Intellectual Property

3 Takeaways From The Lex Machina 2023 Patent Report

A little less than half of the damages awarded in 2020 have already been reversed on appeal, which may not bode very well for big verdicts achieved in 2021 and 2022 as well.

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Lex Machina Webinar NewsletterIt is Lex Machina Patent Report time. I covered the release last year, as well as in 2021. As always, I highly recommend that readers register for the report and give it a read, as there may be more relevant information in the report than what follows for any given reader.

As I did in 2021 and 2022, what follows are three idiosyncratic takeaways based on my review. First, the report’s information on damages deserves further consideration. Second, we can discuss why some defendants have seen a significant decrease in patent cases filed against them. Third, we will check in on happenings in the PTAB, which remains as relevant as ever.

We can start with a look at what the report says about the value of patent cases from a damages perspective. In each year from 2020-2022, total damages awarded in patent cases exceeded $2.8 billion per year, reaching a high of $3.39 billion in 2021. Yet, a little less than half of the damages awarded in 2020 have already been reversed on appeal, which may not bode very well for big verdicts achieved in 2021 and 2022 as well. Still these numbers help illustrate the economic significance of the patent litigation industry, while also reinforcing why patent litigation remains such an important area of investment focus for litigation funders.

Interestingly, the number of cases in which damages were awarded in 2022 (67) is nearly 50% higher than the number of successful cases in 2020 (45). Could that be a sign of better diligence by funders and patent owners leading to better outcomes in patent cases? Or is it just a blip because of COVID-19’s impact in 2020? Either way, 2022’s successful case tally of 67 is the highest in any year since 2013, with the only other year having more than 60 damages-earning patent cases being 2017. It makes sense that the more rigorous diligence engendered by a more sophisticated patent assertion funding market should lead to a better batting average for patent owners in court. But more data is needed on that front before diligence counsel servicing funding groups can take a victory lap.

As large as the damages award numbers may seem, however, it is also important to place them in context. Between 2020-2022, reasonable royalty damages totaling $7.5 billion were awarded to patent owners across 102 successful cases. While those damages figures may be large in comparison to those achievable in other areas of litigation, they also pale in comparison to share price swings faced by frequent patent defendants. For example, in the biggest market value swing on record, Meta (Facebook) lost $232 billion in value last February. That is 232 billion dollars in value lost in one month. In comparison, patent litigation risk seems trivial for a company that size. Yet, Meta, together with other large technology companies, fight patent cases worth $5 million with the same vigor as one worth $50 million — and $50 million is still a large damages award in a patent case, irrespective of the market cap of the losing defendant. In context, therefore, even the highest level of patent damages achieved can look like a rounding error on a publicly traded company’s balance sheet. At the same time, it is important to remember that the true value of filing or defending a patent case may not lie solely in the damages achievable or saved in the case.

Given the importance of damages in patent cases, it is interesting to see what is going on with the list of most active defendants in patent cases for our next report takeaway. For the Big Three (Apple, Samsung, and Google), the number of cases filed against them has either held pretty steady (Google) in 2020-2022 or saw a big jump between 2020 and 2021 only to moderately drop in 2022 (Apple and Samsung). For the latter group, the drop may be fed by the fact that Apple and Samsung are perennial targets for funded cases, which take longer to diligence and get going. (And as funding becomes more prevalent, the number of nonfunded patent cases filed against the Big Three target may actually be declining, which would be an interesting question for the in-house teams at these companies to comment on at some point.) What is even more interesting than the developments among the Big Three, however, is that three of the four next-most targeted defendants saw significant declines in cases filed against them when we compare 2020 versus 2022. And we are not talking about niche companies. Microsoft (40 cases in 2020 to 23 in 2022,) LG (from 27 to 19), and Dell (36 to 13) all saw big drops.

In that same span, both Microsoft and Dell saw big jumps in revenue, with LG reporting that 2022 was its best year ever financially. How to explain their newfound unpopularity as patent defendants then? Here too, there is a chance that funding’s presence may have contributed to a reduced appetite for cases where the damages may not be as high as they would be against the Big Three, for example. One consideration, of course, is that for funders, anything that could prevent achieving the biggest financial result possible is a challenge. In that paradigm, even if a patent owner had a meritorious case involving laptop technology that could be brought against both Apple and Dell, as an example, there can sometimes be little incentive to file both cases at the same time, unlike in the prefunding days, where contingency counsel and their clients would often try to target as many large defendants that a portfolio could sustain.

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A reluctance to file two cases against targets with disparate damages potential under certain circumstances is understandable. First off, filing that second case just adds to the amount of money needed from the funder, which is expensive capital for any patent owner to take on. Second, no one benefits from a settlement from the smaller target that is unable to cover the cost of funding both cases, or more importantly, could potentially impact on the damages potential of the larger case. Likewise, the availability of IPR can also discourage a plaintiff from filing against multiple defendants, for a number of obvious reasons in terms of cost and risk to the patents asserted. The strategic considerations can be complicated, but there is no doubt that the report is showing that the number of patent cases against second-tier targets, no matter how huge their revenues, has shown a steep decline these past few years. Perhaps this trend will continue.

Finally, the statistics for patent owners out of the PTAB remain sobering. For instituted IPRs, the chance of all claims surviving is a heady 6% compared with a 21% all challenged claims murder rate in the challenger’s favor. Add in a CAFC affirmance rate of 75% or so and it is clear that the IPR hurdle remains a significant one for patent owners to overcome. It is not surprising, therefore, that the number of IPR filings has held pretty steady between 2020-2022, or that the Big Three remain the PTAB’s most frequent customers.

Ultimately, if any one had the mistaken thought that patent litigation is a stultified endeavor, the report’s presentation of data that illustrates just how much things have changed between 2020 and 2022 should be enough to disabuse them of that notion. Once again, perhaps the most gratifying takeaway for me from reading the report is a sense of gratitude in having my professional home grounded in such a vital and interesting area of practice. I am sure that many in this readership feel the same way. Thanks once again to Lex Machina for pulling together and presenting the data in a way that highlights the richness of the patent litigation mosaic.

Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

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Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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