprised of Supreme Court rulings and goings on in Congress as well.