Although 2015 was a big year for US patent litigation, look behind the headlines to see the emerging reality

Unified Patents and Lex Machina were both out with their 2015 patent litigation numbers earlier this week. And both confirmed that it was a very busy 12 months.

According to Lex Machina’s analysis, 5,828 cases were filed last year, a 15% increase from 2014 (which had 5,070 new cases), but just below 2013’s peak of 6,114 cases. Unified pegged the number of new cases at 5,769, which still represents a significant jump from 2014 (5,045) and the second busiest year after 2013 when 6,098 cases were filed in district courts.

Both also included numbers on the Patent Trial and Appeal Board which had its busiest 12 months with 1,796 reviews filed, up from 1,677 (according to Unified’s numbers). Notably, however, the second half of 2015 saw two quarters of successive drops in new reviews which may point to a broader decline in activity at the PTAB.

There’s no doubt that many observers expected that 2015 would see another fall in litigation after the drop in 2014. Prevailing market conditions, and the climate in the courts in particular, which has become increasingly hostile for plaintiffs, made the case for a drop in 2015 a compelling one. Erich Spangenberg, the founder of IPNav who knows more than most about district court litigation in the US, even made a continued decline one of his predictions for 2015. He was at least quick to concede that he had got that one wildly wrong.

So what has been going on? Well, for one thing, the year saw two notable peaks in activity in the second and fourth quarters of the year. Brian Howard, a legal data scientist at Lex Machina, described the activity throughout the year as “lumpy” adding: “It’s hard to say exactly why that was the case and especially why the third quarter was a low point.”

The three months stretching from April to June were the busiest in recent years – Unified has the total at 1,657 filings, while Lex puts it marginally higher at 1,663 cases. That spurt could be due to the threat of patent reform being passed in Congress. The second quarter was particularly busy on Capitol Hill as legislation took shape in the Senate and hearings continued on the House of Representative’s Innovation Act. While both bills passed out of committee it was the decision not to bring the Act to a vote on the floor of the House in July which ultimately put patent reform on hold. The general threat of new legislation – much of which is viewed as unfavourable by some patent owners - hovering over the market in the first half, may have led some plaintiffs to file their cases in what they considered more friendly conditions.

The second peak in new filings, from October to December, was undoubtedly fuelled by the change in pleading standards which was introduced by the Judicial Conference and came into effect on 1st December. That led to a massive jump in filings in November and presumably some new cases that would otherwise have been filed in the first quarter of this year were filed in the days around Thanksgiving instead.

But there also appear to be some broader strategic trends going on here. For one thing it would seem that some individual plaintiffs are filing more cases, capturing more defendants, quite often involving the same patents. When we ran a story on the litigation numbers for the first half of the year, we included some data from Lex Machina which showed that the number of plaintiffs was close to the lowest level in years. Neither Lex nor Unified have done that deep a dive into the overall numbers for 2015 as yet – separating out the total number of plaintiffs is hard to do and open to error - but there are some signs that that trend continued through the second half of the year.

As part of its analysis Lex Machina took a closer look at the amount of new cases filed in the Eastern District of Texas, which remains the overwhelming favourite venue for patent plaintiffs and NPEs in particular. It found that the big jump there was fuelled by what it calls “high volume plaintiffs” (those who have filed at least 10 cases per year). They were particularly busy in the second and fourth quarters when they filed 692 and 548 new cases respectively.

Lex Machina also added further detail on this point in a blog post looking at the day-by-day distribution of new cases across the US in November. That showed the massive spike in new cases filed on 30th November, when 259 suits were brought. According to the firm’s research the eight plaintiffs that filed at least 10 cases on the final day of November brought 139 separate cases, more than half of the record total.  

Unified doesn’t go into as much detail, but its research shows that the top 10 assertion entities filed 633 cases between them in 2015, so more than 10% of the total new cases for the year. This suggests that a relatively small group of plaintiffs are adhering to what many see as the traditional troll model – filing multiple cases against a broad range of defendants in the hope of driving settlements. Although most of the details of a settlement remain private it would seem that the tougher market conditions for patent owners are driving down the value of those settlements so it has become much more of a volume play for some.   

The popularity of IPRs is probably also having an effect on new lawsuits. Plaintiffs can now be fairly sure that when they file a case they’re going to be hit with a review challenging the validity of their patents. While the new reviews were trumpeted as a more efficient and cheaper way of challenging patent validity than doing it via the courts, the sheer volume of reviews filed against some patent owners has made the litigation process longer and in some cases more costly.

In order to level the playing field a little more, some plaintiffs may be filing more lawsuits, involving more patents so that defendants are forced to file more reviews, thus driving up their costs and making the prospect of a settlement much more appealing. According to Unified’s analysis, which was not included in the release they put out with the 2015 data, more settlements are happening before IPR and then, once an IPR has been filed, before the institution decision. For all the talk of how reviews, and IPRs in particular, are posing a very real threat to patent owners, one less reported on aspect is how they are fundamentally changing the settlement dynamic in patent disputes.   

No analysis of last year’s numbers is complete without some discussion of the Eastern District of Texas. Both Lex Machina and Unified laid bare just how popular it remains with patent owners. According to both, 44% of all patent litigation was filed in East Texas last year, a staggering proportion even for the fabled “rocket docket”.

What is even more remarkable is just how many of those cases continue to go to Judge Gilstrap. According to Lex Machina, between 2012 and 2015 4,350 patent lawsuits were filed with him – 3,000 more than the next highest judge. Whatever your view of the state of patent litigation, that can’t be seen as healthy.

Of course, there’s a reason why East Texas continues to be so popular, and that is that for many patent owners it remains the only district where they feel they’re going to get a fair shot. And, overall, many patent owners feel they still have to litigate first to stave off the threat of a declaratory judgment from an alleged infringer if they try to initiate licensing negotiations – while other alleged infringers will not talk until a suit is filed. What’s more, another clear reason why the number of patent disputes have been at historic highs for the last four years are the joinder provision in the America Invents Act.

No doubt the headline figures from 2015 will crop up in debates around patent reform in the coming months. Context, however, remains key.  

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