What 15 Years of US Patent Litigation Data Reveal About the IP Market: An Overview

Patent litigation trends have been volatile over the last 15 years, often responding to legislative, administrative, and judicial changes. A disaggregation of this data reveals meaningful differences among plaintiff types and may provide valuable insight into the IP market today—and tomorrow.

The most pronounced changes in long-term filing trends have been almost entirely driven by the behavior of NPE plaintiffs. As illustrated in the graph below, NPE litigation quintupled from an annualized rate of about 1,000 defendants in 2005 to a peak of nearly 5,000 in 2011 just before joinder reform took effect in September of that year. From there, the trend shows a general decline with some notable peaks and valleys—apparently in reaction to various reforms designed to deter some aspects of NPE behavior. For example, a notable spike in NPE complaints preceded joinder reform in 2011, whereas a lull in new NPE filings followed the Supreme Court’s Alice decision in 2014. Finally, late 2015 saw an NPE rush to the courthouse just ahead of pleadings reform.

On the other hand, as also shown below, those reforms do not appear to have much of an effect on operating company patent litigation, which from 2005 through 2012 held steady at an annual rate of just above 2,000 defendants. Since then, it has been on a gentle, steady decline, finishing 2020 with about 1,460 defendants added, almost identical to the level in 2019. (These data exclude cases involving only design patents, which named nearly 3,000 defendants, mostly online merchants). This suggests that changes designed to address certain aspects of NPE behavior have been both effective and surgical in their application.

While NPE filings may have dipped below their 2011 peak, the risk of NPE litigation that operating companies face now and in the near future is arguably just as high—or even higher—than it was back then. The reasons are twofold. First, as recently reported by RPX, if past is prologue, the current financial crisis will likely be followed by years of increased patent divestments by operating companies—including to NPEs—as those patent owners face pressure to preserve and augment balance sheet cash. Many operating companies may turn in the coming year to their patent portfolios as a source of revenue, including by selling patent assets to NPEs as well as entering into privateering partnerships with NPEs and/or monetizing their own assets directly through licensing or litigation. Indeed, the patent marketplace has lately been teeming with former operating company patents, and as such divestments continue to hit the market, the result could very well be a further rise in NPE litigation.

Second, NPEs have increasingly relied upon litigation finance, a key driver of patent litigation that has been picking up steam in recent years but hit new heights in 2020—with no shortage of supply (in the form of capital from wealthy investors) or demand (from plaintiffs and also from law firms).

In 2021, this trend may further accelerate as a result of the economic distress caused by the COVID-19 pandemic. In partnership with litigation funders, NPEs may begin picking up larger patent portfolios, possibly of higher pedigree and of operating company origin—portfolios that prior to the COVID-19 recession may have been out of their reach. The support and connections offered by an experienced litigation funder may also allow those NPEs to retain more sophisticated (or at least experienced) legal counsel, enabling such plaintiffs to more effectively litigate their newly acquired assets.

See RPX’s latest blog post for a more detailed analysis of these litigation and marketplace trends.