Findings of PwC Study on Patent Damages Should Not Be Unduly Emphasized

The Against Monopoly blog cited to a PriceWaterhouseCoopers study about the success rate of nonpracticing entities at trial.  The blog uses the study’s finding that NPEs win higher patent damage awards at trial than practicing entities (which I’ll call “manufacturers”) to conclude that the patent system awards NPEs more for suing than it awards manufacturers for suing, and therefore the patent system is “sick.”  I realize that Against Monopoly is probably not trying to make a thoroughly vetted and supported comment on the issue, but I’ve seen this study quoted a couple of other places already and I think its scope is being misconstrued.

First, the study is limited to damages awarded in patent infringement actions that are decided on summary judgment or that proceed to final judgment at trial.  In other words, cases that settle before final judgment are not included in the study.  Taking as a given (because I am too lazy to look up the numbers) that a very small percent of disputes proceed to trial, and that a very small percent of that very small percent proceeds to final judgment, studying only cases that reach this stage does not seem like a good sample to use to analyze the system as a whole.

Second, since the study only looks at damages awards, it fails to consider benefits that manufacturers may obtain other than damages.  A NPE does not receive any benefit in terms of market position by obtaining an injunction against a competitor.  However, if a manufacturer is able to enjoin its competitors from entering a given market, the manufacturer may get an even greater economic benefit than they would be receiving a greater damage award.  This point speaks to the fact that NPEs and manufacturers are motivated by different goals, and the higher damage awards to NPEs may simply be because it is the only goal sought by the NPE.

Finally, it should be recognized that the study came to many conclusions, only some of which show that NPEs are more successful than manufacturers.  The study found that the median damage awards granted to NPEs have been double those for manufacturers in the last seven years, but also found:

• The median damage awards granted to NPEs and manufacturers from 1995 to 2001 were about the same.
• There have been no discernable trends in median damage awards overall (data is random?)
• Overall, NPEs were only successful 29% of the time, versus 41% of the time for manufacturers, due to a lack of success for NPEs at summary judgment (trial success rates were about the same between the two groups)
• Alleged infringers have had more success in declaratory judgment actions as the plaintiff against NPEs than against other manufacturers

So, yes, NPEs apparently get more damages in the rare occasion that damages are awarded.  However, I think that claiming this study shows the patent system is unfairly tilted to benefit NPEs badly misstates the findings of the study.