Patent Litigation Survey 2009: A Little Less Buzz

Another anomaly about last year: In our survey, we used a different definition of how long a case must be active for a firm to get credit for it than we have in the past. This year, we returned to our traditional way of doing things (for a further explanation of methodology, click here). Once we’d done that, we decided it made sense to compare the 2009 list to the one we produced two years ago (see chart). By any measure, Fish & Richardson comes out on top. While the firm’s 77-case workload in 2008 represented a 21 percent dip from the previous year, it was down just 3 percent from the 79 cases it handled while claiming the number one spot in 2007. Kirkland & Ellis ranked second, despite taking on a few less cases than it did two years ago. Two other top firms—Foley & Lardner and Howrey—slipped on the list from two years ago, despite essentially taking on a similar number of cases. Jones Day also suffered a modest drop after seeing a 23 percent dip in the amount of new work it took on last year compared to two years ago.

New to our list this year: Quinn Emanuel Urquhart Oliver & Hedges, which sits at number three. Among firms that improved their rankings, Kenyon & Kenyon rose to number four after nearly doubling its total from two years ago. Finnegan, Henderson, Farabow, Garrett & Dunner actually did handle twice as many cases—and rose to number five as a result. Not bad in a tough year.

How tough? Data compiled by Stanford University Law School’s IP Litigation Clearinghouse shows that 2,605 patent suits were filed in 2008, compared to the 2,840 filed in 2007. The slide in new patent suits was particularly severe in the last four months of the year, according to the Stanford data. Last November, for example, just 114 new patent suits were filed, making it the least active month in terms of such disputes in the past three years. In November 2007, by comparison, 240 patent suits were filed; in November 2006, the figure was 196. As the number of suits dropped, so did the number of defendants. Stanford data shows that figure dropping from 9,042 in 2007 to 6,857 last year.

Some practitioners say they’ve seen anecdotal evidence that the decreases in new filings and defendants may mask the actual loss of patent litigation work that law firms are experiencing. Recessionary pressures, these lawyers say, are prompting companies to look for ways to end litigation quickly. “If there is an early settlement to be had, companies are going to do what they can,” says Katherine Lutton, Fish & Richardson’s head of litigation. She adds that it’s also increasingly common for lawsuits to be filed as “placeholders” in case a negotiation doesn’t work out, even though they’re not being actively litigated.

Firms that had strong years used different strategies to do so. “We understand the pain clients are feeling, and we want them to perceive us as their business partners,” says Claude Stern, who chairs Quinn Emanuel’s IP practice, which is playing defense in 40 patent cases filed in 2008. (Almost half of those cases were filed in Texas’s Eastern District, which, with 300 total cases filed, continues to be the nation’s busiest venue.)

Stern says flexible pricing plans and a fierce attention to efficiency have helped his firm compete. One example of this client-friendly approach, he says, is Quinn’s offer to work on individual motions—transfer motions, say—on contingency. If Quinn loses the motion, the client doesn’t pay.

Another firm weathering the recession well is Wilson Sonsini, which rose from thirty-second place two years ago to number 19 this year. A decision to build a practice representing generic drugmakers has helped diversify the firm’s traditional high-tech client base. The strategy appears to be paying off. Clients like Mylan Pharmaceuticals, Inc., which accounted for five of the firm’s 28 defense cases, and Impax Laboratories, Inc., aren’t shy about taking on brand-name drugmakers in court.

The firm’s move toward generic drugmakers could prove even more fruitful if President Barack Obama’s push for health care reform is successful, says Michael Ladra, the senior partner in Wilson Sonsini’s patent litigation group. The administration’s goal of reining in health care costs, he says, would logically be a boon to inexpensive versions of brand-name drugs. And under the current system, a generic generally can’t make it to market without either challenging or dodging a brand-name drugmaker’s patents in court. “All these health care initiatives are looking toward reducing costs, and more generic drugs lower the cost of care,” Ladra says. “If anything, I think it’s going to become more significant.”

Kenyon & Kenyon also boosted its practice working for generic drugmakers. Its clients include Teva Pharmaceuticals USA, which merged with Barr Laboratories, Inc., last November to become the world’s biggest generic manufacturer. In 2008 Teva’s ever-expanding product lines attracted more than 40 new suits from branded drug companies. Kenyon also did defense work for large corporate clients, including carmakers, which continued to be targeted by patent-holding companies.

The 2008 statistics indicate that the true peak period of the patent-holding companies—also known as nonpracticing entities and “patent trolls”—may well be over, with some losing trials and others seeing suits moved out of their favored venue, the Eastern District of Texas.

“Defendants are doing better,” says J. Michael Jakes of Finnegan, Henderson. “And there’s more risk involved.”

Not that the holding company suits have simply stopped. Far from it. Consider just one example: the prolific patent-licensing shop run by San Jose patent lawyers Kevin Zilka and Dominic Kotab. Zilka and Kotab, under the names Aloft Media and Stragent, filed 11 lawsuits against a combined 53 defendants in 2008. All but one of the top five firms on our list are defending against at least one Zilka-Kotab lawsuit. Lawyers from Finnegan and Quinn are involved in four suits apiece.

While patent practitioners say they expect the decline in “discretionary” suits—the kind that flush companies are quick to file to get a competitive edge during boom times—to continue, it’s difficult to know how deep the recession will cut in terms of patent litigation. The rules of patent enforcement changed entirely with the creation of the U.S. Court of Appeals for the Federal Circuit in 1982, and those rules are now coming up against the first serious economic test.

“People are struggling to maintain market share, and one typical tool to do so is the patent,” says Wilson Sonsini’s Ladra. But that only means more work for lawyers if there’s a market worth preserving, or if significant royalties can be won, he adds. When products aren’t selling, the questions that excite patent lawyers (Who invented what first? What is it all worth?) don’t always seem worth going to court over—especially when the average cost of a high-stakes patent case is more than $4 million.

In the future, decisions to pick up that kind of cost could become even more difficult, depending on how the U.S. Supreme Court winds up ruling in the Bilski case and whether Congress ever does manage to reform the nation’s patent system. For the moment, expect the struggling economy to make negotiating more attractive than going to court.

“Companies talk first and see if they can do a deal, rather than pull the trigger on litigation right away,” says Finnegan’s Jakes, who, as it happens, authored the Bilski cert petition and will be arguing the case before the Supreme Court this fall “And that’s not a bad trend. That’s totally a good thing.”

Not necessarily what you’d expect to hear from a litigator.