Patent Litigation Has Doubled And Will Double Again Over The Next Decade

Patent litigation in the semiconductor industry has been on a steady incline since 1997, as federal district court filings have slowly doubled. A decade ago, 47 suits were filed. Halfway through 2007, 53 were filed, with 109 total for 2006. Over 900 suits have been filed in all since 1997.

Almost 50% of these suits were filed in the Ninth Circuit, primarily in courts located in California. The Patent Local Rules in the Northern District of California and the physical locale of many companies in the semiconductor industry help account for such filing statistics. The Fifth Circuit, with its Eastern District of Texas, is second with roughly 18% of the filings.

In general, the litigation propensity of large semiconductor companies to enforce their patent rights has remained stable during the last two decades. In contrast, smaller chip-design firms have been quite litigious. To establish proprietary rights in niche markets, these firms have been so bold as to enforce roughly four out of every 100 patents they own.

Trolling for action While most suits are between rivals, there has been a rather dramatic increase in suits brought by outside patent owners or non-rivals. These entities, sometimes pejoratively referred to as patent parasites or patent trolls, see a target within the industry and go after it with the sole goal of obtaining license revenue.

The United States International Trade Commission (ITC) has conducted 50 Section 337 investigations alleging infringement of semiconductor-related patents over the last decade. There has been a notable change in the amount of investigations recently (nine halfway through 2007) compared to a decade ago (four in 1997).

This increase may be a reaction to eBay Inc. versus MercExchange LLC, 126 S. Ct. 1837 (2006). With this landmark unanimous decision, the Supreme Court put an end to the “general rule” that a permanent injunction should follow a finding of infringement of a valid patent in a district court proceeding. Whether an injunction should issue is now within the trial court’s discretion. In contrast, the ITC’s primary remedy is still the almighty exclusion order.

More on the way Absent legislation or other dramatic reform, expect to see another twofold increase in patent litigation in the next decade. We should see the same steady rate of enforcer litigation by the large semiconductor companies. We also should continue to see aggressive enforcement by smaller design chip companies. And, we should see many more lawsuits as a result of more and more outside patent owners and non-rivals seeking to cash in on licensing fees.

Such lawsuits may come as a result of the greater ease with which an accused infringer can now file suit for declaratory judgment, per the Supreme Court’s MedImmune Inc. versus Genentech Inc., 127 S. Ct. 764 (2007). Or they may come as preemptive filings, i.e., as a result of the patentee affirmatively seeking to sue first in its chosen forum and then initiating contact with the accused infringer to negotiate a license.

Moreover, an accused infringer may be more willing to sue for declaratory judgment of invalidity in light of the Supreme Court’s KSR International Co. versus Teleflex Inc., 127 SCt 1727 (2007), which may make it easier to prove obviousness, and in light of eBay, which makes it much more difficult for a non-rival to obtain an injunction. Due to that reason alone, expect more ITC investigations as these quick proceedings offer an exclusion order as the primary remedy.

Going to court Assuming the litigation takes place in federal district court, the Ninth Circuit should continue to be the primary go-to circuit, with its Northern District Court and Central District Court seeing the most action. The Eastern District of Texas should continue to be a favored forum for patentees.

But expect to see this forum’s shine diminish. Trial dates are being pushed further and further into the future due to backlog. Defendants also have been increasingly coming away victorious, as evidenced by recent summary judgment motions in favor of the accused infringer and jury findings of invalidity.

Indeed, at trial, the patentee’s win rate for 2007 is 33%. Also, expect to see more suits filed in the increasingly popular and speedy Western District of Wisconsin. The Northern District of Texas, Northern District of Georgia, and Western District of Pennsylvania, each of which has now enacted local patent rules, should see increased filings as well.