Patents: Sue or Be Sued?

 

Takeaway

  • Infringement is hard to prove: Patent owners lose three-fourths of the time.
  • Patent owners tend to lose summary judgments but win trials.
  • Some judicial districts tend to favor plaintiffs while others favor defendants.

For inventors, it’s important to build a better mousetrap. It might be even more important to have a better lawyer.

The technological innovations that drive today’s economy, from e-commerce to smartphones, are also driving another industry: patent lawsuits. From 2008 to 2013, such filings jumped 131 percent in federal courts.

Who’s winning, and who’s losing? In the fog of patent battles, it can be hard to tell. Take a company like Apple. It’s won a combined $1 billion in awards against archrival Samsung over smartphone technology. But this year, it lost a $533 million verdict to the tiny Texas company Smartflash over patents for digital rights management of recordings and games.

Enter John Allison, professor of intellectual property law at the McCombs School of Business. Together with co-authors Mark Lemley of Stanford Law School and David Schwartz of Northwestern University School of Law, he looked for trends in the 5,029 patent suits filed in 2008 and 2009 and the 945 that reached decisions on their merits. Their results, published in Texas Law Review, offer strategic lessons about how to strengthen your position in a patent case — whether you’re the business that’s suing or the one getting sued.           

Patent owners: Winning can be losing.

When the validity of a patent was challenged on specific grounds, patent owners won 70 percent of these individual challenges, the researchers found. In the end, though, they won the overall case only 26 percent of the time. What happened?

The odds are stacked against patent holders, says Allison. A patent can be attacked on several different grounds, but to win, the holder has to turn back each and every one.

“Suppose the accused infringer claims your patent is invalid for any of three reasons,” he says. “The accused infringer just has to win on one of them. And even if the patent owner wins on all three challenges, he also has to prove infringement. It often happens that the challenger loses on a lot of the individual challenges, but the patent owner still loses the lawsuit.”

Patent owners lost most of the time on infringement, Allison says.

They can improve their odds, he adds, by suing on multiple patents in the same lawsuit, as they often do. They might lose on several but still prove infringement of one — which is all it takes to make an infringer pay damages.

Challengers: Avoid trials.

Accused infringers are more likely to win cases that never go to trial — ones courts resolve through summary judgment. In 62 percent of those judgments, courts ruled that the challengers did not infringe on the patents in question.  

Patent owners: Get to trial.

If a patent owner survives the pre-trial gauntlet, the odds reverse. In cases that went to trial, owners won 61 percent of the time. The difference, Allison says, is that weaker cases got weeded out in pre-trial stages. “If they make it through summary judgment, it means their case is stronger than average,” he adds.

Challengers: Be first to the courthouse.

If someone threatens to sue you for patent infringement — or if there is a dispute about whether you might be infringing, even if you aren’t threatened — it may pay to sue first. “You launch a pre-emptive strike,” says Allison. “You file a suit seeking a declaratory judgment of non-infringement and invalidity. Our data revealed that potential infringers who sue win more often than those who wait to be sued.

That result, he cautions, doesn’t necessarily mean there’s an inherent advantage to suing first. Companies who sue first may simply have stronger cases than those who don’t. One advantage of going first, though, is that the potential infringer gets to choose which of several possible federal districts in which to litigate, and this can make a difference.

Geography matters.

It’s no fluke that a jury in Eastern District of Texas ruled for Smartflash over Apple, or that Swedish cellphone pioneer Ericsson is suing Apple in the same district. East Texas juries have a reputation for being friendly to patent plaintiffs, notes Allison. “It’s not as though these courts are a pushover, but these data show that, on the whole, patent owners win more often there,” he says.

He found 10 percent of all patent suits were filed in that district — the highest rate in the country. Patent owners won 45 percent of decisions, versus a national average of 26 percent. Other districts tilted towards patent holders were Delaware and the Southern District of New York.

If you’re accused of infringement, on the other hand, the kindliest place to be is the Central District of California, home to Silicon Valley. There, patent holders won only 5 percent of the time. Explains Allison, “You’ve got an average juror who’s more sophisticated about software and technology. They’re not going to buy as easily into the proposition that the patent office is this expert government agency.”

Focus on people.

What didn’t affect outcomes very much were the specific features of the patents themselves. The researchers looked at characteristics like how many claims a patent contains, how many previous patents it cites, and how many times it is later cited by other patents. They found that, as a group, these and some other characteristics explained only 17 percent of variations in overall legal outcomes.

For Allison, the data reaffirm that when all else is considered, human factors are still critical to winning patent lawsuits. “Who the lawyers, the judges, and the jurors are makes a big difference,” he says. “And you can’t measure that very effectively.”

 

Faculty in this Article

John Allison

Professor McCombs School of Business

John Allison is the Mary John and Ralph Spence Centennial Professor of Business Administration in the Business, Government and Society...

About The Author

Steve Brooks

In a quarter-century as a journalist, Steve Brooks has won two Neal awards for excellence in trade reporting and a Press Club of New Orleans award...

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