Of Trolls, Davids, Goliaths, and Kings: Narratives and Evidence in the Litigation of High-Tech Patents

NORTH CAROLINA LAW REVIEW Volume 87 Number 5 Frontiers in Empirical Patent Law Scholarship Article 8 6-1-2009 Of Trolls, Davids, Goliaths, and Kings: Narratives and Evidence in the Litigation of High-Tech Patents Colleen V. Chien Follow this and additional works at: http://scholarship.law.unc.edu/nclr Part of the Law Commons Recommended Citation Colleen V. Chien, Of Trolls, Davids, Goliaths, and Kings: Narratives and Evidence in the Litigation of High-Tech Patents, 87 N.C. L. Rev. 1571 (2009). Available at: http://scholarship.law.unc.edu/nclr/vol87/iss5/8 This Article is brought to you for free and open access by Carolina Law Scholarship Repository. It has been accepted for inclusion in North Carolina Law Review by an authorized administrator of Carolina Law Scholarship Repository. For more information, please contact . OF TROLLS, DAVIDS, GOLIATHS, AND KINGS: NARRATIVES AND EVIDENCE IN THE LITIGATION OF HIGH-TECH PATENTS COLLEEN V. CHIEN** While each patent dispute is unique, most fit the profile of one of a limited number of patent litigation stories. A dispute between an independent inventor and a large company, for instance, is often cast in "David v. Goliath" terms. When two large companies fight over patents, in contrast, they are said to be playing the "sport of kings." Some corporations engage in "defensive patenting" in order to deter others from suing them. Patent licensing and enforcement entities who sue have been labeled "trolls." Finally, observers of the patent system call the use of patent litigation to impose or exploit financial distress "patentpredation." These stories, routinely invoked by the press, advocates, and academics, shape public understanding of the patent system. In this Article, I describe, then match, these stories to data on patent litigationsto determine which types of suits are most prevalent. I focus exclusively on the litigation of high-tech patents-covering hardware, software, and financial inventions-using data from the Stanford Intellectual Property Clearinghouse for cases initiated in U.S. District Courts from January 2000 through March 2008. The data shows that the reality is more complicated than the rhetoric regardingpatent litigation suggests. For instance, many blame nonpracticing entities ("NPEs") for a majority of the * Copyright © 2009 by Colleen V. Chien. Assistant Professor, Santa Clara University School of Law. I thank Josh Walker, Mark Lemley, and the underwriters of the Stanford IP Litigation Clearinghouse for making this research possible; Michael Risch, Ted Sichelman, Matt Sag, David Schwartz, Eric Goldman, Jay Kesan, Cynthia Ho, William Flachsbart, and attendants at the Chicago 2009 IP Colloquium and North Carolina Law Review 2008 Frontiers of Empirical Patent Law Symposium for their comments; BStreet Capital for its analysis of the revenues of the Russell 3000® public companies; Don Cung, Andy Chen, Nikki Qi, Jonathan Garfinkel, and Matt Reeder for excellent research assistance; and Dirk Calcoen for his support. ** 1572 NORTH CAROLINA LAW REVIEW [Vol. 87 problems with the patent system. But they bring only a minority of patent suits: 17% of high-tech patent suits in the last eight years. However, NPEs often name multiple defendants and sometimes, rather than sue, are sued, for declaratory judgment ("DJ"). Counting suits based on the number of defendants and including DJ cases, the NPE share rises to 28% of all high-tech patent suits. This average reflects an increase in NPE suits as a proportion of all suits over an eight-year period, from 22% in 2000-2001 to 36% in 2006 to March 2008, counting defendants, or from 10% to 20%, counting cases. I also report the variation by industry based on the absolute number of suits-the share of hardware patent NPE suits (26%) was nearly triple that of financial patent NPE suits (9%). These numbers provide a richer context for understandingthe NPE phenomenon. Another widespread perception of the patent system is that large companies dreadgoing to court, carefully constructingportfolios of patents to avoid doing so. The practice of "defensive patenting" has been well-documented and theorized. Yet, I found that public and large private companies initiated 42% of all lawsuits studied, 28% of the time against other large companies-the largestsingle category. They also defend against many other suits, brought by NPEs, small inventors, and individuals. These data suggest that defensive patenting,which is supposed to keep large firms out of court, is at least an incomplete-and perhaps a failing-strategy for many companies. This Article also reports on the other major narratives of patent litigation. 4% of the suits were initiated by individual inventors (David v. Goliath), 18% of the suits were brought by small private companies againstpublic or large private ones (small v. large), 16% pit one small- or medium-sized company against another (limited stakes), and in 8% of the suits, a largefirm sued a small one (predation profile). These and other findings provide a snapshot of patent litigation that should both inform current efforts to reform the patent system and serve as a basis for further investigationinto its functioning. INTR OD U CTIO N ...................................................... 1573 1. B A CKG RO UND .................................................. 1577 A. Different Types of Narratives................................. 1577 1. N P E Suits ............................................ 1577 2. Litigation-Avoidance/Patent D6tente ........................ 1582 2009] LITIGATION OF HIGH-TECH PA TENTS 1573 3. 4. 5. 6. 1584 1585 1587 Sport of Kings ................................................................ D avid v. G oliath ............................................................ P redation ........................................................................ Limited Stakes, Small Company v. Large Company, and University Suits ................................... B. Comparing the Narratives................................................... II. 1589 1590 D ATA AND M ETHODS ............................................................... 1593 III. RESU LTS ...................................................................................... 1600 A. Who Brings High-Tech Patent Lawsuits? ......................... 1600 B. What Types of Suits Are Most Prevalent?......................... 1602 C. How Long Do High-Tech Patent Lawsuits Last? ............ 1605 IV. DISCUSSION AND FUTURE RESEARCH ................................... 1606 A. The Limits of Defensive Patenting..................................... 1606 B . Counting NP Es ............................................... 1608 C. Patternsof Litigation by Industry ...................................... 1608 D. A sym m etric Stakes ............................................................... 1610 C O NCLU SIO N ........................................................................ (...truncated)