Executive Spotlight: RPX’s Head of Analytics on the State of Patent Litigation in 2019

We recently sat down with RPX’s Brian Howard, Vice President of Analytics, whose team analyzes RPX’s rich data to provide strategic insights on the patent industry. Prior to joining RPX in 2018, Mr. Howard was at Lex Machina, where he worked as head data scientist and associate general counsel. Before moving into analytics, he was an associate at Durie Tangri and a litigator at Quinn Emmanuel. Mr. Howard has a JD and MA from the University of Virginia and earned his bachelor’s degree from Yale University.

What are some high-level developments in the patent litigation space that you’ve seen over the past year?

Brian: Relative to the turbulent and fast-changing years in the first half of the decade, the last few years have been more stable in terms of patent litigation filing activity. However, in 2019, patent case filings have been increasing, policy at the Patent Trial Appeal Board (PTAB) is shifting in a direction that is more patent owner-friendly, and there is legislation on the horizon that has the potential to dramatically reshape the patent landscape.

What trends are you seeing when it comes to district court filings?

Brian: After a period of relative stability between 2016 and 2018, this year, we have seen three consecutive quarters of increase in the number defendants added to patent litigation. We’ve also seen the percentage of defendants sued by Non-Practicing Entities (NPEs) increase substantially, from 48% of patent defendants in 2018 to 57% this year (through the end of October).

One potential driver of the increased litigation is how courts (and litigants) have responded to changes in patentable subject matter jurisprudence under the Alice v. CLS Bank case.

How have the Federal Circuit’s decisions in Berkheimer and Aatrix affected the way courts address patent eligibility under Alice?

Brian: The Alice case, decided by the Supreme Court in 2014, established the current test for what kinds of inventions are eligible for patent protection. Since then, the Federal Circuit has issued follow-on decisions clarifying how Alice should be applied, the most significant of which were Berkheimer and Aatrix (both decided in February 2018). In these cases, the Federal Circuit held that the legal question of patent invalidity may involve subsidiary questions of fact.

For litigants, historically, Alice challenges have represented a way to exit a case early and cheaply, often without having to go through discovery (usually the costliest phase of litigation). In Berkheimer and Aatrix, though, the Federal Circuit has made it more difficult for defendants to exit a case before discovery by holding that factual disputes over inventiveness may preclude dismissal under Alice.

The data illustrates this difference starkly. From the issuance of Alice through the Berkheimer decision, district courts invalidated approximately two thirds of the patents challenged, but since Berkheimer that invalidation rate dropped to less than half.

The data also shows that, despite a shift towards more litigants challenging validity early in the case under Rule 12 since Berkheimer, the invalidation rate dropped for both challenges under Rule 12 as well as under summary judgment (Rule 56). These developments in Section 101 doctrine may be partly responsible for the increase in patent litigation filings over the last year, and the doctrine is also implicated in recent proposed legislation.

Can you describe some recent PTAB filing trends, as well as what influence USPTO Director Andrei Iancu has had on PTAB policies?

Brian: We saw a decrease in inter partes review (IPR) petitions this year, with fewer IPR petitions filed in any of the first three quarters of 2019 than during any quarter since 2014. As of October 2019, IPR filings in the PTAB are down 18% compared to the same time last year. The decrease in IPR filings has corresponded with a series of incremental changes at the PTAB under Director Iancu, most of which favor patent owners. Notably, he created the Precedential Opinion Panel (POP), which is designed to rehear issues of “exceptional importance,” as well as designate certain opinions as “precedential” or “informative.”

Iancu has used the POP and the designation of precedential opinions to increasingly exercise the PTAB’s discretion to deny institution. Perhaps most notably, the PTAB has extended the Federal Circuit’s Click-to-Call decision to additional circumstances. In that decision, the appeals court held that the time bar (the one-year window following a complaint for infringement after which an IPR cannot be filed) begins to toll even when a complaint is dismissed without prejudice. The POP has since ruled, in GoPro v. 360Heroes, that a complaint filed without standing triggers the time bar, and in Infiltrator Water Technologies v. Presby Patent Trust, the POP held that an involuntary dismissal also triggers the time bar.

What trends have you seen in Federal Circuit appeals?

Brian: We recently completed a study of outcomes in the Federal Circuit, examining appeals reaching decision between January 2013 through the present. One of the most surprising trends we saw is the increasing share of Federal Circuit appeals from the PTAB. I think most practitioners would likely be surprised to hear that more than half of the Federal Circuit’s patent appeals in 2018 and so far in 2019 have originated at the PTAB.

When it comes to district court appeals, we saw a disproportionately large number come from the bio/pharma industry relative to their share of underlying district court cases. That is likely because there are high stakes for those cases, and both sides are typically very well equipped to fund and handle appeals.

Can you describe some trends related to top appeals events and issues? Why do you think invalidity is affirmed on Section 101 more than others?

Brian: In the interests of efficiency, the law generally restricts appeals from events other than a final judgment. Since summary judgment is most often the dispositive event for cases ending on the merits, most appeals are from that event.

Regarding the top issues, they track with expectations that infringement, invalidity, and claim construction are the most common issues appealed.

There were some surprising and interesting findings in the data, though. First is the decades-old saw that the Federal Circuit reverses claim construction more often than not, leading many people to say that district courts are worse than random when it comes to claim construction. That is clearly not the case, though, as we saw claim construction affirmed in about 60% of the issues appealed.

Also surprising is that invalidity under Section 101 is so often affirmed relative to the other outcomes. There’s a perception among some that rulings under Section 101 are a crapshoot, but the data shows that the Federal Circuit tends to conclude that district court judges often get it right.

Another outlier for issues by outcome is equitable relief, with a very low affirmance rate of nearly one quarter. Injunctions are pretty rare in US patent litigation to begin with, and their determination is often very fact-intensive, which may be a factor in the low affirmance rate.

Looking overseas, what’s the state of play with patenting activity and related litigation in China?

Brian: By all measures, the IP space in China is expanding dramatically. Regardless of whether we look at patenting activity, infringement action, or invalidity proceedings, we see a 3-5x increase over the last decade. China is quickly becoming a world destination for patent litigation. For many, the landscape in China has never been a concern, but given its growth, savvy counsel and practitioners should understand the basics of how that landscape is developing and what they can expect from litigation there. Given today’s increasingly integrated, digital, and global supply chains, China is not as far away as it seems.

What are some key items for those savvy practitioners to know when it comes to infringement cases in China?

Brian: Infringement action in China has dramatically increased along with the growth in patenting activity. From a US perspective, there are some advantages for plaintiffs: cases move quickly, and plaintiffs win on at least one claim roughly 80% of the time, though cases against foreign defendants have had a lower plaintiff win rate historically. When plaintiffs win on the merits, injunctions are granted 90-95% of the time, which can not only bar the infringing activities of US-based defendants, but also the exporting of infringing products, which has serious implications for supply chains. While damages are low by US standards, the threat of injunction is the real leverage for plaintiffs.

Turning attention back to the US, what key patent reform efforts in Congress are you tracking, and which if any have real possibility for passage?

Brian: There are two pieces of legislation that fall under the patent reform umbrella that our team is currently tracking—the STRONGER Patents Act, and a bill reforming patentable subject matter / patent eligibility.

The STRONGER Patents Act would have two primary effects—making IPRs somewhat less powerful and making injunctions easier to obtain in patent cases, undoing a doctrine that’s been in place since 2006 (eBay v. MercExchange). This legislation has been introduced in various forms over the last three years but still seems to lack widespread support.

The second legislative proposal is an attempt to reform the doctrine of patentable subject matter under Section 101. It would significantly broaden the scope of what is patentable, and correspondingly reduce the options for defendants to fight patent infringement cases with invalidity defenses based on eligibility. This matters because Section 101 is a way for defendants to potentially exit a case without incurring the cost of fact discovery.

The proposed reform legislation also includes a change to the rules around “functional” language in claims (when an element is described by its function rather than specifying the mechanics of how that function is performed).

Currently, this doctrine is fairly limited—there’s a presumption that only certain words trigger treatment of the claims as functional, in which case only the disclosed structure is covered by the claim. The new proposal would eliminate that presumption, applying the same treatment of limiting coverage to only disclosed structure to other language written in a functional way, expanding the doctrine. As a result, because many claims were written with the current rules in mind, those claims may become vulnerable to arguments of noninfringement, since claim elements treated as means-plus-function are generally accorded a narrower scope. Litigation around where exactly the new line is drawn on functional claiming is likely to be a hot button issue.

Overall, while defendants would gain new arguments for noninfringement, the loss of the eligibility defense for many would leave them worse off, since winning on noninfringement typically comes much later in the case and often after the high-cost discovery phase has already occurred. Unlike the STRONGER Patents Act, this bill has more widespread backing and appears to have a better chance of actually becoming law. While it’s still early in the process, there’s a strong desire to pass bills with bipartisan backing in the current climate. It’s also possible that the two bills may be combined, though no specifics on that have emerged yet.