The findings of recent research from Stanford Law School and IAM Market vendor ROL Group offer a thought-provoking insight on the differences between patents developed in-house and those acquired from third parties when it comes to litigating them.
The authors of “Patent Purchases and Litigation Outcomes” – Mark Lemley and James Yoon of Stanford Law School, and Erik Oliver, Kent Richardson and Michael Costa of ROL Group – first examined every US patent lawsuit filed in 2009 and 2010 that litigated through to a substantive decision issued between 2010 and 2014. They then cross-referenced this with US Patent and Trademark Office data on all recorded assignments and transactions concerning those litigated patents. From this, they identified every case witha definitive winner, including those which involved an acquired patent. Of 516 decisions, the patent owners won 125 (24.2%). Of all 280 cases involving an externally acquired patent, the plaintiffs won 59 (21.1%); while for cases involving an internally generated patent, the patentees faired a little better, winning 66 out of 170 (28%).
Overall then, it appears that litigants win less often in cases concerning patents acquired from external sources, compared to internally developed patents.
However, diving a little deeper, the researchers found that patents purchased on the secondary market can result in significantly higher win rates for certain types of business model.
The authors broke down the 516 studied cases by categorising the plaintiff in each. Doing this, they came up with several categories of patentee, including: patent assertion entities (PAEs); failed start-ups; universities, NGOs and public sector organisations; individual owners; new start-ups launched by an individual inventor; pre-product start-ups; and product-making companies (broadly speaking, the first four of these may be considered NPEs, while the rest can be thought of as operating companies).
Looking more closely at these categories, PAEs fare relatively poorly whether they are asserting purchased assets (a win rate of 11%) or those that they did not buy on the secondary market (13%). Product-making companies, on the other hand, clearly win more often when asserting their self-filed patents, with a win rate of 33% compared to 23% for those they acquired from third parties.
Interestingly, failed start-ups do equally well litigating purchased and non-purchased patents, winning 22% of the time for both. Perhaps most surprising of all, start-ups launched by individual inventors – that is, companies founded by an inventor to market an invention, that have not made products and that are not (yet) at the ‘pre-product’ stage – won only 4% of cases involving patents they had filed themselves. However, that win rate jumped to 33% when litigating patents acquired on the secondary market.
The paper’s authors point out that it is tricky to fully explain these seemingly counterintuitive findings. What can be said at this stage is that the findings suggest that buying patents can often prove a practical solution for handling litigation risk. Moreover, IP assets purchased from third parties – such as IAM Market’s vendors – can be crucial for small, early-stage companies to prevail over infringers, protect their businesses and thereby ensure their future growth.