Many Texas lawyers already know that it's a great time to specialize in patent litigation — courts awarded more than $1 billion in damages last year, according to a recent study.
But that same study also documents some surprising results — including that median damage awards won by oft-maligned "nonpracticing entities" (NPEs) have been outperforming those of practicing entities for more than a decade.
The 2013 Patent Litigation Study, released by PricewaterhouseCoopers late last month, took a long-term, national look at patent litigation by focusing on 1,856 patent decisions issued by federal trial courts dating from 1995 to 2012.
The study notes that the 2011 America Invents Act (AIA) has played a large role in driving the nation's patent docket, which reached a record level of 5,189 actions filed in 2012 — a 29 percent increase over 2011. The report attributes the increase to the anti-joinder provision in the AIA, which forces patent plaintiffs to file individual complaints against multiple defendants.
The study's look at the success of NPEs in federal court is also of particular interest because the study came out shortly after President Barack Obama announced a legislative push and executive order aimed at cracking down on what he calls "patent trolls" — entities that do not have the capability to design, manufacture or distribute products yet own patents and file infringement cases in federal court.
The study shows that across the nation, NPEs are outperforming practicing entities in median damages. In fact, for the past 12 years NPEs' median damage awards are nearly double those of practicing entities. The most recent statistics show that, from 2007 until 2012, practicing entities posted $3.8 million in median damage awards, while NPEs won $7.2 million in median damage awards. [See chart: NPE Awards Outpace Practicing Entities' Awards]
The report also shows that the largest concentration of reported NPE decisions in the United States is in the Eastern District of Texas — a venue favored by patent plaintiffs for a variety of reasons, including its reputation for friendly juries, experienced judges and firm trial settings. Between 1995 and 2012 the Eastern District issued 45 decisions involving NPEs. NPEs were successful (by winning damages or a permanent injunction) 46.7 percent of the time. [See chart: Top District Courts for Decisions With NPE as Patent Holder]
VIEW FROM THE TRENCHES
The study's conclusion that NPEs are outperforming practicing entities in median damage awards comes as a surprise to U.S. District Judge Rodney Gilstrap of Marshall, who presides over one of the busiest patent dockets in the nation.
"That's not what I expected. That's not what I'm seeing," Gilstrap says.
Gilstrap notes that he regularly questions juries at the conclusion of a patent infringement cases, and the NPE status of a plaintiff does not seem to matter to them.
"From my perspective, juries really don't focus on whether a plaintiff [is] or is not a practicing entity. It's just not a big issue with juries, that I can see," Gilstrap says.
Gilstrap also notes that the study does not take patent infringement settlements into account — information that's not widely available, since most settlements are confidential. Settlement is still the most common way patent cases are resolved in the Eastern District and across the nation, he says.
The median damage award statistics are also a surprise to veteran patent litigator Doug Cawley, a principal in Dallas' McKool Smith.
"As a trial lawyer who tries a lot of these cases, I think it's much easier to get a substantial jury verdict for a practicing entity than an NPE," Cawley says. "I'm surprised at this statistic, and I don't have any explanation for it other than its a product of the fact that there are a lot of NPE cases being filed, so the odds are that some of them are going to be successful."
But Vincent Allen, a patent litigator and partner in Dallas' Carstens & Cahoon who practices in the Eastern District, says there's a good reason NPEs do well statistically before Eastern District juries: They're choosy about which cases they take to trial, he says.
"This is the business that most of these entities are in. That's why they were formed . . . to buy patents and assert them. And, in some cases, they have teams of lawyers deciding what patent claims they're going to assert," Allen says. "I think the NPEs are probably more sophisticated in deciding what cases they do want to take to trial and what cases they want to settle."
The decision to take a patent infringement claim to trial is often different for a practicing entity, Allen says. "There is also some emotion involved in it, as well. If you've got a practicing entity . . . they're going to want to protectthat IP for the sake of the product line. And, with an NPE, they don't have a product line that they're trying to protect."
Michael Smith, a Marshall patent litigator and partner in Siebman, Burg, Phillips & Smith, says the reason NPEs may perform well in the Eastern District is many of them are "repeat players" who hire experienced lawyers to try their cases.
That said, Smith says he's handled four NPE jury trials in the Eastern District over the past year for both plaintiffs and defendants with mixed results. Two were defense verdicts, and two were plaintiff verdicts. In the plaintiffs' wins, the litigants got 10 percent of the damages they requested, Smith says.
In his experience, NPEs usually do not win big damages in the Eastern District, Smith says.
"Again, I do not see large numbers at trial in the cases that I'm in," Smith says. "The numbers in cases I have seen recently have been low."