RPX Corp IPRs: Reality Amid the Pyrotechnics

Like a good Fourth of July fireworks show, the debate over patent reform has been colorful and noisy—but only partially and sporadically illuminating. This has been especially true of the discussion around IPRs (inter partes reviews).

A creation of 2011’s America Invents Act (AIA), IPRs initially drew little attention. But over the last few years, this faster and more efficient method to challenge patent validity outside of district court has been put to use by a growing number of petitioners.

Many patent reform advocates claim that the IPR is a revolutionary tool in the fight against NPEs and nuisance infringement suits. Others say that the IPR process is biased against patent owners. The truth, as usual, is complicated and lies somewhere in between.

Here, RPX offers a view of IPRs that shows their impact on the patent litigation landscape. While it’s clear they’ve indeed become—for good reason—a weapon of choice against abusive patent suits, the data also indicate that the power of IPRs is more nuanced than some statistics suggest.

The following data show IPR activity overall, its distribution across market sectors, and—based on preliminary RPX survey data—an estimate of its cost. Data are current through June 16, 2015 unless otherwise noted.

Litigation is driving IPRs

The overwhelming majority of IPR petitions have been filed against patents that have also been asserted in litigation. These 1,685 patents, many of them challenged by multiple IPR petitions, make up 83% of all patents challenged in IPR petitions to date. The remaining 349 patents challenged in an IPR petition have not been asserted in district court litigation.

Figure 1 illustrates these 1,685 patents in proportion to the approximately 14,000 patents that have been asserted in litigation since September 16, 2011, when the AIA was enacted.

Fig. 1: Patents in Perspective

Figure 1 includes litigation from September 16, 2011 to present (N≈14,000).

IPRs help leverage settlements

To date, there have been 3,076 IPR petitions filed. Figure 2, below, shows each by current stage. Of those 3,076 petitions, after joinder, 384 have reached a final written decision. Those that have reached final written decision have been, on average, fairly successful: in 65% of such reviews, not only was trial instituted for all claims challenged in the original petition, but all those claims were also ultimately ruled unpatentable.

However, a significant number of IPRs have terminated somewhere along the way before final decision. Voluntary termination usually signals a settlement by the parties. This suggests that parties are using IPRs both to attack validity on the merits and to help drive settlement, before and after institution.

Fig. 2: IPR Petitions Filed to Date

IPRs address patents in highly litigated market sectors

Unsurprisingly, IPRs target patents that have been asserted in popular litigation market sectors, such as the E-commerce and Software market sector.

Fig. 3: IPR Petitions by Market Sector

RPX categorizes each case into a market sector based on a manual review of the accused products, defendants, and asserted patents. For each patent challenged in an IPR petition, RPX identified the most common market sector associated with the cases in which that patent has been asserted since 2005. Figure 3 charts the results.

Figure 3 shows the 2,659 IPRs against the litigated patents, broken down by the market sectors in which the challenged patents were most frequently asserted in past litigations. Thus, Figure 3 gives a rough measure of the technology at issue in each IPR that has an associated litigation.

Cheaper—but by no means cheap

RPX is conducting a voluntary survey of IPR petitioners to estimate their costs. Preliminary data from this survey show that petitioners’ IPR costs run from the low- to mid-six figures—with much of the cost incurred up front.

Fig. 4: The Cost of Filing IPRs

This figure reports petitioners’ average cumulative costs for pursuing IPRs that ended at the stage indicated. Units ($) in thousands. N=48 petitions.

Figure 4 shows a preliminary estimate of the average cumulative costs to a petitioner of filing and pursuing an IPR. Not all IPRs went to final decision; thus, the average varies by stage of completion. Reported costs include fees to counsel, expert witnesses, and the PTO for filing.

In Figure 4, petitions are grouped by the procedural stages at which they ended. We use three rough groups: those that terminated before institution, those that reached institution (whether denied, or granted and later terminated), and those that reached a final decision on the merits. We also show the same costs grouped by IPR “campaigns”—a term that refers to a group of one or more IPR petitions filed by a petitioner against patents defended by the same named patent owner. The IPR campaign more closely estimates what IPRs cost as an alternative to litigation; defendants often face multiple patents asserted by one plaintiff in district court, and in those cases, just one IPR won’t usually tee up a litigation stay or provide enough negotiating leverage.

The data show that on average, an IPR campaign costs about $278,000 before any of its petitions have been instituted. By final written decision, a campaign can cost upwards of $500,000. Increasing the size of the campaign naturally increases the cost.

While the data suggest that campaigns that have terminated at or after institution cost more on average ($648,000) than the campaigns that have reached final decision ($568,000), this probably does not reflect a real trend. More likely, the trend is noisy due to high variability in petitioners’ reported costs. As RPX continues this survey and collects more data, these measures will likely settle closer to a true mean.

Regardless, six figures per IPR is no small price for companies that make less than $1 billion a year. These companies were hit by over half of the NPE lawsuits brought in 2014 (see Chart 44, RPX 2014 NPE Litigation Report) and, on average, paid settlements under $300,000 in 2014 (see Chart 6B, RPX 2014 NPE Cost Report). At first glance, filing an IPR campaign against low-quality patents may seem attractive. But, while settlement provides definite resolution to an entire case, filing an IPR campaign does not and may often be more expensive for small companies. For them, in many cases, the benefits of an IPR petition won’t justify the total cost to file.

RPX will continue its analysis of IPR activity and cost. Comments and questions about these data, or inquiries about contributing to the IPR cost study, are welcome; please send them to reports@rpxcorp.com.