GAO Report Fails to Make it “Open Season” on Trolls

We have reported frequently in the past on IP law developments relating to so-called Nonpracticing Entities, or NPEs, including the Leahy-Smith America Invents Act’s mandate that the Government Accounting Office (“GAO”) conduct a study on the consequences of patent litigation by NPEs.

On August 22, the GAO issued its 54-page Report, “Intellectual Property: Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality” (hereafter, “Report”). In view of the GAO’s mandate, some of the Report’s findings are surprising. We provide a few examples below:

• The Report begins with an introduction proclaiming that U.S. history is “filled with examples of successful inventors who did not develop products based on the technologies they patented.”
• The GAO’s analysis is directed to Patent Monetization Entities (“PMEs”), defined as the subset of NPEs who “simply buy patents from others for the purpose of asserting them for profit.”
• For the period from 2007-2011, the GAO found that these PMEs brought only about one fifth of all patent lawsuits (19%), while operating companies (i.e., “companies who make products”) initiated about 68% of all patent suits. Suits brought by individual inventors accounted for about 8% of all patent suits, while research firms and universities accounted for less than 3% of all suits.
• Over this period, the GAO determined that a significant percentage of patent lawsuits were based on software patents. In particular, about 84% of PME patent lawsuits were based on software patents, while about 35% of operating company suits were based on software patents.
• From 2007 – 2011, about 32% of all patent lawsuits were filed in 3 of the 94 Federal District Courts: the Courts in the Eastern District of Texas, the District of Delaware and the Central District of California.

Near the end of the Report, the GAO made the following observations:

Public discussion surrounding patent infringement litigation often focuses on the increasing role of NPEs. However, our analysis indicates that regardless of the type of litigant, lawsuits involving software-related patents accounted for about 89 percent of the increase in defendants between 2007 and 2011, and most of the suits brought by PMEs involved software-related patents. This suggests that the focus on the identity of the litigant—rather than the type of patent—may be misplaced.… Examining the types of patents and issues in dispute represents a potentially valuable opportunity to improve the quality of issued patents and the patent examination process and to further strengthen the U.S. patent system. (emphasis added)

In a letter dated July 26, 2013, included as an appendix to the Report, Acting Under Secretary and Acting Director Teresa Stanek Rea endorsed the GAO’s findings and conclusions, and pledged that the USPTO would consider “linking trends in patent litigation to internal data on patent examination.” Other reactions from the patent community are starting to emerge stay tuned as Gibbons continues to monitor developments in this area.