Probability of success in defending IP is a major input into the value calculus

Perspective is everything when it comes to reviewing the patent system. The same statistic can be viewed as evidence the system needs fixing (worldwide) AND is behaving just fine, depending upon the propensities of the viewers.

Here’s an example. Sir James Dyson, inventor and entrepreneur most famous for his unique vacuum cleaners, speaking at a conference on innovation in the UK, believes the system is tilted dangerously in favor of infringers. It costs too much to defend a patent, and the likelihood of success is no more than 18%. “The 82% [that lose legal disputes] have gone to all the trouble and expense of developing the technology and then some company comes along and rides on their coat tails. It’s grossly unfair.”

And then there is a parallel article in ars technica, decrying what has happened to the U.S. patent system after the introduction of the patent-specific court, the US Court of Appeals for the Federal Circuit, (CAFC) in 1982. The article borrows a statistical review of the share of patents found valid and infringed on appeal from Innovation and Its Discontents, comparing, in effect (because the contrast is so great) pre- and post- CAFC results. Prior to the introduction of the CAFC, patents were upheld slightly over 20% of the time, on the average.  After the introduction of the CAFC, that average number jumped to over 60%. This is precisely what Dyson would like to see … but according to Timothy Lee in ars technica, that change in the U.S. is evidence of a “rogue” court that has “wrecked” the U.S. patent system.

Likelihood of success in defending a patent is critically important to valuators. Risk associated with the 20% probability is overwhelming compared to the 60%, and in either case, the expense of patent defense is daunting. As IP Value Wire often reinforces, value is directly dependent upon the willingness and wherewithal of the patent holder to defend the IP.