United States: a challenging time for law firms

• The era of the NPEs is nearly over; new business models will emerge
• The outlook for patents in the United States is highly uncertain in light of Alice, inter partes review and politics
• There may be more focus on the quality rather than the quantity of patent portfolios
• Big corporate firms may scale back their patent practices, potentially providing a window for boutiques

The past 25 years have seen enormous growth in patent work in the United States. Much of this has been driven by NPEs, which have developed or acquired significant patent portfolios, particularly in high-tech sectors, and have then enforced them, often in favourable venues such as the Eastern District of Texas. This has provided a bonanza of instructions for patent prosecutors, as well as litigators on both the plaintiff and defendant side. Large corporate law firms have expanded their patent departments, and many litigators have been drawn to the interesting work and lucrative rewards of the patent bar.

Now all of that is changing. Uncertainty over patentability following Alice and other Supreme Court decisions is making many applicants think twice about filing, while the downward pressure on damages and the inability to get an injunction are making patent owners wary of enforcement in the US courts – as is the emergence of inter partes review and the fear of invalidation it presents. “The last seven to 10 years in the United States have been awful in terms of how the system has been developing for patent holders. Will it change? I hope so!” says one lawyer, while a former NPE executive provides another perspective: “When I was a troll, I could write a seven-figure sum and people would pay me without questioning it. Those days are gone – you need to have a solid patent now.”

“The United States is really a mess. There’s a lot of frustration. Court decisions are not aligned. The investment community is floundering,” adds another patent practitioner, while an in-house counsel states: “We have to re-tool our [patent] portfolio to reflect the hostility in the US system.”

All these trends might be short term, and the United States could bounce back – particularly if calls for further patent reform are heeded by Congress. But without significant changes, it seems likely that the peak of patent practice has passed. That is certainly the conclusion you would draw from the lower visibility of NPEs in the market, filing trends at the USPTO and the number of court cases.

One practitioner predicts that patent filing by US companies could drop by 15% to 20%, and that damages awards will remain low for the foreseeable future: “I don’t see a return to the Nortel auction peak or litigation explosion.” Another adds: “I would not invest my savings in a pure NPE with a patent portfolio.”

“I think it’s a challenging time for law firms in this area – I really do,” contends one observer. “IP litigation has dropped and that has had an impact. The strongest firms are okay, but the tier below is feeling the impact. Patent litigation is becoming more commoditised and that won’t change.” And it’s not just in litigation; one lawyer reports that the cost of filing a patent has also been forced down: “I don’t see patent prosecution prices going back up above $8,000 to $10,000 per patent. The pressure on patent prosecution will get more challenging.”

Patents will not cease to be important, but there will be a change in emphasis, and in particular a greater focus on quality rather than quantity. This trend is reinforced by recent decisions in the courts, both in the United States and elsewhere. In disputes over SEPs, for example, for a long time parties pursued an arms race strategy: as long as your armoury was large enough, it mattered little whether you ever actually deployed it. However, recent and pending cases such as Unwired Planet v Huawei in the United Kingdom and TCL v Ericsson in the United States suggest that when it comes to court proceedings, it may be more important to have a few rock-solid patent claims than many thousands of speculative ones.

In the future, patent litigation in the United States is likely to be less abundant and less lucrative than it is today, and big firms may move out of prosecution work altogether. At the same time, large law firms in the United States are now eyeing up other practice areas that are likely to grow in the coming years. These include cybersecurity and data regulation (following the introduction of the EU General Data Protection Regulation), compliance, tax advice (following the recent tax reforms) and trade disputes (with the renegotiation of the North America Free Trade Agreement and implementation of tariffs by the United States and China). Investing in these and other practices could draw resources away from departments considered less lucrative, such as intellectual property.

If big law firms do pull back from patent practice, this might provide greater opportunities for boutiques – particularly in work more suited to small, specialist firms, such as that related to the PTAB. Some of the most visible firms at the PTAB are IP specialists such as Finnegan, Fish & Richardson and Sterne Kessler.

Smaller outfits that are not competing with other departments can also be more flexible on pricing and more agile in responding to client demands, particularly as new businesses develop. “You won’t see the growth of the last 10 to 15 years. But there will be modest growth for new technologies,” says one practitioner. Another adds that there will always be value in cutting-edge work: “It is a really difficult job to make a patent application in innovative technology – and in-house people recognise that.”