Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Thursday, September 12, 2013

Predatory Patent Litigation

Posted by D. Daniel Sokol

Erik N. Hovenkamp, Northwestern University Department of Economics explores Predatory Patent Litigation.

ABSTRACT: Despite their extensive experience in patent litigation, the most litigious patent assertion entities (PAEs) fair relatively poorly in court. These firms commonly file dubious infringement claims on which they are ostensibly very likely to lose money if litigated to judgment. It is therefore tempting to conjecture that these PAEs are mistaken to pursue such litigation. However, we argue that this is in fact part of a calculated strategy of predatory patent litigation used to monetize low quality, excessively broad patents. In effect, the PAE aggressively litigates when its licensing demands are rejected -- despite expecting to lose money on the suit -- in order to injure the defendant and develop a litigious reputation that intimidates future defendants into more lucrative settlements. Like predatory pricing, this involves a short run loss that is recouped in the long run through supra-competitive pricing.

The welfare impact of predatory patent litigation is unambiguously negative: it creates a market for low quality patents, exacerbates the patent thicket problem and inflates social costs -- and it does so without improving on the ability of non-predatory PAEs to encourage innovation. The welfare impact of non-predatory PAE activity, by contrast, is prima facie ambiguous. Rather than fee shifting remedies like the SHIELD Act, we propose that potential defendants form a litigation cost-sharing agreement: a contractual agreement that divides a member's defense costs among the group when the plaintiff is a PAE, and which requires members to litigate predatory claims to judgment. This deters predatory litigation without deterring meritorious infringement claims.

http://lawprofessors.typepad.com/antitrustprof_blog/2013/09/predatory-patent-litigation.html

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Comments

It appears that your data set may be skewed. As this paper THE AIA 500 EXPANDED: THE EFFECTS OF PATENTMONETIZATION ENTITIES http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2247195, makes clear PAE rarely go to court. Ignoring this fact skews the data

As
with
the
prior
AIA
500
sample
set,
the
data
suggest
that
patent
monetizers
rarely
proceed
to
trial,
or
even
to
a
summary
judgment
decision.
When
they
do
proceed
to
the
summary
judgment
stage,
monetizers
win
even
more
rarely.

Posted by: Dale B. Halling | Sep 12, 2013 9:45:45 AM

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