Patents in the Knowledge-Based Economy (2003) / Chapter Skim
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Patent Litigation - Enforcement of Patent Rights in the United States
Patent Litigation - Enforcement of Patent Rights in the United States
Pages 143-179
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Patent Litigation 143
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Patent and Trademark Office, the federal court system, and industry sources. The probability of being involved in a suit is very heterogeneous, being much higher for valuable patents and for patents owned by individuals or by firms with small patent portfolios.
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Thus the overall burden of enforcement may well be on the rise. Perhaps of greater importance, we show that the exposure to litigation varies widely across technology fields and patent profiles.
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First, we find strong evidence of a patent portfolio effect: Having a larger portfolio of patents reduces the probability of filing a suit on any individual patent, conditional on its observed characteristics. The quantitative effect is large.
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The fourth section presents and discusses evidence on the relationship between these characteristics and the filing of suits and their outcomes. The fifth section presents econometric analyses of the determinants of litigation for infringement suits and declaratory judgment suits and the determinants of post-suit settlement.
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The plaintiff win rates, conditional on adjudication at trial Information on win rates is relevant for assessing overall litigation risk (e.g., in pricing patent insurance)
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This is most likely to occur when true case quality is near the court' s decision standard. This selection mechanism drives the plaintiff win rate at trial toward 50 percent.6 In the asymmetric information model, one party knows the probability that the plaintiff will win at trial, whereas the other party knows only the distribution of plaintiff win rates.
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First, the more recent part of our sample includes matches for both main and other patents in each suit, whereas we only use the main litigated patents in the analysis. Second, in combining our old (19781991)
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and their USPC subclass assignments. We obtained the same information on all of the subsequent patents that had cited a given patent in their own applications, as of 1998 (forward citations)
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Bronwyn Hall and Adam Jaffe were generous in providing us with their link between USPTO company codes and Standard and Poor's CUSIP identification code, based on the 1989 industry structure. We call a patent-owning company "listed" if we are able to identify it as having a Standard and Poor's CUSIP code at that time.9 Unlisted companies are typically smaller than listed ones, but there is wide variation in both categories.
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As expected, domestic listed companies tend to have larger portfolios roughly onethird of patents owned by domestic listed companies are in portfolios in each of size groups 1-100, 100-900, and >900 patents. By contrast, about 90 percent of patents owned by domestic unlisted companies, and two-thirds of patents owned by foreign companies, are in portfolios with fewer than 100 patents.
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NONPARAMETRIC EVIDENCE Although the number of patent infringement suits has risen by almost tenfold since 1978, the increase has not been uniform across technology fields it was particularly high in Drugs, Biotechnology, Computers, and Other Electronics. Closer examination of the data shows that the increase in the aggregate number of suits has been driven both by the sharp increases in the number of patent applications in each technology field and by the shift of patenting toward technology fields with higher litigation rates.
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, and they are adjusted both for underreporting in the Derwent data and truncation associated with time lags in case filings.~4 TABLE 2 Filing Rates by Technology Fields and Cohort Groups Filing Rate (cases per thousand) Technology Field Total: 1978-1995 1978-1984 1985-1990 1991-1995 Aggregate 19.0 19.3 16.6 21.1 (0.21)
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Domestic listed companies are far less likely to file suits on their patents than unlisted companies and individuals: Their mean filing rate is 10.4 suits per thousand patents, compared to 35-45 suits for the smaller owners. Moreover, filing rates i5The percentages for the individual technology fields are Drugs 0.25, Other Health 0.36, Chemicals 0.20, Electronics 0.37, Mechanical 0.20, Computers 0.34, Biotechnology 0.46, and Miscellaneous 0.15.
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Although filing rates differ sharply across ownership types, we find that ownership does not affect the probability that a suit is settled before it reaches the end TABLE 4 Filing and Settlement Rates, by Ownership Type Individuals Domestic Unlisted Domestic Listed Foreign Firms Filing Rate 35.2 46.0 10.4 4.2 (cases/thousand)
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One explanation for why listed and unlisted firms have such different filing rates may be that the listed firms are typically larger and there may be advantages to size. As discussed above, there are several distinct aspects to such advantages.
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Panel A in Table 6 presents the litigation probability broken down by TABLE 6 Probability of Litigation and Settlement, by Patent Portfolio Size and Ownership Type Panel A Probability of Litigation (percent)
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However, here we also see that the pattern of differences across technology fields depends on the type of owner. One explanation for these differences in litigation probabilities is that firms with larger portfolios may have a higher propensity to patent their innovations (harvesting)
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are settled before a pretrial hearing is held. This suggests that the filing of a suit sends a strong signal about the seriousness of the plaintiff to use legal means and quickly triggers resolution before substantial leTABLE 8 Timing of Settlement and Trial Win Rates, by Ownership Type Domestic Listed Domestic Unlisted Foreign Firms Individuals Timing of Settlement (%)
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, the number of three-digit USPCs as a measure of patent breadth, the size of the patent portfolio, the relative size of the patent portfolio (as a measure of asymmetry between a patent owner and likely disputants) , the technology concentration index, and ownership dummy variables that distinguish between patentees who are foreign or domestic individuals and unlisted or listed firms.
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We also find that a 10 percent increase in the number of forward citations per claim raises the probability of an infringement suit by 1.8 percent. These findings confirm the importance of the value of a patent in determining infringement suits.
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PATENT LITIGATION TABLE 9 Probit Estimation of Litigation Probability: Case Filings 165 Panel A Infringements Panel B Declaratory Judgments Variable Parameter Marginal Parameter Marginal Claims 0.023 0.007 0.029 0.002 (0.001)
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, we found that greater technological similarity of forward citations increased the probability of litigation.~9 The similarity measure was used as an index of whether the technology i9Similarity measures whether subsequent citing patents fall in similar technology fields as the patent in question. It is calculated by finding the percentage of three-digit USPC assignments of each citing patent that overlap with those of the patent itself and averaging over all citing patents.
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Relsize FIND DIND FUNLIST DUNLIST FLIST DLIST-S DLIST-B Total portfolio size of the patent owner divided by a weighted average of portfolio sizes of firms in the technology areas of the patent's forward citations. Foreign (non-U.S.)
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The impact of portfolio size on the probability of litigation is smaller for drug patents than for patents in other technology fields. Estimation at the technology field level (not reported)
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To test this hypothesis, we include interaction effects between portfolio size and ownership type (unlisted and small domestic and foreign listed, with large domestic listed firms being the reference category)
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Foreign individuals and foreign unlisted companies are least likely to be involved in patent infringement suits.22 Because these effects are conditional on portfolio and company size (both of which relate to the cost of settling) , this ranking should reflect two main factors, the cost of litigation and access to information about potential infringements.
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. Similarly, the top 1 percent of all patents held by domestic unlisted firms or individuals have a litigation risk over 10 percent.
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= 39.7; P-value = 0.0891. The only positive finding is that the coefficients on three technology field dummies are significant and indicate that the settlement probability is about eight percentage points higher for patents in Electronics, Mechanical, and Miscellaneous.23 The probit regression for win rates has a pseudo-R2 of 0.02.
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Among others, these characteristics included the technology field, the number of patent claims, the numbers of forward and backward citations, patent portfolio size, type of patentee, and technology concentration index. Major postsuit outcomes the probability of settlement and plaintiff win rates at trial do not depend on these characteristics.
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On one hand, the buildup of large patent portfolios and the creation of patent thickets can make disputes over intellectual property more likely. But those same patents can also make the suits easier to resolve at lower cost.
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. "Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation" Journal of Law and Economics XLI (October)
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176 PATENTS IN THE KNOWLEDGE-BASED ECONOMY APPENDIX 1 Reporting and Truncation Rates for Case Filings (percent) Cohort Reporting Lag Truncation 1978 15.9 1 97.6 1979 25.0 2 91.3 1980 26.6 3 82.4 1981 30.2 4 75.3 1982 29.4 5 67.8 1983 33.9 6 60.2 1984 36.8 7 52.8 1985 33.7 8 44.9 1986 38.7 9 37.7 1987 43.0 10 30.0 1988 48.5 11 23.7 1989 49.5 12 18.1 1990 61.2 13 12.5 1991 60.0 14 7.2 1992 57.6 15 3.7 1993 50.0 16 1.2 1994 54.4 17 0.2 1995 53.6 18 0.0 1996 55.2 NOTES: The reporting rate is computed as the number of cases reported in Derwent divided by the number in the Federal Judicial Center data.
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However, because the matched sample is random with respect to portfolio size, we can use the sample share of the patents in group g that are in portfolios of size z, so = [MgzlMg] , as an unbiased estimator of the population share [NgzlNg]
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and Q~Xc) differ because the matched sample was constructed so that the overall litigation probability is 50 percent, controlling for technology and cohort.
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For the denominator, we take the total number of patents in the class during 1978-1995. In the numerator we use the number of infringement or declaratory judgment suits that can be directly identified as such and include all others as infringement suits.
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