Wednesday, September 16, 2015

Mazzeo, Ashtor & Zyontz on NPE Damages Awards

This paper has been out for a while, but I only recently came across it (hat tip to Michael Risch) and thought it might interest readers who haven't seen it yet.  The authors are Michael Mazzeo, Jonathan Hillel Ashtor, and Samantha Zyontz, and the paper is titled Do NPEs Matter?  Non-Practicing Entities and Patent Litigation Outcomes, 9 Journal of Competition Law & Economics 879 (2013).  Here is the abstract:
It is widely argued that so-called “patent trolls” are corrupting the U.S. patent system and endangering technology innovation and commercialization at large. For example, a recent White House report argued that “trolls” hurt firms of all sizes and advocated for specific policies aimed at curtailing practices thought to be particularly harmful. Yet the existence and extent of any systematic effects of so-called “troll-like” behavior, and the implications of modern patent assertion practices by Non-Practicing Entities (“NPEs”), remains unclear. This article develops novel empirical evidence to inform the debate over NPEs on patent litigation. Specifically, we conduct a large-scale empirical analysis of more than 1,750 patent infringement cases decided by a judge or jury in U.S. district courts between 1995 and 2011.We focus on case outcomes, including findings of validity and infringement, and the distributions and values of resulting damage awards. We find some relatively small differences in terms of lower success rates and award values in cases where the patent holders are NPEs. Yet across the subset of cases in which damages are awarded to the patent holders, we find no significant differences in the distribution of awards between NPEs and practicing entities. Nonetheless, there are substantial differences in litigation behavior,  success rates, and award values among types of NPEs (that is, universities, individuals, and Patent Assertion Entities (“PAEs”)). Moreover, we find evidence of certain NPEs engaging in strategic and rational patent acquisition, assertion, and settlement-licensing practices. We posit that these practices may reflect, or perhaps derive from, the economic separation of patent rights from their underlying technologies that is represented in NPE approaches to patent assertion.
To put the paper in context, in a previous paper about which I blogged here, Explaining the “Unpredictable”:  An Empirical Analysis of U.S. Patent Infringement Awards, 35 International Review of Law & Economics 58 (2013), the three authors reviewed, among other things, “340 patent infringement damage awards granted by a judge or jury in United States district courts from 1995 to 2008 . . . derived from a proprietary dataset owned by” PricewaterhouseCoopers (PwC), and performed regression analyses that appeared to explain between 64% and 77% of the variation in the observed patent damage awards.  (Variables observed to have the greatest association with higher damages awards include the number of patents in suit, the average age of the patent, the average number of claims, the average number of forward citations, whether the defendant is a public company, whether the trial was to a jury, and the time to trial.)  The NPE paper is a follow-up, involving 261 observations from 1995 through 2008, to test whether NPE status is independently associated with higher damages awards.  The authors' regression analyses indicate that once the value-associated factors identified in the earlier study are taken into account, there was no significant difference between awards to NPEs and awards to practicing entities over the time periods studied:  "Our analysis suggests that decided cases involving NPEs do not resolve differently than cases that involve practicing entities as judged along various dimensions. Patent holder success rates are somewhat lower for NPE cases than for non-NPE cases and, controlling for other factors, the damages awarded in cases with valid and infringed patents are somewhat smaller (though not statistically significantly so)" (pp. 901-02). 

The authors also state their intent to “revisit these regressions with more complete data in future work.”  (I understand that one follow-up paper by Mr. Ashtor will soon be published in the Stanford Technology Law Review, and that one or more others may follow.)  The PwC annual patent litigation studies  (see my blog posts here and here), indicate that in recent years median damages awards to NPEs have tended to be higher than awards to practicing entities, so a follow-up study using more recent data would be useful to further test whether, since 2008, NPE status alone has been a significant explanatory factor. 

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