According to the new 2014 Patent Litigation Study by PwC, the number of U.S. patent cases filed and the number of patents granted continued to grow in 2013, up 25 percent to a new record high of 6,500 cases and up seven percent to almost 300,000 patents. Still, the median damages awards continue to trend down, declining to $4.3 million in the most recent four-year period.
PwC maintains a database of U.S. patent infringement actions, collecting key information on liability outcomes, damages awarded, time-to-trial, trier of fact, type of entity, industry, district court and judge.
“At first glance, 2013 appeared to be a moderating year in patent infringement litigation since there were no mega-verdicts and damages awards moderated from previous years. However, the number of patent cases filed and granted is continuing to grow rapidly,” said Chris Barry, PwC advisory partner focused on Forensic Services.
In 2013, nonpracticing entities (NPEs), also known as patent trolls, continued to play a growing role in patent litigation. PwC reports that even though more than half of new cases are filed by NPEs, only 20 percent of decisions in 2013 involved NPE patent holders. Still, median damages awards averaged more than triple those for practicing entities over the last four years. But, PwC also found that NPEs prevail less often than practicing entities, with NPEs successful 25 percent of the time, versus 35 percent for practicing entities.
Barry continued, “NPEs’ prevalence in patent litigation, coupled with certain reported aggressive tactics, have captured the attention of practicing entities as well as incited multiple political responses. With patent cases increasing and actions aimed at constraining perceived litigation abuses, recognizing the ongoing issues in patent litigation and intellectual property matters are critical.”
PwC’s study also found the following:
- The median jury award was nearly 37.5 times the median bench award between 2010 and 2013.
- Reasonable royalties remain the predominant measure of patent damages, representing around 80 percent of awards since 2000. But, lost profits showed a surprising resurgence over the last four years, growing to a 37 percent share of the awards.
- The median damages award in the telecommunications industry was the highest at $22 million.
- The biotechnology /pharmaceutical, medical devices, and computer hardware /electronics industries also had high median damages awards, at double to triple of all industries.
- The top four districts with favorability to patent holders including Virginia Eastern, Delaware, Texas Eastern and Wisconsin Western are the same as last year’s study, with shorter time-to-trial, higher success rates and greater median damages awards.
- Six patent cases were granted certiorari in the current term, relating to matters including the scope of patentable subject matter in business method patents; the extent to which activities outside U.S. borders can infringe U.S. patents; under what circumstances defendants can recover litigation costs from losing plaintiffs and; technical patenting and procedural issues.
So, why is it that both the number of U.S. patent cases filed and the number of patents granted have continued to grow so quickly?
According to Barry, because of two reasons: patent cases and patent grants. Patent cases, are a cause because of anti-joinder rules (from the America Invents Act where each non-affiliated defendant needs to be sued separately) combined with robust NPE activity. And, patent grants, as the U.S. Patent and Trademark Office continues to receive and process greater number of patent applications each year.
“Many entities have emphasized the importance and value of intellectual property, and seek patents both for assertion and defensive reasons,” explained Barry.
On the other hand, median damages awards continue to trend down, declining to $4.3 million in the recent four-year period because of the lagging effects of many cases decided over the last 10 years, which have tended to reign in patent damage. Barry said these lagging effects include scrutiny over use of the "entire market value rule", and a related tendency to apportion damages to smallest saleable patent-practicing unit; disallowance "25 percent rule" in determining damages, along with greater rigor demanded in damages analyses; low royalty rates for standards-essential patents and; narrower definition of what constitutes an "comparable" patent license against which to benchmark the subject patent.