The Effect of New Information on Patent Litigation: Evidence from U.S. Inter Partes Review

Abstract

We analyze how new information concerning the validity of a patent impacts the settlement of patent infringement litigation. A party accused of patent infringement in the U.S. may---in parallel with defending itself in court---additionally challenge the validity of the allegedly infringed patent by petitioning the Patent Trial and Appeal Board (PTAB), an administrative tribunal within the U.S. Patent and Trademark Office. PTAB proceedings generate new information concerning the validity of challenged patents at several points in time, and we study empirically the resulting effect on settlement of concurrent litigation. Using data on U.S. district court cases (filed 2011-2016) and parallel PTAB validity challenges (filed 2012-2017), we examine each of the three main events that comprise a PTAB proceeding: (i) the filing of a petition to challenge a patent's validity, (ii) PTAB's decision to (i.e., grant) or deny the petition based on its assessment of a reasonable likelihood of invalidity, and (iii) PTAB's final determination of the patent's validity. We find that all three decision points have large, positive effects on the settlement of parallel court proceedings. We further find that the effect of PTAB's initial decision is driven by settlements that follow a decision to institute the petition. This suggests that accused infringers can leverage the threat of a final decision invalidating the challenged patents to induce settlement, which may lead to a lower rate of patent invalidation than is socially optimal.