Thursday, October 16, 2014

German IP lawyers evaluate litigation results, ask whether patents are merely 'paper tigers'

There is growing attention for the fact that information and communications technology patents are hard to enforce in court, and more and more questions are asked about what should be done about the problem that most patent infringement assertions don't ultimately succeed. Two weeks ago I presented my analysis of 222 smartphone patent assertions by large players and showed that, based on final or latest results, less than 10% had merit. In that post I also mentioned a study by two Munich-based academics, Professor Joachim Henkel and Ph.D. candidate Hans Zischka, one of the key findings of which is this: "For Germany, thus, more than 75% of all active patents are latently invalid, either fully or partially."

Those findings are further supported by an article, based on extensive empirical research, written by two German attorneys whose firm has been involved (on Apple and Microsoft's behalf) in various ones of the lawsuits I analyzed and has also done work for other major clients such as Amazon and Qualcomm: Bardehle Pagenberg's Peter Hess (patent attorney) and Dr. Tilman Mueller-Stoy (attorney at law). The article itself is available only to the subscribers to Mitteilungen der deutschen Patentanwälte (a bulletin published by the leadership of the German patent bar). I have read it and was impressed by the depth of the study, which examines patent validity rulings by the Federal Patent Court and the Federal Court of Justice by industry and even by senate (panel of judges).

The Bardehle lawyers analyzed all German patent validity determinations in 2010-2013: 392 rulings by the Federal Patent Court and 173 appellate rulings by the Federal Court of Justice. They found that during that four-year period, almost 44% of all patents that came to judgment in the Federal Patent Court were declared invalid in their entirety (i.e., even any proposed amendments were rejected). The complete-invalidation rate is higher for the software and telecommunications sector, where it was closer to 60%. An additional 35% of all patents (or 30% of all software and telecommunications patents) were invalidated in part (i.e., narrowed). This means that almost 80% of all patents and approximately 90% of all software and telecommunications patents were declared invalid in whole or in part.

Appellate decisions slightly modified the picture. The Federal Court of Justice affirmed approximately 60% of the rulings of the Federal Patent Court and modified approximately 40% of them. Since roughly two thirds of all appellate decisions favored the patentee, one could cautiously conclude that the patent-specialized panel of the Federal Court of Justice is "patentee-friendlier" than the Federal Patent Court.

I'd also like to state, for the sake of precision, that those percentages relate only to those cases in which the Federal Court of Justice ultimately ruled on an appeal from the Federal Patent Court. It's difficult to know what would have happened to those cases in which no one appealed, or in which an appeal was withdrawn. In my opinion, it's perfectly reasonable to focus on the cases in which the appellate decision actually came down (i.e., the completed experiments), implicitly assuming that the affirmance and reversal rates would have been more or less the same if all other decisions had been reviewed by the appeals court.

The authors discuss different possible reasons for the high rate of invalidations. Patent examiners may sometimes make mistakes; relevant prior art may not be known during the initial examination; and the legal standards applied by the patent offices on the one hand and the patnet courts on the other hand might also differ. But the focus is not on the reasons. The key message of the article is that--whatever the reasons may be--such high rates of patent invalidations are not acceptable, neither for patentees nor for the general public.

If a patent is granted that shouldn't be granted, others may at some point have to make a costly and time-consuming effort to do away with it in order to be free to market their (legitimate) products. The authors conclude that patent holders suffer to an even greater extent because their expectation of being afforded intellectual property protection is not met and the enormous effort to describe a patent for the purpose of a patent filing (a disclosure that benefits the general public since the patent will expire one day) is in vain if the patent is later invalidated in court.

The most provocative--or one might say, most damning--issue highlighted by the article is that the current situation basically makes it appear sound advice to tell a company to infringe a given patent held by a competitor because there's a high probability of the patent being declared invalid. The headline of the article asks the question of whether patents are merely "paper tigers."

I don't want to take a position on whether patentees or those facing royalty demands and lawsuits over patents that should never have been granted suffer more. There's no doubt that both sides do suffer. I agree that the issues raised by the article are rather serious. For example, a proper disclosure of an invention (in the description part of a patent application) takes a lot of hard work, and legitimate inventors should be rewarded. Since only a small minority of all cases in which someone wields a patent against someone else end up in court (most of the time, an agreement is negotiated), the harm suffered by third parties may even outweigh the issues patent holders have to deal with. Whoever is most strongly affected by the problem, there's no denying the problem. Action is indeed required.

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