Abstract
A substantial number of patents tested in court for validity are invalidated. If a similar portion of all patents was deemed invalid in hypothetical validity tests, then this would indicate a seriously flawed patent system due to restrictions unduly imposed by these erroneously granted patents on users and follow-on innovators. Thus, we ask, if a randomly picked patent underwent revocation proceedings, what are the odds of its invalidation? We address this question by analyzing the various selection effects through which patents become subject to validity decisions. Empirically, we focus on Germany, where revocation proceedings are separate from infringement suits and where, in court decisions during the period of 2010–2012, 45% of patents were determined to be fully invalid and 33% to be partially invalid. Based on data gleaned through expert interviews, a survey among lawyers, and an econometric analysis of court judgments, we find the likelihood of (hypothetical) invalidation of a randomly picked patent to be in the same range as that for actually adjudicated patents. As the main cause of patent invalidity we identify incomplete searches for prior art during examination. Our arguments carry over to other legislations. To remedy this situation, we suggest a significant increase of the inventive step required for patent grant combined with a smaller increase of the inventive-step standard in litigation.
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Notes
Federal Court of Justice decision, X ZR 110/13, 25 August 2015; and http://www.fosspatents.com/2011/08/dutch-judge-considers-apples-slide-to.html (accessed 13 February 2018).
Three of the five patents eventually “expired due to reexamination which canceled all claims” in 2012, while for the other two, around two thirds of all claims were invalidated (source: Espacenet database).
Strictly speaking, we need to distinguish three standards of patent grant: the ideal, abstract standard defined by patent law; the standard applied by the respective patent office; and the standard applied by the courts. The notion of “incorrectly granted patents” refers to those that passed examination but are not in line with the standard defined by the law. In slight contrast, “latently invalid patents” refers to those that passed examination but, if challenged in court, would not pass. Since the courts have the last say about patent validity, their decisions effectively define the law. Thus, pragmatically, we use “incorrectly granted” and “latently invalid” largely as synonyms.
Miller ’s (2013) focus on patents that received a decision on “innovation-based validity” rather than on validity in general implies that the numbers he reports cannot be directly compared to overall invalidation rates.
This correlation has been found for two indicators of patent value, i.e., the number of forward citations (Lanjouw and Schankerman 2001; Somaya 2003; Allison et al. 2004; Cremers 2004; Lanjouw and Schankerman 2004) and patent family size (Harhoff et al. 2003; Cremers 2004). Furthermore, a patent’s being involved in litigation, which causes considerable cost, constitutes a signal of value in itself (Lemley and Shapiro 2005).
Among such correlates are: Domestic vs. foreign ownership of the patent (Allison et al. 2004; Lanjouw and Schankerman 2001; MacGahee 2011; Weatherall and Jensen 2005); patent portfolio size (Lanjouw and Schankerman 2004; Allison et al. 2004; Ball and Kesan 2009; Bessen and Meurer 2005; Somaya 2003; Cremers 2004; Weatherall and Webster 2010; Greenhalgh et al. 2010); and the plaintiff’s business model (Ball and Kesan 2009; Chien 2009; Freedman 2010).
The share of infringement suits that are countered with a validity challenge exceeds these numbers. If a patent subject to an infringement suit is still in the opposition period, or if an opposition proceeding is pending, then the defendant in the infringement suit must resort to opposition in order to challenge the patent’s validity.
Private communication with two U.S. legal scholars.
Cited after IPWatchdog.com, http://www.ipwatchdog.com/2015/04/10/comprehensive-study-of-patent-trial-and-appeal-board-decisions/id=56675/ (accessed 13 February 2018).
For Australia, Weatherall and Jensen (2005) report a rate of full or partial invalidation of 53% (first and second instance) for the period of 1997 to 2003. Oyama (2012) finds an invalidation rate of 73% at the Japanese district courts, and a UK study examining the years 2000–2008 indicates an overall rate of about 50% partially or fully invalid in the first instance Helmers and McDonagh (2013). France seems to be special case, with, according to Véron (2010), only 27% of the cases before the court of first instance in Paris between 2000 and 2009 resulting in a revocation decision.
For some of the questions we allowed for a “no answer possible” response.
We identified potential participants using a ranking of patent law firms in the field of patent litigation, as well as a list of further recommended patent law firms, both provided by the JUVE publishing house’s “JUVE Handbook German Commercial Law Firms 2013” (http://www.juve.de/handbuch/de/2013/ranking/24450#ranking-24450; http://www.juve.de/handbuch/de/2013/weiterekanzleien/24450#weiterekanzleien-24450, accessed 13 February 2016). By thoroughly searching and analyzing the ranked law firms’ websites, we were able to identify patent attorneys and lawyers engaged in infringement, and in particular in revocation related proceedings. This approach resulted in a list of 1165 potential participants (among them 74% patent attorneys, and 26% lawyers) working for 100 different national and international law firms with offices in Germany. Following an announcement in the newsletter of the Chamber of Patent Attorneys in Germany, we sent out the paper-based questionnaire including cover letter, survey, and a postpaid envelope. In addition, we set up an online version of the survey to provide a choice of medium to the participants.
To preserve anonymity, these variables were asked as categories.
We restricted the dataset to the period of 2010 to 2012 for two reasons. First, availability of company specific data for earlier years is limited. Second, court decisions are anonymized, so we had to identify the parties in a time-consuming process from other sources. Whereas the defendant in a patent revocation proceeding is basically the owner of a patent at the time of the case filing van Hees and Braitmayer (2010), to identify the corresponding plaintiff we sourced the relevant information from the global IP case law database darts-ip, performed internet searches, asked defendants to provide the respective plaintiff’s name, and requested access to the Court’s case records for the remaining proceedings. As sources for party specific information we used Bureau van Dijk’s Orbis database, Thomson Reuters’s Thomson ONE, LexisNexis’s Nexis, Bisnode’s Hoppenstedt Firmendatenbank für Hochschulen, and the German Federal Gazette.
Analyzing the law firms’ homepages as well as the JUVE publishing house ranking on patent law related law firms we identified characteristics such as employee count, specialization and awards such as a listing on the JUVE ranking.
Our interviews also revealed some interesting heterogeneity between industries. The litigation culture apparently differs strongly between industries and even industry segments. In some cases, the same firms coexist peacefully in one market and engage in intense patent litigation in another. Strategic considerations may prevent patent litigation: For the chemical industry, one interviewee remarked that a competitor is frequently also a customer, and firms are understandably reluctant to sue customers. In the automotive industry, IP litigation between OEMs is relatively rare. It was considered to be more frequent among suppliers, yet on the other hand OEMs seem to use their influence to suppress IP disputes within their supplier base. While nullity suits are in most cases triggered by an infringement suit, generics manufacturers in pharmaceuticals would sometimes proactively seek invalidation of a patent in order to enter the related product market before expiry of the patent. Hess et al. (2014) provide quantitative evidence on industry differences in nullity suits.
A revocation suit may also settle because the infringement suit that triggered it settles. However, this mechanism should lead to settlements in the invalidity proceedings irrespective of who is bound to win, and so it may weaken but not reverse the selection effect described in the main text.
Responses from patent attorneys (prosecutors) and lawyers (litigators) were significantly different for the question of hypothetical full invalidation. Only patent attorneys considered full invalidation to be more likely for patents in settlements (mean = 0.27, p < 0.01), while litigators did not see a significant difference (mean = − 0.03). Such differences are plausible since both groups on average work with different types of patents. For all other questions in Table 2, differences between the groups were either insignificant (questions 2, 3, 5, 6, 9) or irrelevant since both were significant and pointing in the same direction (1, 8) or both were not significantly different from zero (4).
The second-instance upholds the patent in suit more frequently than the first instance (see below). However, according to our interviewees this is attributable to differences in the standards applied by the courts rather than a selection effect.
We calculated this number by analyzing the yearly statistics of the Federal Patent Court on revocation proceedings reported in the respective March issues of the Blatt für Patent-, Muster- und Zeichenwesen (Blatt für PMZ).
See Sect. 3.1.
Actual decisions by the FCoJ deviate from the first-instance ruling in only 31% of the cases (where we count two “partially invalid” rulings as “no deviation” despite the fact that they may differ considerably). However, the outcome of a FCoJ case may be that the first-instance plaintiff withdraws the original suit, in which case the first-instance ruling becomes void and the patent remains in force. Thus, the second instance may modify the FPC decision even without a ruling.
Specifically, we employ the STATA command “heckprob” when the outcome variable is binary (as in Models II and III), and the “heckoprobit” command when it is ordinal (as in Model I).
Results of the Heckman regressions are available from the authors upon request.
See 3.3 for the matching criterion applied.
According to Models IIIa/b (Table 7), there seems to be no significant effect on a (partial) invalidation decision.
This finding, however, does not hold for the models IIIa/b when controlling for an influence on a (partial) invalidation.
In line with Miller (2013), our findings indicate a negative, however not significant, relationship.
Note that predictions do not require a causal relationship between the predictors and the predicted variable.
Comparing the average predicted probability of each outcome with the actual frequency of this outcome in the sample is not informative since the two are, by construction of the estimator, identical (e.g., Train 2003, p. 72).
A particularly harsh critique was voiced by an anonymous group of EPO staff members in an open letter in December 2014. Source: http://de.scribd.com/doc/249487853/EPO-Examiners-Can-No-Longer-Ensure-Appropriate-Quality-Standards.
A parallel in German patent law is that a pending invalidity suit may be a reason to stay simultaneous infringement proceedings for the same patent only if invalidation of the patent in suits appears highly likely.
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Acknowledgements
We would like to thank our interviewees and survey participants for their time and valuable input to this study, as well as the editors and two anonymous reviewers for their constructive and valuable feedback. We are also grateful to Christoph Ann, Gaétan de Rassenfosse, Ove Granstrand, Dietmar Harhoff, Christian Helmers, Paul Jensen, Alfred Keukenschrijver, Mike Meurer, Shawn P. Miller, Andrew Torrance, and conference and seminar participants at the Berkeley Center for Law and Technology, Boston University School of Law, Chalmers University, the German Patent and Trademark Office, and the Max Planck Institute for Innovation and Competition for helpful comments on earlier versions of this paper. Peter Conor provided helpful assistance in proof reading the manuscript. All errors are our own.
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Henkel, J., Zischka, H. How many patents are truly valid? Extent, causes, and remedies for latent patent invalidity. Eur J Law Econ 48, 195–239 (2019). https://doi.org/10.1007/s10657-019-09627-4
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DOI: https://doi.org/10.1007/s10657-019-09627-4