German Federal Patent Court (partially) invalidates 80% of litigated patents

Patent grave yard?

A study by Hess, Müller-Stoy and Wintermeier provides an interesting empirical look at the invalidation rate before the German Federal Patent Court and German Federal Court of Justice. Based on data from 2010 to 2013, the authors report that the Federal Patent Court invalidates 44% of all litigated patents, partially invalidates 36% and maintains (unamended) just 20%. An earlier study by Henkel and Zischka came to essentially the same conclusion (78% partial or total invalidity for decisions from 2010 to 2012), but draws different policy recommendations.

For software and telecommunications patents, the invalidation rate is even higher at 88% (58% totally invalid, 30% partially invalid, 12% maintained). Patentees fare slightly, but only slightly, better on appeal, as the win rate for appeals against decisions invalidating a patent is higher (60%) than the win rate for appeals against decisions maintaining a patent (40%).

These results are surprising as economic (i.e. rational choice) theory predicts that - if the stakes for both parties are the same (an assumption that does not necessarily hold for patent invalidity cases) - plaintiff and defendant win with equal probability (the Priest/Klein selection hypothesis, but see Gliksberg for empirical support for the "legal model" to which most lawyers would subscribe). The high invalidation rate would indicate that the stakes for the nullity plaintiff are much higher than the stakes for the patentee, which is possible but mere speculation.

Hess et al propose three tentative explanations for the high invalidation rate: (i) errors by the examiners, (ii) the introduction of new prior art before the court and (ii) different standards between the granting office and the court. New prior art could be found because potential infringers invest much more resources in prior art search than patent examiners. The authors consider this unlikely, because - according to their experience - "unsearchable" prior art is rarely dispositive; invalidations are rather based on (searchable) patent documents. The authors tend to think that the higher standard for inventive step by the court is the most important reason for the high invalidation rate.

If I may add my two cents, I would think that part of the puzzle lies in the categorization of "partially invalidated" patents as "invalidated", or "patentee loss". As everyone involved in patent litigation knows, there are claim amendments that really hurt (the patentee), and others that are mere formalities. Without knowing whether an amendment leads to a claim that is no longer infringed or is easily circumvented, it is difficult to say whether a partial invalidation is a win for the patentee or the nullity plaintiff. For an outsider, it is almost impossible to judge the importance of an amendment - this is not evident from the file wrapper, and certainly not from the file wrapper in a nullity proceeding, where the allegedly infringing embodiment is not at issue. If we were to classify the partial invalidations as 50% wins for patentee, we would arrive at an overall win rate for patentees in invalidity proceedings before the German Federal Patent Court of 38% (20% fully maintained plus half of 36% partially maintained). Still not great, but closing in on 50%.

A look at US data shows that patentees have a hard time there, too. While US Courts find for patentees in 58% of invalidity challenges, overall patentees only win 26% of cases (decisions from 2009 to 2013). Allison, Lemley & Schwartz summarize the reasons thus:

Why do patentees lose nearly three-quarters of the time when the court definitively resolves the merits? The answer is twofold. First, while courts turn away most validity challenges, patentees do not fare as well when it comes to infringement. Accused infringers won 54% (256 of 473) of their summary judgment motions alleging noninfringement of individual patents. That number rises to 57% (292 of 509) when we include stipulated judgments of noninfringement after claim construction, which are functionally equivalent to summary judgments of noninfringement; the patentee concedes that it cannot win under a particular claim construction in order to tee the case up for appeal. Second, the nature of patent litigation requires patentees to win every issue before the court. A patentee who defeats five of six invalidity challenges, only to lose the sixth, loses the case. So does a patentee who wins on validity and inequitable conduct but loses on infringement. One of us has referred to this as the “fractioning” of patent law. Our data suggest that it has a significant effect on patent cases overall because many of our cases had motions on multiple issues, and those motions were not always decided in favor of the same party. In patent law, a split decision is almost always a decision for the accused infringer, not the patentee.