The Decline in Patent Contingency Litigation


There has been a steady decline in the number of contingency litigation law firms, attorneys, and even cases filed. This continues to greatly impact the intellectual property industry.

According to Paul Storm, a partner in Gardere’s Intellectual Property Practice, the decline in contingency representation over the last few years can be explained by weakened patents making success on the merits less likely. Even if the patent owner does prevail, what will they win? After a win at trial, the law of damages has made large damages less likely to achieve in the first place, and keep even if awarded.

“The net effect is that all patents are less valuable and weaker patents are much less likely to be asserted,” Storm explained. “The overall reduction of contingency law firms and attorneys has led to a reduction of all cases and to earlier, lower settlements.”

Storm makes an excellent observation. Contingency representation is monetarily feasible for attorneys and law firms if and only if there is a high likelihood of success. Even in the best case scenario, attorneys will sometimes make bad judgment calls when taking a contingency case, but when the underlying asset is under attack — as patents have been — it makes it all the more difficult to justify the risk of putting in all that work and ultimately receiving nothing in return.

For Edward C. Kwok, a partner in VLP Law Group’s Intellectual Property Practice, there are three separate factors that explain the decline in contingency law firms, attorneys and number of cases. First is the supply of patents. Between 2003 – 2008, the USPTO had a “quality” campaign where Examiners were told to be tough. KSR v. Teleflex also helped make getting patents harder and invalidating patents easier.

Second, adversarial proceedings at the PTAB are quicker, and perceived to be a less burdensome and less costly option for defendants to litigate patent validity on the merits. Defendants are more willing to engage plaintiffs in the PTAB. “PTAB litigation raises the stakes for NPEs significantly,” Kwok said.

Third, hardware manufacturers moved overseas, so component products now rarely touch U.S. soil. Components, such as integrated circuits, are often designed, manufactured, sold, and delivered to system integrators overseas. The number of defendants that can be sued on U.S. soil has shrunk significantly.

“Suing a foreign component entity presents jurisdictional and discovery uncertainties,” he said. “The end-product manufacturers are typically few and large enough to be able to negotiate hard and not settle early, which has also significantly raised the NPE stakes.”

Today, financing for patent enforcement campaigns has become even harder to come by for individuals, per Kwok. For instance, large NPE organizations like Intellectual Ventures, Rambus and Acacia are not growing as much. Instead of buying, many of the large NPEs are adopting the Rambus model, i.e., developing the patents in-house. In fact, many financing companies have left the field.

“The uncertainty in the law makes meritorious patents difficult to get or enforce in such future technological development along the lines of artificial intelligence, fintech and data sciences, and even in some conventional system integration technologies,” he explained. “Whether that impedes the advance of science and useful art is debatable, but U.S. based companies, being high-cost technology developers, have lost a significant entry barrier.”

So exactly how much have NPEs declined lately? This is difficult to quantify, Storm explains; the number of NPEs may not have changed much, but the number of lawsuits filed by NPEs has dropped for the reasons discussed above. In general, there are much fewer weak cases filed, so less defense work on such cases.

“The drop in weaker cases is a welcome relief from the patent troll plague, but the changes in the law that has led to this has also weakened all patents,” he said.

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