Data released by RPX and Unified Patents shows that 2017 was another tough year for patent owners (and their lawyers) in the US. The downward trend in patent lawsuit filings continued, while settlement amounts declined and the Eastern District of Texas, so long a favoured venue for plaintiffs, became a whole lot less attractive following the Supreme Court’s TC Heartland decision. Meanwhile, the PTAB enjoyed a record year – though by the end of 2017 there were signs that petition rates were slowing down.

Below, IAM takes a dive into the key statistics to see how the US patent litigation landscape evolved last year.

An overview

According to data from Unified Patents, over 5,400 new patent disputes were filed in the US in 2017. However, the total number of new cases at district court and the Patent Trial and Appeal Board (PTAB) fell by 11% compared to 2016 (see graph below). Although the PTAB had its busiest year to date and received 1,796 new petitions (it should be noted that RPX puts this figure at 1,787, which would put 2017’s result slightly below that of 2015), the total volume of litigation still shrank as the number of new cases at district court declined sharply from 4,382 in 2016 to 3,649 in 2017 – a decrease of 17%.

Number of patent cases filed at district court and the PTAB – 2012-2017 (view full-size here):

Overall, then, US patent litigation has continued on the downwards trajectory that began in 2015. But, as opposed to being a continuation of a general trend, the results of 2017 may partially be explained by a number of major developments in case law, namely TC Heartland v Kraft Foods, Oil States v Greene’s Energy Services, and SAS institute v Matal, as well as Allergan’s transfer of its patents to the Saint Regis Mohawk tribe. With such critical issues at stake – such as the constitutionality of inter partes reviews (IPRs) and new rules around venue selection for patent disputes – many parties may have been waiting for more clarity before initiating actions.

NPE litigation continues to tumble

In line with the overall litigation trend, non-practising entity (NPE) litigation filings have also fallen since 2015. This should not be surprising given that almost 60% of all new patent disputes in 2017 were attributed to NPEs, according to Unified Patents. As illustrated in the graph below, the number of defendants added to lawsuits by NPEs was 1,994 in 2017, which represents a decline of approximately 27% compared to 2016. It is also worth noting that only 1,540 defendants were added to disputes by operating companies – this is an almost 32% drop and the first noticeable dip in operating company litigation in recent years.

Number of defendants added to US district court patent cases annually – 2000-2017 (view full-size here):

The volume of NPE litigation has fluctuated in the last decade, but as seen from the number of defendants added to patent cases by NPEs, there has generally been a decline since the peak year of 2011. As highlighted by RPX, today’s volume of NPE activity is roughly equal to the period just before the introduction of the American Invents Act (AIA), but still between two to four times higher than filings from the early 2000s.

RPX suggests three possible reasons for the fluctuation and gradual slide downwards: the AIA’s introduction of the post-grant review process, which came into effect in 2012; the effect of market solutions such as RPX and Unified Patents, among others; and significant legal developments, including Alice v CLS Bank and TC Heartland, which concerned issues of patent eligibility and venue selection respectively.

It is also interesting to note that just shy of 90% of all NPE litigation involves high-tech patents, as seen below. This is in stark contrast to non-NPE litigation, which only covers the high-tech sector 17% of the time.

Litigation by entity type and sector – 2017 (view full-size here):

Patent assertion entities (PAEs) make up the dominant share of NPE filers overall. These entities account for almost two-thirds of all NPE litigation, according to Unified Patents. However, it should be mentioned that this definition of PAEs includes those controlled by larger entities that regularly assert their rights, such as IP Edge or Dominion Harbor. The graph below highlights the top NPEs based on the number of defendants added to new and existing patent lawsuits. IP Edge is still by far the most prolific plaintiff, despite a decrease in the number of defendants added compared to 2016.

Top NPEs by number of campaign defendants added – 2017 (view full-size here):

A drop in settlement amounts

Changes in the legal landscape since 2011 have not only affected the volume of NPE litigation but also the settlement amounts paid out by defendants to end disputes involving NPEs. Notably, after the decision in Alice in 2014, lawsuits by NPEs have settled at a lower average price than before the AIA ($1.5M vs $2.1M). Additionally, fewer disputes today settle in the middle range of $500,000 to $10 million, with more cases settling in the lower range of $0 to $500,000. A consistently small handful of cases (5%) land in the largest category, with settlements of $10 million or more, as seen below.

Distribution of settlement prices in NPE cases by year resolved – 2008-2017 (view full-size here):

RPX points to the falling cost of defence as the primary explanation for these changes: before the AIA and Alice decision, an effective validity or eligibility defence generally meant awaiting summary judgment and, therefore, the completion of fact discovery, which is an expensive process. Now there are more options available to defendants, including the ability to potentially dismiss a case early on the basis of ineligibility or filing for post-grant review to stay the litigation. With the cost of litigation lowered at the earlier stages, defendants who would have settled earlier to avoid legal costs now have more leverage to settle for lower amounts.

PTAB breaks records but filings now on a downturn

As mentioned above, 2017 was an incredibly busy year at the PTAB: it received just under 1,800 new petitions last year. The vast majority of these petitions (over 1,700) were for IPRs. Breaking down the filing numbers over the year, it can be seen that there was a record number of petitions in Q1. However, as the months rolled on, the number of IPR filings steadily fell.

PTAB petition filed quarterly – 2012-2017 (view full-size here):

Concerns over two pending cases may explain the dip in filings: the outcomes of Oil States and SAS Institute could significantly change the PTAB’s process. The first of the two Supreme Court cases, Oil States, raises the question of the constitutionality of IPRs; while, SAS Institute is concerned with the PTAB’s ability to issue partial institution decisions.

The Federal Circuit’s decision in Aqua Products v Matal back in October may also have an effect on IPR strategy. The ruling held that the petitioner in an IPR proceeding bears the burden of having to prove the unpatentability of new or amended claims request by the patent holder. RPX has stated that 9.4% of IPR motions to amend so far have been granted through to 13th December 2017, but notes that this figure could rise dramatically over the course of 2018 as the ruling starts to have a larger impact.

The issue of sovereign immunity in relation to PTAB proceedings is yet another factor at play. The debate around Allergan’s controversial transfer of patents to the Saint Regis Mohawk tribe is one that will be closely monitored at the beginning of 2018, as the PTAB is expected to issue a decision on the matter by April.

In terms of the parties involved at the PTAB, six of the top 10 most-challenged patent owners were NPEs. The most frequently challenged owner in 2017 was Uniloc, which filed 95 new district court patent cases last year. Almost two-thirds of all PTAB petitions involved high-tech patents, and among all the high-tech PTAB petitions, over half were filed against patents held by PAEs, as seen below.

High-tech PTAB petitions by patent owner – 2017 (view full-size here):

In 2017, the top patent dispute venue was the PTAB. The Eastern District of Texas was the next most popular location for patent litigation, which is unsurprising given that it has long been the preferred venue for many plaintiffs. However, following the Supreme Court’s highly anticipated decision in TC Heartland in May, there has been a dramatic shift in the spread of patent dispute venues. As seen in the graphs below, the Eastern District of Texas has declined sharply as a venue for patent litigation post-TC Heartland (from 34.3% to 15.5% of all litigation), while the District of Delaware has quickly become the preferred venue of choice (from 13.5% to 21%). While the Eastern District of Texas is still the second most popular location, there has since been a noticeable rise in the proportion of patent litigation at the Central and Northern Districts of California and the Northern District of Illinois.

Litigation by patent venue pre-TC Heartland – 2017 (view full-size here):

Litigation by patent venue post-TC Heartland – 2017 (view full-size here):

When considering NPE lawsuits exclusively, the same five locations are the most popular venues both before and after TC Heartland. However, the distribution was initially skewed much further in favour of the Eastern District of Texas, with 57% of all new NPE disputes being brought there, while only 8% of disputes were brought in the District of Delaware, the second most popular venue. Post-TC Heartland, the District of Delaware has again overtaken the Eastern District of Texas as the top venue, while the other three venues have once more seen a rise in popularity as well.

NPE defendants added by district – 2017 (view full-size here):