The 2011 Patent Litigation Survey

Jan Wolfe

Corporate Counsel

06-27-2012

Judges and lawmakers are working to deter patent suits, but you wouldn't know it from the results of the 2011 edition of our annual Patent Litigation Survey.

The survey, which ranks law firms according to how many federal district court patent cases they handled in 2010, reveals that the business of patent litigation is booming at many firms. For instance, Fish & Richardson, which took top honors for the eighth year in a row, handled 128 cases in 2010, compared to 99 last year—a 29 percent increase. Similarly, Finnegan, Henderson, Farabow, Garrett & Dunner, second in this year's rankings, saw its caseload shoot up almost 47 percent, to 69.

The other firms at the top of our rankings, like Jones Day and McDermott Will & Emery, were all as busy as ever defending clients against nonpracticing entities (NPEs), or, as they're commonly called, "patent trolls"—the controversial entities that acquire patents to litigate, rather than innovate. Jones Day, in third place this year, defended against 32 cases in the Eastern District of Texas, the epicenter of "troll" litigation. That's almost half the firm's total caseload.

It's not just top intellectual property law firms that are seeing an uptick in work. After an unusually slow 2009, district court patent litigation made a comeback last year. According to a recent study by PricewaterhouseCoopers, patent holders brought 2,892 infringement lawsuits in 2010—a 5 percent increase over the year before. The uptick brings the number of new filings back to prerecession levels, but falls short of the 2004 historical high of 3,075 cases.

Helping drive the uptick are two very different sets of litigants: NPEs, who keep plugging along, and industry goliaths like Apple Inc., Samsung Electronics, and HTC Corporation, whose battle for smartphone supremacy continues to keep courts busy.

So the business of patent litigation appears to be strong, to the relief of IP lawyers and the dismay of litigation-fatigued general counsel.

The lawsuits kept coming, even as judges reined in damages awards in patent disputes. The median award in a patent case plummeted in 2010 to $1.8 million, according to PricewaterhouseCoopers. That's a sharp decrease from more than $6 million in 2009, and the lowest total in 16 years.

The decrease comes as no surprise to patent litigators who have been watching the U.S. Court of Appeals for the Federal Circuit. Since 2009, the court has handed down a slew of opinions urging closer scrutiny of expert testimony on damages in patent cases. "The Federal Circuit in general and [chief judge] Rader in particular have made it a mission to get the word out about how damages should be calculated, and that's had an impact on recoveries," says Sarah Chapin Columbia, head of the IP litigation group at McDermott Will & Emery.

The recession may also explain the smaller verdicts. "In difficult financial times you find juries tightening their belts and looking carefully at what they award. They are keenly aware they shouldn't be too hard on businesses," says Steven Routh, a partner at Orrick, Herrington & Sutcliffe.

Why the increase in lawsuits, if courts are clamping down on big paydays? One explanation may be troll litigation, which shows little sign of slowing. While NPEs love a big verdict, their business model doesn't depend on them. They are notorious for suing a huge number of diverse defendants in plaintiff-friendly venues, and then offering to settle at a price lower than the cost to defend the litigation.

According to our rankings, one of 2010's most prolific NPEs was Geotag, Inc., a Texas-based company. In 2009 it acquired a patent related to "geotagging" (the process of adding geographical metadata to media, like online photos) for nearly $119 million, according to research by IP analyst and blogger Florian Mueller. Then, last year, it sued at least 397 businesses for patent infringement in East Texas, Mueller's research reveals. Those suits were primarily against Google Inc., Microsoft Corporation, and assorted companies that use their mapping services (Google Maps and Bing Maps, respectively) for online store locators.

Nearly every firm near the top of our rankings profited from the Geotag boomlet, including our winner, Fish & Richardson. It defended against Geotag in seven related cases in East Texas.

While the decrease in damages awards hasn't yet deterred plaintiffs lawyers, it has started to affect settlement negotiations, says Columbia. "Anecdotally, we're seeing a bit of changed behavior and settlement amounts becoming smaller," she says. "And, over time, the crackdown on damages may make the NPEs more discriminating about the cases that they bring."

The ubiquity of the smartphone may also explain the uptick in new patent cases even as awards shrank. Apple, which makes the industry-leading iPhone, is pressing forward with a patent litigation campaign against rivals like HTC and Samsung. Many observers have called that campaign a proxy war with Google, because both companies use Google's open-source Android operating system. A soon-to-be-released official biography of Steve Jobs, Apple's deceased founder and ex–CEO, confirms that suspicion. Biographer Walter Isaacson reportedly quotes Jobs as vowing to "destroy" Android because he said it copies Apple's ideas. "I will spend my last dying breath if I need to," Jobs was quoted as saying. "And I will spend every penny of Apple's $40 billion in the bank, to right this wrong."

Unlike most patent holders, smartphone manufacturers aren't after big verdicts. Their strategy has been to ask federal judges to enjoin rivals from entering the burgeoning smartphone market in the first place. And for every complaint that a smartphone manufacturer like Apple or HTC files in district court, there is typically a corresponding complaint before the International Trade Commission, which can't award money damages but can lay down costly "import bans."

One firm that particularly benefited from the smartphone wars in 2010 was Quinn Emanuel Urquhart & Sullivan, which slotted in at 17 in our rankings. It defended Motorola, whose phones use Google's Android operating system, in two different Apple lawsuits in the Western District of Wisconsin. It also went on the offensive against Microsoft in a case in Seattle.

Thanks to NPE litigation and the smartphone wars, patent litigation could chug along for years to come. When discussing the future of patent litigation, lawyers say the elephant in the room is the America Invents Act, the sweeping patent reform bill signed into law in September.

In an effort to curtail and simplify patent litigation, Congress has created a new avenue for challenging the validity of patents in the Patent and Trademark Office, instead of the courts. The most intriguing new procedure is one called "postgrant review," because the PTO is statutorily required to issue a ruling within a year of such a challenge being brought, or 18 months in extenuating circumstances.

The IP lawyers at McDermott have been actively debating the impact that postgrant review will have when it goes into effect in 2012, says Columbia. "It's going to be fascinating to see how it plays out," she says.

Many patent litigators say they are wary of the new procedure. Unlike the courts, the PTO can't offer money damages, they explain. And the stakes are high: If an argument is raised in postgrant review, or reasonably should have been, lawyers are precluded from raising it in later litigation.

Routh, of Orrick, falls into that camp. "I don't see it reducing litigation so much as providing another battlefield," he says. "You can decrease the weapons your competitors have against you if you challenge their patents early on, rather than waiting for litigation."

Columbia expresses some skepticism as well. "I don't think there will be the rush to postgrant review that some people are claiming, because the cost of giving up later court arguments is pretty high," she says. "I don't think the act, in and of itself, is going to have too much of an effect on NPEs and the volume and frequency with which they file."

Shape Shifters

One firm disappears, while two others merge—and could rise to the top next year.

Recent law firm dissolutions and mergers have shaped the "who's who" of patent litigation. The most notable changes were the shuttering of IP powerhouse Howrey (fourth in last year's rankings), and Kilpatrick Stockton's merger with the IP shop Townsend and Townsend and Crew.

Winston & Strawn most aggressively courted Howrey's displaced patent lawyers. It has hired 37 of them so far, including 32 from its former Houston office, which James Hurst, chairman of Winston's IP group, calls the "crown jewel of the Howrey dissolution." Because we include in our rankings the cases that ex-Howrey lawyers brought with them to Winston & Strawn, the firm soared into fifth place in our rankings—up from thirteenth in 2010 and twentieth in 2009. "Taking on almost 40 lawyers was a pretty big expansion," says Hurst. "They represent the energy industry in patent litigation, so suddenly we work with a brand-new industry."

The Kilpatrick Townsend merger in January also shook up the patent litigation world. Kilpatrick Stockton, the larger of the two legacy firms, handled 38 cases in 2010, up from 32 in 2009. Townsend and Townsend and Crew handled 35 matters in 2010. Combined, that's 73 cases, which would have placed Kilpatrick Stockton in second place in this year's rankings. After the merger, Kilpatrick is now a go-to litigation firm for companies that it previously represented only in transactional matters, like patent prosecution and licensing, says partner John Pratt.

See also: "2011 Patent Litigation Survey: The Busiest Firms Overall," CorpCounsel, November 2011.