2016 was an interesting year in patent law. It saw roughly a 20% decline in the number of new patent cases filed in district courts. Only about 4,500 new patent cases were filed, the lowest number in 5 years. The magnitude of this decline has surprised many legal experts.
Some level of the decline was expected. A tougher pleading standard for patent infringement went into effect on December 1, 2015. Before this change to the US Federal Rules of Civil Procedure, only minimal information was required to start litigation. Plaintiffs are now required to substantiate patent infringement allegations in their complaints. This often requires the expense of an investigation prior to filing. Independently of this new standard, general litigation costs have been rising from year to year.
Also, in 2014 two high profile Supreme Court decisions in Highmark Inc. v. Allcare Health Management System, Inc. and Octane Fitness, LLC v. Icon Health & Fitness, Inc. made it easier for the prevailing party to recover litigation costs and attorney fees. These decisions deter marginal or frivolous litigation. Non-practicing entities that were prolific in the past are now more wary of the potential out-of-pocket liability.
Although the total number of patent litigation filings has dropped, filings for pharmaceutical patent litigations are usually independent of the general trends because they are governed by a separate statute. In 2016, generic drug makers were still among the top 10 patent litigation defendants. Mylan led the group as a defendant in 19 cases, followed by Apotex, Dr. Reddy’s, and Teva, each with 17 cases. No pharmaceutical or biotechnology company made the list of top 10 plaintiffs. The overwhelming majority of pharmaceutical cases was still litigated in Delaware and New Jersey.
There is also an additional channel for parties to dispute patent validity. The America Invents Act which went into effect on September 16, 2012 created more effective patent office post-grant proceedings in order to address the problem of bad patents. These proceedings are limited to patent validity challenges and cannot replace the district court litigation where infringement and enforceability can be adjudicated. However, not only do post-grant proceedings cost less than litigation, they also yield faster resolutions. Initially, post-grant proceedings were invalidating over 80% of the challenged patents. However, things have settled down and the outcomes of these proceedings are becoming more balanced. Over 1,700 new petitions were filed in 2016. Of these, the patent office declined to institute a review in roughly 35% of all filed petitions. Where a review was instituted, roughly 25% of the petitions failed in all patent validity challenges. In an additional roughly 18% of cases, some claims survived while others did not, resulting in only a partial invalidation of the patent.
The number of appeals handled by the Federal Circuit from the district courts did not change in 2016 from 2015. However, the Federal Circuit saw a large increase in the number of appeals coming from the patent office: 190 in 2016 compared to 121 in 2015. In 2016, appeals from the patent office represented more than one third of all appeals.
Last year’s sharp decrease in district court filings bears watching. The intent of the rule changes and post-grant proceedings was to reduce the number of low quality litigations. There is hope that the drop in the number of new cases reflects that the system is working as intended. On the other hand, these rules may disproportionately burden small start-up companies trying to protect their patents due to higher up-front cost of litigation. It will likely take a few years to truly understand the effects of these changes.