a correlation between the state of the us economy and...

71

A Correlation Between the State of the USEconomy and PatentLitigation Activity

Bradley D. Riel1 and Paul T. Meiklejohn2

1 Brad Riel is a concurrent J.D. and IP LL.M. 2010 candidate at the University of Washington School of Law.

2 Paul Meiklejohn is a partner in the Seattle, Washington office of Dorsey and Whitney, LLP

3 The authors were unable to locate any such publications comparing historical economic indicators to patent litigation activity..

AbstractCommon sense suggests that patent litigationactivity should be affected – at least to somedegree – by economic conditions. Unfortu-nately, relatively few, if any, publicationsreport on such relationships.3 This paperattempts to address this deficiency. Part Iframes the question which this work attemptsto answer and the motivation behind the ques-tion. Part II discusses various economic indi-cators and suggests a particular indicator (i.e.,

GDP) to be used for subsequent comparisonwith patent-related litigation statistics. PartIII compiles and summarizes various USpatent-related litigation statistics. Theseinclude statistics for both US district courtsand the Court of Appeals for the FederalCircuit. Part IV evaluates relationshipsbetween US GDP and the litigation statisticscompiled in Part III. Part V provides conclu-sory remarks concerning the suggested rela-tionships between changes in the US economyand US patent litigation activity.

Troxler.Katie

Text Box

Posted with permission from the Journal of the Patent and Trademark Office Society

Table of Contents

I. Introduction ..............................................................................................................73

II. Measuring the Economy........................................................................................73A. Gross Domestic Product ..................................................................................73

1. Approaches for Calculating GDP ............................................................742. US GDP Statistics ....................................................................................773. Advantages and Disadvantages of Using GDP as an Indicator ..............80

B. Gross National Income ....................................................................................82

1. US GNI Statistics ....................................................................................822. Advantages and Disadvantages of Using GNI as an Indicator ..............82

C. Genuine Progress Indicator ............................................................................84

1. US GPI Statistics ......................................................................................842. Advantages and Disadvantages of Using GPI as an Indicator ................85

D. Other Economic Indicators ..............................................................................85

1. Human Development Index ......................................................................852. Wealth Estimates ......................................................................................863. Private Product Remaining ......................................................................86

III. Patent Litigation Activity ........................................................................................86A. Legal Services Rendered ..................................................................................87

B. Patent Infringement Cases Filed ....................................................................88

1. District Courts ..........................................................................................882. Federal Circuit ..........................................................................................903. District Court Cases v. Appeals................................................................95

IV. Litigation Activity and GDP ....................................................................................96A. GDP v. Legal Services ......................................................................................96

B. GDP v. New District Court Patent Cases and Appeals................................98

Conclusions ..................................................................................................................103

72 RIEL AND MEIKLEJOHN JPTOS

I. IntroductionFluctuations in the amount of new andongoing patent-related litigation areprevalent in the US.4 Increases in litiga-tion clearly spur job creation as litigationattorneys and patent attorneys alike arerequired to navigate the US courts in pur-suit of positive business results. Similarly,decreases in litigation result in job loss.The US legal employment sector is cur-rently experiencing the latter.5 The USeconomy is also currently experiencing,according to some reports, one of itsdeepest and longest recessions since theGreat Depression.6

Accordingly, the current situation raisesthe question – how do fluctuations in theUS economy influence patent litigationactivity in US courts? The following sec-tions illustrate that changes in the USeconomy, at least historically, tend toinfluence the number of patent-relateddisputes filed in US district courts. Thefollowing sections also illustrate thatchanges in the US economy likely havevery little influence on the number ofappeals filed with the Court of Appealsfor the Federal Circuit (CAFC).

II. Measuring the EconomyMeasuring the economy is difficult.7 Manyfactors may be considered, such as person-al consumption, government expendi-

tures, value added at production stages,costs of pollution, etc. Every economicindicator is based on perspective – i.e.,what aspect of society is the indicatorattempting to measure. For example, isthe indicator attempting to measure theoutput of goods and services generatedwithin a geographical boundary? Is theindicator attempting to measure the out-put of goods and services generated by aparticular class of resident/citizen? Is theindicator attempting to measure humandevelopment or economic sustainability?

In practice, choosing a particular indi-cator for comparison with other societalchanges may depend heavily on the avail-ability of relevant data. For example,some economic indicators, such as GrossDomestic Product (GDP), have relevantdata available for a relatively large num-ber of years. Other indicators, however,such as the Human Development Index,have relevant data available for a relative-ly small number of years. A discussion ofsome of the more widely accepted eco-nomic indicators follows.

A. Gross Domestic ProductAccording to some authors, GDP is “themother of all economic indicators and isthe most important statistic to come out inany given quarter.”8 In short, GDP indi-cates the value of all goods and servicesprovided in, or from, the geographical

4 See Section III below.

5 See e.g., Above the Law, August 2009, available at http://abovethelaw.com/2009/08/ (last accessed Aug. 20, 2009).

6 Bloomberg.com, US Recession Worst Since Great Depression, Revised Data Show, Aug. 1, 2009, available athttp://www.bloomberg.com/apps/news?pid=20601087&sid=aNivTjr852TI (last accessed Aug. 20, 2009).

7 DALE W. JORGENSON & CHARLES W. WESNER, MEASURING AND SUSTAINING THE NEW ECONOMY: REPORT OF A WORKSHOP 44 (NationalAcademies Press 2002).

8 BERNARD BAUMOHL, THE SECRETS OF ECONOMIC INDICATORS: HIDDEN CLUES TO FUTURE ECONOMIC TRENDS AND INVESTMENT

OPPORTUNITIES 107 ( 2nd ed., Wharton School Publishing 2007).

WINTER 2010 A CORRELATION BETWEEN THE STATE OF THE US... 73

bounds of a country.9 By comparing cur-rent with past GDP, an indication of howfast or how slow an economy is expand-ing or contracting may be derived. Wediscuss below various approaches for cal-culating GDP, GDP statistics, and theadvantages and disadvantages of usingGDP as an indicator.

1. Approaches for Calculating GDPAt least three approaches for calculatingthe GDP exist, all of which should, at leasttheoretically, provide identical results.These approaches include the expenditureapproach, the income approach, and thevalue-added approach.

(a) Expenditure ApproachAccording to the expenditure approach,GDP is equal to the sum of all expendi-tures according to four categories of theeconomy during a predetermined timeperiod. 10 The four categories are: (1) per-sonal consumption expenditures, (2) grossprivate domestic investment, (3) govern-ment consumption and gross investment,and (4) net exports. Mathematically, GDPis calculated as follows:

GDP = C + I + G + (X – M)

where C is personal consumption expen-ditures, I is gross private domesticinvestment, G is government consump-tion and gross investment, X is exports,and M is imports.11

Personal consumption expendituresinclude spending by households ondurable goods, non-durable goods, andservices.12 Durable goods have long-termuse and may include, for example, motorvehicles, household furnishings, andrecreational goods.13 Non-durable goodshave only a short-term use and mayinclude, for example, food, beverages,clothing, and gasoline.14 Services includehousehold consumption expenditures forhousehold services, health care services,transportation services, and the like.15

Personal consumption expenditures havehistorically comprised the largest portionof the US GDP.16 In 2008, personal con-sumption expenditures comprised 70.1%of the total US GDP.

Gross private domestic investmentincludes fixed investments (nonresiden-tial and residential) and changes in pri-vate inventories.17 Nonresidential fixedinvestments include spending by compa-nies on, for example, fixed structures,office equipment, industrial equipment,transportation equipment, and the like.18

9 Id.

10 KARL E. CASE & RAY C. FAIR, PRINCIPLES OF ECONOMICS Chapter 18 (7th edition, Prentice Hall 2008) available athttp://wps.prenhall.com/bp_casefair_econf_7e/31/7936/2031704.cw/index.html (last accessed: Nov. 1, 2009).

11 Id.

12 US Dept. of Commerce Bureau of Economic Analysis, News Release, Table 3, available athttp://www.bea.gov/newsreleases/national/gdp/2009/pdf/gdp2q09_adv.pdf (last accessed: Aug. 22, 2009)(hereinafter BEA Table 3).

13 Id.

14 Id.

15 Id.

16 Id.

17 Id.

18 Id.


Residential fixed investments includespending by households on goods such ashouses, apartment buildings, and condo-miniums.19 The business inventories cate-gory includes spending by companies onthe production of goods during one timeperiod while intending to sell those goodsat a later time period,20 and is categorizedinto farm and nonfarm subcategories.21

Gross private domestic investment com-prises the third largest portion of the USGDP.22 In 2008, gross private domesticinvestment comprised 14.8% of the totalUS GDP.

Government consumption and grossinvestment includes both federal expendi-tures/investment as well as state and localexpenditures/investment.23 Governmentconsumption and gross investmentincludes spending by government onschools, roads, military, and governmentemployee wages.24 However, SocialSecurity payments to retired persons,unemployment compensation, and wel-fare payments are not included since theyare implicitly accounted for in the person-al consumption expenditures category.25

Government consumption and grossinvestment comprises the second largestportion of the US GDP.26 In 2008, govern-ment consumption and gross investmentcomprised 20% of the total US GDP.

Exports and imports include the exportand import of both goods and services.27

Exports are goods produced in the US andpurchased in other countries, as well asservices provided by US-based companiesor citizens and provided to other coun-tries. Imports are goods produced outsideof the US and purchased by consumerswithin the US, as well as services provid-ed by individuals outside the US and pro-vided to consumers within the US.Exports and imports comprise the small-est portion of the US GDP.28 Since USimports are greater than US exports, in2008, the US GDP was reduced by 4.9%which represents the amount that exportsexceed imports.

(b) Income ApproachAccording to the income approach, GDPis equal to the sum of categorizedincomes plus various adjustments duringa predetermined time period.29 Theincome categories are: (1) compensationof employees, (2) proprietors’ income, (3)corporate profits, (4) net interest, and (5)rental income. The various adjustmentsare for income earned from the rest of theworld, income earned by the rest of theworld, indirect business taxes, capitalconsumption allowances, and statistical

19 CASE & FAIR, supra note 10.

20 Id.

21 BEA Table 3, supra note 12.

22 Id.

23 Id.

24 CASE & FAIR, supra note 10.

25 Id.

26 Id.

27 BEA Table 3, supra note 12.

28 Id.

29 ROGER A. ARNOLD, ECONOMICS 143-146 (9th ed., South-Western College 2008).


discrepancies. Mathematically, GDP iscalculated as follows:

GDP = E + P + C + N + R + IF – IB + T + A + S

where E is employee compensation, P isproprietor’s income, C is corporate prof-its, N is net interest, R is rental income, IFis income earned from the rest of theworld, IB is income earned by the rest ofthe world, T is indirect business taxes, A iscapital consumption allowances, and S isstatistical discrepancies.30

Employee compensation refers to“wages and salaries paid to employeesplus employers’ contributions to SocialSecurity and employee benefit plans plusthe monetary value of fringe benefits, tips,and paid vacations.”31 Proprietor’s incomerefers to “all forms of income earned byself-employed individuals and the ownersof unincorporated business.”32 Corporateprofits “include all of the income earnedby the stockholders of corporations.”33

Net interest refers to “the interest incomereceived by US households and govern-ment minus the interest they paid out.”34

Rental income refers to “the incomereceived by individuals for the use of theirnonmonetary assets (land, houses,offices),”35 as well as “returns to individu-als who hold copyrights and patents.”36

Income earned from the rest of the worldrefers to income that US citizens livingabroad earned by producing and sellinggoods. Income earned by the rest of theworld refers to income non-US citizensearned by producing and selling goods inthe US. Indirect business taxes include anumber of items, the most important ofwhich are excise taxes, sales taxes, andproperty taxes. Capital consumptionallowance (i.e., depreciation) refers to thecost of replacing capital goods that areused up in the production processthrough natural wear, obsolescence, oraccidental destruction. Finally, statisticaldiscrepancy refers to computational errorsthat “often occur and must be accountedfor” when computing the aforementionedcategorized incomes.37

(c) Value-Added ApproachAccording to the value-added approach,GDP is equal to the sum of the valueadded to an output produced by each pro-ductive sector in the economy during apredetermined time period, where “valueadded is the increase in the value of aproduct at each successive stage of theproduction process.”38 In other words,value added in the production of a partic-ular good X is the monetary value of Xproduced (i.e., price times quantity)

30 Id.

31 Id. at 144.

32 Id.

33 Id.

34 Id.

35 Id.

36 Id.

37 Id. at 146.

38 tutor2, AS Macroeconomics / International Economy, 2006, available at http://tutor2u.net/economics/revision-notes/as-macro-national-income.html (last accessed Aug. 12, 2009).


minus the monetary value of the requiredinputs.39 Mathematically, GDP is calculat-ed as follows:

GDP = ∑ (P – I) per production sector

where P is the monetary value of a partic-ular product produced, I is the monetaryvalue of the inputs required to producethe particular product, and the summa-tion is taken over all production sectors.

The value-added approach is intendedto avoid “double counting,” which occurswhen the value of intermediate productsis counted in addition to the value of afinal output product resulting in a “dou-ble counting” of the value of the interme-diate inputs.40 Accordingly, this techniquesums only the value which is added byeach production stage. For example, awooden chair begins as raw timber,which is cut by one company and subse-quently milled by another. The milled

product is then made into a desk by athird company and finally retailed by afourth. Double counting is avoided sinceonly the value which is added by a compa-ny at the stage of production involvingthat company is considered.

2. US GDP StatisticsThe Bureau of Economic Analysis (BEA),an agency of the US Department ofCommerce, produces economic statisticsto enable various parties such as govern-ment, “business decision-makers,researchers, and the American public tofollow and understand the performanceof the US economy.”41 The “BEA collectssource data, conducts research and analy-sis, develops and implements estimationmethodologies, and disseminates statis-tics to the public.”42 As part of these serv-ices, the BEA provides US GDP statisticsfrom 1929 to present.43 The BEA, in gener-al, uses the expenditure approach to cal-culate the US GDP.44

39 SIMON BROMLEY, MAKING THE INTERNATIONAL: ECONOMIC INTERDEPENDENCE AND POLITICAL ORDER (WORLD OF WHOSE MAKING?) 180(Pluto Press 2003).

40 WILLIAM A. MCEACHERN, MACROECONOMICS: A CONTEMPORARY INTRODUCTION 143 (8th ed., South-Western College 2008).

41 US Dept. of Commerce Bureau of Economic Analysis, Mission, Vision, and Values, available athttp://www.bea.gov/about/mission.htm (last accessed: Aug. 2, 2009).

42 Id.

43 See e.g., US Dept. of Commerce Bureau of Economic Analysis, National Economic Accounts, available athttp://www.bea.gov/national/index.htm (last accessed: Aug. 9, 2009).

44 US Dept. of Commerce Bureau of Economic Analysis, Updated Summary of NIPA Methodologies, Nov. 2006, available athttp://www.bea.gov/scb/pdf/2006/11november/1106_nipa_method.pdf (last accessed: Aug. 9, 2009).


Figure 1 illustrates the US GDP,measured in billions of US Dollars,between the years 1929 and 2008. It isclear from this data that the US GDP hasexpanded significantly during the 20th

Century. Whether economic expansionbenefits society or not is widelydisputed.45 In any event, however, giventhe nature of the long-term continuousexpansion of the US economy, a betterinsight into changes (i.e., expansions andcontractions) of the US economy can berealized by viewing the percentage

changes in the US economy frompreceding periods. In other words, betterinsight can be realized by viewing, foreach year in a given range of years, thepercentage that the GDP has changedfrom a previous year. Accordingly, Figure2 illustrates percentage changes in the USGDP from preceding periods between theyears 1930 and 2008. For example, apercentage at a given year, such as 1940,illustrates an increase or decrease of achange in the GDP from the previous year,i.e., 1939.

45 See e.g., The World Bank, PovertyNet, Poverty, Growth, and Inequality, 2009, available athttp://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPOVERTY/EXTPGI/0,,contentMDK:20263370~menuPK:342777~pagePK:148956~piPK:216618~theSitePK:342771,00.html (last accessed Aug. 12, 2009) (arguing that economic growth is required to reducepoverty); CATO Institute, Policy Analysis, In Pursuit of Happiness Research: Is It Reliable? What Does It Imply for Policy?, Apr. 11,2007, available at http://www.cato.org/pub_display.php?pub_id=8179 (last accessed Aug. 12, 2009) (arguing that happiness increaseswith economic growth); Case and Fair (arguing that economic growth encourages the creation of artificial needs); and Meadows, D. L.,and Randers, J., The Limits to Growth, Washington, DC: Potomac Associates, 1973 (arguing that economic growth rapidly depletesnon-renewable resources).

46 Source data from US Dept. of Commerce Bureau of Economic Analysis, National Income and Product Accounts Table, Table 1.7.5(hereinafter BEA Table 1.7.5).


Figure 1. US GDP in billions of USD from 1929 to 2008. 46

The reasons for economic expansionand contraction vary considerablydepending on societal existentialitiesduring particular points in US history. Forexample, the Great

Depression lasted from about 1929 to1939 in the US due at least in part to astock market crash, subsequent bankfailures, monetary policy mistakes, andadherence to the gold standard.48 As aresult, the US economy experiencedsignificant contraction during the early1930s. In 1933, the US government passedlegislation known as the New Deal,increasing government spending anddomestic money supply while cutting

taxes. That legislation at least temporarilyrevived economic expansion.49 After ashort, subsequent downturn, in 1939 theUS entered into the Second World Warwhich lasted until 1945. During this periodthe US economy expanded substantially inresponse to accomodations made for thewar effort.50

Following a number of decades ofeconomic prosperity, a large recessionoccurred between 1973 and 1975 when theOrganization of Arab Petroleum ExportingCountries (OAPEC) declared it wouldlimit or stop oil shipments to the US if theysupported Israel in the Yom Kuppur War.51

During the 1980s, the US government

47 Source data from US Dept. of Commerce Bureau of Economic Analysis, National Income and Product Accounts Table, Table1.1.2.

48 Encyclopedia Britannica, Great Depression, 2009, available at http://www.britannica.com/EBchecked/topic/243118/Great-Depression (last accessed Aug. 10, 2009).

49 MSN Encarta, New Deal, 2009, available at http://encarta.msn.com/encyclopedia_761564651/New_Deal.html (last accessedAug. 10, 2009).

50 EH. Net Encyclopedia, The American Economy During World War II, available athttp://eh.net/encyclopedia/article/tassava.WWII (last accessed Aug. 10, 2009).

51 US Dept. of State, Second Arab Oil Embargo, 1973-1974, available at http://www.state.gov/r/pa/ho/time/dr/96057.htm (lastaccessed Aug. 10, 2009).


Figure 2. Percent changes in US GDP from 1930 to 2008. 47

incorporated policies including thereduction of government spending,income and capital gains marginal taxrates, government regulation of theeconomy, and inflation52 – arguablycontributing to economic expansionfollowing another period of contraction.During the late 1990s and ending in 2001,the US experienced a speculative bubbleduring which US stock markets saw equityvalues rise rapidly in the Internet sector.53

This speculative bubble was followed by arecession, credited at least in part tosuccessive interest rate increases.54

Finally, a large recession began in thelate 2000’s which has been linked tonumerous factors such as reckless andunsustainable lending practices resultingfrom the deregulation and securitizationof real estate mortgages in the US,55 acredit boom which fed a globalspeculative bubble in real estate andequities,56 and a sharp increase in oil57 and

food prices58. Although forecasts from theUS government indicate an approachingend to the current recession,59 some partiesremain skeptical.60

3. Advantages and Disadvantages of Using GDP as an IndicatorNotwithstanding the popularity of GDP asan economic indicator, the GDP has itsdeficiencies. For example, GDP excludesactivities that are not provided through amarket, such as home child care, mealpreparation, and house maintenance.61 As aresult, GDP may be understated. Notably,this understatement may not be insubstan-tial. For example, a recent study estimatesthat the cost of building the Linux operat-ing system – which was entirely built viavolunteer services – to be $10.8 billion in2008 US dollars.62 Accordingly, at least inthe context of volunteer services, GDP failsto take into account a multi-billion dollarsoftware project.

52 Library of Economics and Liberty, Reagonomics, 1988, available at http://www.econlib.org/library/Enc1/Reaganomics.html(last accessed Aug. 10, 2009).

53 James K. Galbraith and Travis Hale, Income Distribution and the Information Technology Bubble, Jan. 14, 2004, available athttp://utip.gov.utexas.edu/papers/utip_27.pdf (last accessed Aug. 10, 2009).

54 Newsmax.com, Alan Greenspan’s Real Legacy, Jan. 31, 2006, available athttp://archive.newsmax.com/archives/articles/2006/1/31/90119.shtml (last accessed Aug. 10, 2009).

55 Board of Governors of the Federal Reserve System, Speech, Governor Frederic S. Mishkin, How Should We Respond to AssetPrice Bubbles, May 15, 2008, available at http://www.federalreserve.gov/newsevents/speech/mishkin20080515a.htm (last accessedAug. 10, 2009).

56 Foldvary, Fred E., The Depression of 2008, The Gutenberg Press, Sept. 18, 2007, available athttp://www.foldvary.net/works/dep08.pdf (last accessed Aug. 10, 2009).

57 TFC Commodity Charts, Light Crude Oil EmiNY, available at http://tfc-charts.com/chart/QM/W (last accessed Aug. 10, 2009).

58 Stefan Steinberg, Financial Speculators Reap Profits from Global Hunger, Apr. 24, 2008, available athttp://globalresearch.ca/index.php?context=va&aid=8794 (last accessed Aug. 10, 2009).

59 America.gov, US Economy Should Improve in late 2009, Fed Chair Bernanke Says, May. 5, 2009, available athttp://www.america.gov/st/business-english/2009/May/20090505115000dmslahrellek0.4212152.html (last accessed Aug. 10, 2009).

60 YouTube, 2009 Will Be the Year of total Decline for US Jim Rogers, available at http://www.youtube.com/watch?v=w84EiCt0Lqk(last accessed Aug. 10, 2009).

61 MCEACHERN, supra note 40, at 148-49.

62 Amanda McPherson et al., Estimating the Total Development Cost of a Linux Distribution, The Linux Foundation, Oct. 2008,available at http://www.linuxfoundation.org/publications/estimatinglinux.php (last accessed Aug. 2, 2009).


GDP fails to capture unreported pro-duction.63 Some production may not bereported to government agencies since theproduction is illegal or since the producerdesires to evade taxes. The amount ofunreported production is not insubstan-tial – as of 2005, reports estimated theunderground economy to be valued atnearly one trillion US dollars.64

GDP fails to account for leisure time,increases in the quality of manufacturedproducts over time, and increases in thevariety of products globally manufac-tured over time.65 GDP does not accountfor economies having a lower emphasison monetary transactions, such aseconomies where bartering is preferredover monetary transactions. These vari-ables simply are not taken into considera-tion by any of the economic factors usedto calculate GDP. GDP fails to make dis-tinctions between transactions thatenhance well being and those that dimin-ish well being. Rather, the GDP assumesthat every monetary transaction adds tosocial well-being so that expenditurestriggered by crime, accidents, toxic wastecontamination, and the like appear to pro-vide a social good.

Even though GDP has such deficiencies,it still has been heralded, as previouslymentioned, as the most important measure

of a country’s economic health. Moreover,a major advantage of the GDP indicator isthat substantial historic data is availablefor it. Notably, GDP is widely used notonly in the US but also in foreign countriesvia GDP international definitions.66

B. Gross National IncomeIn contrast with GDP, Gross NationalIncome (GNI) has been touted as “themost comprehensive measure of anation’s income.”67 GNI is a measure of“income from production that accrues toUS residents, regardless of where that pro-ductive activity is located,”68 and is basedon Gross Domestic Income (GDI), incomereceived from the rest of the world, andincome paid to the rest of the world. GDIis simply GDP measured using the incomeapproach. Mathematically, GNI is calcu-lated as:

GNI = GDI + R – P

where GDI is Gross Domestic Income, R ispayments received from non-US coun-tries, and P is payments made to non-UScountries. We discuss below various USGNI statistics and then consider theadvantages and disadvantages of usingGNI as an indicator.

63 MCEACHERN, supra note 40, at 149.

64 Jim McTague, The Underground Economy, THE WALL STREET JOURNAL, Apr. 2005, available athttp://wsjclassroom.com/archive/05apr/econ_underground.htm (last accessed July 28, 2009).

65 MCEACHERN, supra note 40, at 149.

66 United Nations Statistics Division, 1993 System of National Accounts – Glossary, available athttp://unstats.un.org/unsd/sna1993/glossary.asp (last accessed Aug. 12, 2009).

67 BUREAU OF ECONOMIC ANALYSIS, U.S. DEP’T OF COMMERCE, MEASURING THE ECONOMY, A PRIMER ON GDP AND THE NATIONAL INCOME

AND PRODUCT ACCOUNTS 4 (Sept. 2007) (emphasis added).

68 Id. at 5


1. US GNI StatisticsSimilar to GDP, the BEA has maintainedGNI statistics for the US since 1929.69

Figure 3 illustrates the US GNI in billionsof US dollars as calculated by the BEAbetween the years 1929 and 2008. Closeanalysis of the US GNI, as well as percent-age changes to the GNI from precedingperiods (not shown), reveals remarkablysimilar trends to the trends of the US GDP.

2. Advantages and Disadvantages of Using GNI as an IndicatorThe GNI, as calculated by the BEA,includes profits from US companies oper-ating abroad. However, it is not certainthat such profits are injected back into theUS economy. Similarly, the GNI, as calcu-

lated by the BEA, fails to include profitsfrom foreign companies operating in theUS, where it is likely that such profitswould be injected into the US economy.In any event, however, the GNI exhibitssubstantially similar trends as the GDP.Accordingly, the GNI measure adds littlevalue over GDP to a comparison betweenchanges in the US economy and patent lit-igation activity.

C. Genuine Progress IndicatorRedefining Progress, a US “public policythink tank dedicated to smart econom-ics,”71 introduced the Genuine ProgressIndicator (GPI) in 1995 as an alternative tothe GDP. The GPI is intended to enablepolicymakers “at the national, state,

69 BEA Table 1.7.5.

70 Source data from BEA Table 1.7.5.

71 Redefining Progress, About Redefining Progress, available at http://www.rprogress.org/about_us/about_us.htm (last accessedAug. 12, 2009).


Figure 3. US GNI in billions of USD from 1929 to 2008. 70

regional, or local level to measure howwell their citizens are doing both econom-ically and socially.”72 As previously dis-cussed, the GDP fails to make distinctionsbetween transactions reflecting socialwell-being and not reflecting social well-being, and also fails to consider non-mon-etary transactions. Moreover, GDP isboosted by some transactions reflectingsocial negatives such as crime since GDPincludes expenditures on lost and dam-aged property as economic gain.73

Further, GDP is also oblivious to inequali-ties in social welfare74 and thus fails toreflect social imbalances.

The GPI attempts to correct these defi-ciencies.75 The major objective of the GPIis “to provide a more accurate measure ofwelfare and to gauge whether or not aneconomy is on a sustainable time path.”76

GPI calculations use the same personalconsumption data that is used in GDP cal-

culations, but then adjust for factors suchas income distribution, value of house-hold and parenting, value of higher edu-cation, value of volunteer work, and costsof crime, underemployment, pollution,automobile accidents, ozone depletion,and the like.77 Mathematically, GPI is cal-culated as follows:

GPI = PC+ ∑SB – ∑SC

where PC is personal consumption, SBare social benefits including the value ofhousework, parenting, higher education,volunteer work, and the like, and SC aresocial costs including costs of crime,underemployment, consumer durables,commuting, pollution, and the like. Wediscuss below various US GPI statisticsand then consider the advantages and dis-advantages of using GDI as an indicator.

72 Redefining Progress, Genuine Progress Indicator, available athttp://www.rprogress.org/sustainability_indicators/genuine_progress_indicator.htm (last accessed Aug. 12, 2009).

73 John Talbert et. al., The Genuine Progress Indicator 2006, A Tool for Sustainable Development, Redefining Progress, The Natureof Economics, 2006, p. 2, available at http://www.rprogress.org/publications/2007/GPI%202006.pdf (last accessed Aug. 10, 2009).

74 Id.

75 Id. at 3.

76 Id.

77 Id. at 8-18.


1. US GPI StatisticsRedefining Progress has calculated USGPI since 1950 and has compared the cal-culated GPI with the US GDP for theyears between 1950 and 2004.78 Figure 4illustrates a comparison between the USGPI and GDP in billions of dollarsbetween 1950 and 2004 as reported byRedefining Progress.

As shown in Figure 4, the GPI measureis substantially correlated with the GDPmeasure from about 1950 until 1980, atwhich point GPI experienced only nomi-nal growth while GDP experienced sub-stantial growth. Due to the differences inhow GPI and GDP are calculated, the dif-ference in trends from 1980 on imply that“the marginal benefits associated withpersonal consumption expenditures,non-market time, and capital services

have been offset by the marginal costsassociated with income inequality, natu-ral capital depletion, consumer durableexpenditures, defensive expenditures,undesirable side effects of growth, andnet foreign borrowing.”80

Figure 5 illustrates annual per capitagrowth rates of both GPI and GDP using arolling three year average to smooth outyear to year fluctuations (i.e., changes inGPI and GDP over preceding periods).Not surprisingly, Figure 5 shows differ-ences in magnitudes of change. For exam-ple, between approximately 1975 and1980, changes in GDP dropped fromapproximately 4% to -1%, whereaschanges in GPI dropped from approxi-mately 1.5% to -1%. This is not surprisingsince the basis of the GPI indicator is sim-ilar to that of GDP, with various deduc-

78 Id. at 19-20.

79 Id. at 20.

80 Id. at 19.


Figure 4. Comparison of GDP to GPI in Billions of Dollars. 79

tions to account for social costs. Similarly,between approximately 1980 and 1983,changes in GDP increased from approxi-mately -1% to 4%, whereas changes in GPIincreased from approximately -1% to 1%.Notably, however, trends in changes ofGDP and changes of GPI follow oneanother. For example, changes in bothGDP and GPI tend to increase between1960 and 1965, decrease between 1965 and1969, and increase between 1969 and 1970.

2. Advantages and Disadvantages of Using GPI as an IndicatorRedefining Progress’s GPI measureincludes many factors that likely reflect amore comprehensive standard of livingindicator and societal sustainability indi-cator. Arguably, however, a number ofthese additional factors, such as costs ofcrime, underemployment, consumer

durables, commuting, and pollution, arenot measures of economic activity. In anyevent, the GPI fluctuates in patterns simi-lar to those of the GDP. Accordingly, GPIadds little value over GDP to a compari-son between changes in the US economyand patent litigation activity.

D. Other Economic IndicatorsEconomic indicators other than GDP, GNI,and GPI exist. These include, for example,Human Development Index (HDI), wealthestimates, and Private Product Remaining(PPR). Each of these economic indicatorsis briefly introduced and its usefulness inthe present context discussed.

1. Human Development IndexThe United Nations has established theHDI which looks beyond GDP as a meansof measuring well-being.82 The HDI con-


81 Id. at 23.

82 United Nations Development Programme, Human Development Reports, The Human Development Index, available athttp://hdrstats.undp.org/2008/countries/country_fact_sheets/cty_fs_USA.html (last accessed Aug. 9, 2009).

Figure 5. Comparison of GDP to GPI. (rolling three-year averages) 81

siders three dimensions: living a long andhealthy life, being educated, and having adecent standard of living. The dimensionof living a long and healthy life is deter-mined by measuring life expectancy. Thedimension of being educated is measuredby adult literacy and enrollment at theprimary, secondary, and tertiary levels.The dimension of having a decent stan-dard of living is measured by GDP percapita in purchasing power parity terms.This indicator provides little value to thisstudy since the study is primarily con-cerned with economic fluctuations, andindices such as life expectancy and levelof education are not likely to directlyreflect such fluctuations.

2. Wealth EstimatesVarious entities propose unique modelsfor estimating wealth. For example, theUS Census Bureau, an agency of the USDepartment of Commerce, calculates networth as “the sum of the market value ofassets owned by every member of ahousehold minus liabilities (secured orunsecured) owed by the household mem-bers.”83 The World Bank measures wealthby considering the value of structures andequipment, urban land, natural resources,and intangibles.84 These indicators pro-vide little value to this study since a levelof wealth does not necessarily reflect eco-nomic activity and since there is a verylimited amount of statistical informationpublicly available for these indicators.

3. Private Product RemainingSome authors have proposed an econom-ic indicator referred to as PPR, whichessentially is equal to GNP minus govern-ment spending.85 The purpose of thismeasure is to remove government spend-ing from a measure of economic activitysince government spending allegedly hasno necessary relation to the services that itmight be providing to the private sector.86

This indicator provides little value to thisstudy since government expenditures,even if not related to services that the gov-ernment is providing, still result in eco-nomic activity.

III. Patent Litigation ActivityPatent litigation activity can be consideredon both a macro- and a micro-level. On a“macro-level,” characteristics of the legalservice industry as a whole may be con-sidered. Patent litigation activity is a sub-set of the legal service industry as a whole.Accordingly, this macro-level perspectivemay be valuable as trends in the legalservice industry as a whole are likely tocorrelate – at least to a minimal degree –with trends in legal services subsets suchas patent litigation activity.

The “micro-level” of patent litigationactivity may be divided into two cate-gories: (1) patent litigation at the districtcourt level, represented by the number ofnew patent-related filings in US districtcourts; and (2) patent litigation at the

83 US Census Bureau, Wealth and Asset Ownership, Net Worth and Asset Ownership of Households: 2002, p. 2, 2008, available athttp://www.census.gov/prod/2008pubs/p70-115.pdf (last accessed Aug. 10, 2009).

84 The World Bank, The Architecture of the Wealth Estimates, 2009, available athttp://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/ENVIRONMENT/EXTEEI/0,,contentMDK:21005436~pagePK:210058~piPK:210062~theSitePK:408050,00.html (last accessed Aug. 10, 2009).

85 Ludwig von Mises Institute, Appendix: Government and the National product, 1929-1932, available athttp://mises.org/rothbard/agd/appendix.asp (last accessed Aug. 10, 2009).

86 Id.


appellate level, represented by the numberof new patent-related appeals to the CAFC.Legal services rendered on a macro-levelare discussed first for perspective.

A. Legal Services RenderedThe BEA provides statistics for not onlyUS GDP as a whole but also provides var-ious statistics on an industry-by-industrybasis.87 In classifying industries andacquiring statistical data for industries,the BEA relies upon the North AmericanIndustry Classification System (NAICS)for its industry classifications.88 NAICS isthe official industry classification systemfor the US.89

NAICS industry classification includesa classification for legal services.90 In par-ticular, NAICS classification code 5411corresponds to legal services.91 NAICSclassification code 5411 includes NAICScode 541110, which includes the categoriesof “legal services” and “offices oflawyers,” and 541191, which includes thecategory of “other legal services.”

The legal services and offices of lawyerscategories comprise offices of legal practi-tioners known as lawyers or attorneys pri-marily engaged in the practice of law.Establishments in these industries mayprovide expertise in a range or in specificareas of law, such as criminal law, corpo-rate law, family and estate law, patent law,real estate law, or tax law.92 The other legalservices categories comprise establish-ments (except offices of lawyers and attor-neys) primarily engaged in one or more ofthe following activities: (1) researchingpublic land records to gather informationrelating to real estate titles; (2) preparingdocuments necessary for the transfer ofthe title, financing, and settlement; (3)conducting final real estate settlementsand closings; and (4) filing legal and otherdocuments relating to the sale of realestate. Real estate settlement offices, titleabstract companies, and title search com-panies are included in this industry.93

Since a NAICS classification exists forlegal services, the BEA has corresponding-ly generated economic data for legal serv-

87 Bureau of Economic Analysis, US Dept. of Commerce, Industry Economic Accounts, available athttp://www.bea.gov/industry/index.htm (last accessed Aug. 10, 2009).

88 Bureau of Economic Analysis, US Dept. of Commerce, Concepts and Methods of the US National Income and Product Accounts,July 2008, available at http://www.bea.gov/national/pdf/NIPAhandbookch1-4.pdf (last accessed Aug. 14, 2009)

89 See, e.g., OFFICE OF MANAGEMENT AND BUDGET, NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM, UNITED STATES, 2002(Washington, DC: Bernan Press 2002).

90 NAICS Association, available at http://www.naics.com/search.htm (last accessed Aug. 12, 2009).

91 Id.

92 Id.

93 Id.


ices as an industry. For example, Figure 6illustrates the gross output of US legalservices, in billions of US dollars, for theyears 1987 to 2007. As expected, the grossoutput of legal services consistentlyincreased over this time period in a man-ner similar to the US GDP.

Given the nature of the long-term con-tinuous expansion of US legal services out-put, a better insight into changes of legalservice output can be realized by viewingpercentage changes in the US legal servic-es output from preceding periods, as isdone with GDP. Accordingly, Figure 7

illustrates percentage changes in the USlegal services output from preceding peri-ods between the years 1988 and 2007.Notably, substantial expansions and con-tractions in the rate of legal service growthexist. Further comparison with the USGDP is provided below in Section IV.

B. Patent Infringement Cases Filed

1. District CourtsThe Administrative Office of the USCourts (AO), created in 1939, functions toserve the Federal Judiciary “in carryingout its constitutional mission to provide

94 Source data from Bureau of Economic Analysis, US Dept. of Commerce, Gross-Domestic-Product-by-Industry Accounts, Apr. 28,2009, available at http://www.bea.gov/industry/gpotables/gpo_action.cfm?anon=104079&table_id=24759&format_type=0 (lastaccessed Aug. 14, 2009).


Figure 6. US legal services gross output in billions of US dollars from 1987 to 2007. 94

equal justice under the law.”96 As such,the AO “provides a wide range of admin-istrative, legal, financial, management,program, and information technologyservices to the federal courts … providessupport and staff counsel to the JudicialConference [of the US, and] facilitatescommunications within the Judiciaryand with Congress,” among otherthings.97 Part of these services includesgenerating and publishing various statis-tics regarding US district courts, courts ofappeals, and the Supreme Court. Thesereports are published in the Annual

Report of the Director,98 which providesstatistics including numbers of civil casesfiled by origin, cases pending three yearsor more by basis of jurisdiction andnature of suit, arbitration cases filed bydistrict, and the like.99

Practically all disputes over existing USpatent rights are initially filed in federaldistrict courts since the district courts haveexclusive jurisdiction for actions “arisingunder any Act of Congress relating topatents.”100 Figure 8 illustrates the numberof new patent cases filed in all US districtcourts during the period 1970 to 2008.

95 Id.

96 US Courts, Administrative Office, About, available at http://www.uscourts.gov/adminoff.html (last accessed Aug. 12, 2009).

97 Id.

98 See e.g., US Courts, Judicial Business of the United States Courts, available at http://www.uscourts.gov/judbususc/judbus.html(last accessed Aug. 12, 2009) (hereinafter US Courts Judicial Business).

99 Id.

100 28 USC. §1338(a).


Figure 7. Percentage changes in US legal services output from 1988 to 2007. 95

As illustrated in Figure 8, similar to thetrend of persistent increases in legal serv-ices as a whole, the number of patent casesfiled in US district courts has generallyincreased on an annual basis. Someexceptions exist, though, as evidenced bya decline and no-growth period between1970 and 1981, and subsequent declines inthe years 1986, 1989, 1991, and 2005.

Similar to the US GDP and US legalservices gross output measurements, abetter insight into patent litigation activity(at least with respect to new cases filed indistrict courts) can be realized by viewingthe percentage changes in the number of

new patent cases filed in preceding peri-ods. Figure 9 illustrates percentagechanges in the number of new patentcases filed in US district courts from pre-ceding periods between the years 1971and 2008. Notably, substantial expansionsand contractions in the rate of new patentcase filings exist. Further comparisonwith the US GDP is provided below inSection IV.

2. Federal CircuitSimilar to the number of new patent casesfiled in US district courts, the AO main-tains statistics for the number of new

101 For data from 1970 to 1992, source data from Patstats.org, Patent, All P-T-C, and All Civil Actions – 1970-2005, available athttp://www.patstats.org/Historical_Filings_PatentSuits_OtherSuits.doc (last accessed Aug. 14, 2009) (relying on AO of US Courts,Annual Reports); for data from 1993 to 2008, source data from US Courts Judicial Business.


Figure 8. Number of patent cases filed in US district courts between 1970 and 2008. 101

appeals filed at the CAFC.103 Accordingly,it is possible to determine the historicalamount of appellate level activity on anannual basis.

The CAFC has nationwide jurisdictionin a variety of subject areas; for example,international trade, government contracts,certain money claims against the UnitedStates government, federal personnel, andveterans’ benefits.104 Appeals to the courtcome from a variety of jurisdictions; forexample, all federal district courts, theUnited States Court of Federal Claims, the

United States Court of InternationalTrade, and the United States Court ofAppeals for Veterans Claims.105 The CAFCgenerally has jurisdiction over patentappeals in accordance with 28 USC. §1295(a). Accordingly, the CAFC will hearmost – if not all – appeals where a patentis in dispute.106

Two paths exist for the CAFC to hearpatent-related appeals concerning theenforcement of existing patent rightsagainst non-government entities.107 First,as previously discussed, the CAFC may

102 Id.

103 See e.g., US Courts Judicial Business, supra note 98.

104 US courts of Appeals for the Federal Circuit, About, Apr. 7, 2009, available at http://www.cafc.uscourts.gov/about.html (lastaccessed Aug. 12, 2009).

105 Id.

106 Note, however, that in Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 122 S. Ct. 1889 (2002), the US Supreme Courtexplained that the Federal Circuit does not have per se jurisdiction over patent appeals from district courts, but rather has jurisdictiononly if a patent issue is raised in the plaintiff’s complaint. Accordingly, some appeals concerning patents have not reached the CAFC,but the number of such cases is insignificant.

107 The CAFC also hears patent-related appeals from the Court of Federal Claims (CFC) but these patent cases are solely againstthe US government. Patent-based complaints to and corresponding appeals from the CFC are not considered herein as the number ofcomplaints to, and thus potential appeals from, the CFC are prima facie statistically insignificant. For example, in 2008, only six newcomplaints concerning a copyright and/or patent dispute were filed with the CFC. See US Courts, 2008 Annual Report of the Director,Table G-2A, available at http://www.uscourts.gov/judbus2008/appendices/G02ASep08.pdf (last accessed Nov. 1, 2009).


Figure 9. Change in percentage of new patent cases filed in US district courts. 102

hear appeals from any of the US districtcourts. Second, the CAFC may also hearappeals from the US International TradeCommission (ITC). The ITC is “an inde-pendent, quasijudicial Federal agencywith broad investigative responsibilitieson matters of trade.”108 The agency hasjurisdiction to investigate disputes con-cerning IP rights and other rights as setforth in 19 USC § 1337.

As a result of the multiple paths to theCAFC, and the fact that the ITC respondsto both patent and non-patent relatedmatters, it is desirable to determine ameasure of appellate level patent activitythat primarily encompasses patent-relatedmatters without being skewed by non-patent related matters. Accordingly, sta -tistics for appeals filed to the CAFC fromdistrict courts alone, based on patent juris-diction, are compared to statistics for a

combination of appeals, where the combi-nation includes appeals filed to the CAFCfrom district courts based on patent juris-diction as well as appeals filed to theCAFC from the ITC.

Figure 10 illustrates the number ofpatent appeals from US district courts tothe CAFC based on patent jurisdictionbetween the years 1997 and 2008. Thistrend illustrates a surprisingly constantnumber of appeals over this 10-year peri-od, with patent appeals in 1997 equaling402 and patent appeals in 2008 equaling483. There are, however, expansions andcontractions to the number of appeals.For example, peaks are found during theyears 1999, 2003, and 2006, while troughsare found during the years 2002 and 2004.Figure 11 illustrates the percentage changein the number of appeals filed each year incomparison to a previous year. The per-

108 US International Trade Commission, About the USITC, available at http://www.usitc.gov/press_room/about_usitc.htm (lastaccessed Aug. 12, 2009).

109 Source data from US Courts Judicial Business, supra note 98.


Figure 10. Number of patent appeals from US district courts to the CAFC. 109

centage change data spans from 1998 to2008 and illustrates substantial rates ofchange in the number of patent appealsfiled, especially between the years 2002and 2004.

Figure 12, similar to Figure 10, also illus-trates the number of patent appeals filed.In this case, however, both the number ofpatent appeals from US district courts andthe number of appeals from the ITC are

110 Id.

111 Id.


Figure 11. Change in percentage of patent appeals from US district courts to the CAFC. 110

Figure 12. Number of patent appeals from both the ITC and US district courts to the CAFC. 111

included. Figure 13, similar to Figure 11,illustrates the percentage change in thenumber of these types of appeals over aprevious year. Figures 12 and 13 look sub-stantially identical, at least on their faces,to Figures 10 and 11, respectively, suggest-

ing that appeals from the ITC fail to influ-ence the trend of patent appeals to theCAFC. A direct comparison between thesedata sets confirms this hypothesis.

In particular, Figure 14 illustrates acomparison between the number of patent

112 Id.


Figure 13. Change in percentage of patent appeals from both the ITC andUS district courts to the CAFC. 112

Figure 14. Comparison between patent appeals from only US district courts to theCAFC and appeals from both the ITC and US district courts to the CAFC.

appeals from only US district courts to theCAFC, and the combination of the num-ber of patent appeals from US districtcourts and the number of appeals fromthe ITC to the CAFC. Only a small varia-tion around 2007 and 2008 exists, due to adisproportionately high number ofappeals filed from the ITC in 2007 and2008 (i.e., 38 and 24, respectively, com-pared to 9 filed in 2006). Figure 15 illus-trates a comparison between the percent-age change in the number of these types ofappeals over a previous year. As expect-ed, they are also practically identicalexcept for the years 2007 and 2008.

Since including the number of appealsfiled with the CAFC from the ITC does notsubstantially affect the trend of patent

appeals to the CAFC, it makes little differ-ence whether the data illustrated inFigures 10 and 11 or the data illustrated inFigures 12 and 13 are used for subsequentanalysis. The data illustrated in Figures12 and 13 are subsequently used for com-parison with GDP data and the like sincethe increase in ITC activity during theyears 2007 and 2008 is likely due to anincrease in patent-related disputes beingfiled with the ITC.113

3. District Court Cases v. AppealsAlthough not necessarily directly relatedto economic changes and patent litigationactivity, further insight into the issues ofconcern may be attained by comparingthe number of patent cases filed in US dis-

113 On May 15, 2006, the Supreme Court effectively limited the likelihood of patentees obtaining injunctions in federal courts as aresult of its decision in eBay Inc. v. MerExchange, LLC, 547 US 388 (S. Ct. 2006). As a result, patentees reportedly increased the numberof disputes filed with the ITC in hopes of obtaining an injunction or using the threat of injunction to obtain more favorable businessresults. See, e.g., Eric Bangeman, Permanent Injunctions Getting Scarce; Patent Holders Turn to ITC, Jun. 3, 2007, available athttp://arstechnica.com/tech-policy/news/2007/06/permanent-injunctions-getting-scarce-patent-holders-turn-to-itc.ars (last accessedAug. 13, 2009).


Figure 15. Comparison between change in percentage of patent appeals from only USdistrict courts to the CAFC and change of percentage of patent appeals from both theITC and US district courts to the CAFC.

trict courts to the number of patentappeals (from both the ITC and US districtcourts) filed in the CAFC. Such compar-isons illustrate differences in lower courtand appellate filings which may, at leastindirectly, reflect how economic fluctua-tions affect patent litigation activity. Inparticular, by the time an appeal has beenfiled with the CAFC a majority of therequired litigation costs have already beenexpended.114 Accordingly, whether a partydecides to pursue the additional costs ofappeal may in part be affected by fluctua-tions in the economy (i.e., due to signifi-cant changes in a party’s financial abilityto appeal).

Figure 16 illustrates a comparisonbetween the number of patent cases filedin US district courts (on the bottom) andthe number of appeals from both the ITCand the US district courts filed in theCAFC (on the top). An observer may rec-ognize that although the number ofappeals to the CAFC has practicallyremained constant, the number of patentcases filed in the district courts hasincreased substantially between 1997 and2008. This illustrates that an increasedpercentage of patent cases are beingresolved without appeal, either by settle-ment or simply failure to pursue appeal.

Figure 17 illustrates a comparisonbetween the change in percentage of newpatent cases filed in US district courts andthe change in percentage of new appealsfrom both the ITC and US district courtsfiled in the CAFC. From Figure 17 it isevident that, with the exception of thesubstantial decrease in 2005 and taperingdecrease past 2005, the number of patent

cases filed in district courts has beenincreasing at a relatively constant pace –approximately 5.5% per year over theyears 1998 to 2004. Interestingly, the num-ber of patent-related appeals to the CAFC,after experiencing a decreasing rate ofchange from 1999 to 2002, experienced asubstantial rate increase in 2003, decreasein 2004, increase again in 2005, followedby a subsequent decrease again until 2008.

IV. Litigation Activity and GDPUp to this point, four fundamental trendshave been identified:

(1) measurements of the US economyand changes thereof; i.e., GDP

(2) measurements of legal services as awhole; i.e., legal services as definedby the NAICS classification system

(3) patent litigation activity at the dis-trict courts

(4) patent litigation activity at theappellate courts (i.e., appeals fromthe ITC and patent appeals from USdistrict courts to the CAFC)

Having identified these fundamentaltrends, comparisons between them maybe made in an attempt to recognize corre-lations both at the macro (legal servicesrendered) and micro (district court andFederal Circuit filings) levels.

A. GDP v. Legal ServicesFigure 18 illustrates changes in gross legalservices output compared to changes inthe US GDP. In particular, two trends areillustrated. First, the percentage changes

114 Managing Intellectual Property, US – Litigation: Cost and Duration of patent Litigation, Feb. 2009, available athttp://www.managingip.com/Article/2089405/Cost-and-duration-of-patent-litigation.html (last accessed Aug. 13, 2009).



Figure 16. Comparison between number of patent cases filed in US district courts andnumber of appeals from both the ITC and US district courts filed in the CAFC.

Figure 17. Comparison between change in percentage of patent cases filed in US dis-trict courts and change in percentage of new appeals from both the ITC and US districtcourts filed in the CAFC.

in US GDP from 1977 to 2007 are illustrat-ed, similar to those provided in Figure 2.Second, the percentage changes in grossUS legal services output from 1988 to 2007are illustrated, similar to those providedin Figure 7. An observer’s first impressionof this comparison would likely suggestthat there is little correlation between therate of change of US GDP and the rate ofchange of gross US legal services output.A closer inspection, however, suggeststhat the rate of change of legal service out-put follows the rate of change of GDP butis (a) delayed by a number of years, and(b) amplified. Figure 19 and its correspon-ding data confirm this hypothesis.

Figure 19 illustrates the same GDP dataas that used in Figure 18, but with anadjusted legal services output data. Inparticular, the legal services output datawas negatively offset by four years andreduced by 50%. The resulting trend inpercent changes in legal services illus-

trates a remarkably high correlation withthe percent changes in GDP. This suggeststhat increases in GDP will, after approxi-mately four years, be followed by two-fold corresponding increases in legal serv-ices output. Similarly, decreases in GDPwill, after approximately four years, befollowed by two-fold correspondingdecreases in legal services output. Theslight time-based miscorrelation duringthe 2001-2008 years suggests that recentchanges in legal services output do notoccur after such a long time delay. Inother words, changes in legal services out-put now (i.e., since 2001) occur withinabout two – rather than four – years.

B. GDP v. New District CourtPatent Cases and AppealsFigure 20 illustrates US GDP and its rela-tionship to the number of patent casesfiled in district courts and the CAFC. In


Figure 18. Comparison between percentage change of GDP and change in legalservices gross output.


Figure 19. Comparison between percentage change of GDP and change in adjustedlegal services gross output.

Figure 20. Comparison between GDP, number of patent cases filed in US district courts,and number of appeals from both the ITC and US district courts filed in the CAFC.

particular, three trends are illustrated.First, the US GDP from 1960 to 2007 isillustrated, similar to that provided inFigure 1. Second, the number of patentcases filed in all US district courts during

the period 1970 to 2008 is illustrated, sim-ilar to those provided in Figure 8. Third,the number of patent appeals from all USdistrict courts to the CAFC combined withappeals from the ITC to the CAFC during

the period 1997 to 2008 is illustrated, sim-ilar to that provided in Figure 12.

An observer’s first impression in com-paring GDP to new patent cases filed inthe district courts would likely suggestan insignificant correlation. Based onFigure 20, inspection of this large-scalestatistical data likely confirms thisimpression. For example, consider theperiod 1970 to 1991. Here, the GDPincreased from approximately

1.04 trillion US dollars in 1970 toapproximately 6.0 trillion in 1991; analmost 600% increase, or an averageincrease equal to about 28.5% per year.In contrast, the number of patent cases indistrict courts increased from 1023 in1970 to 1171 in 1991; less than a 15%increase, or an average increase equal toabout 0.7% per year. Accordingly, eventhough the GDP grew substantially, thenumber of patent cases in district courtsremained stagnant.

Consider now the period 1991 to 2004.Here, the GDP increased from approxi-mately 6.0 trillion in 1991 to approximate-ly 11.9 trillion in 2004; an almost 200%increase, or an average increase equal toabout 15% per year – an average growthnotably slower than the correspondinggrowth during the period 1970 to 1991. Incontrast, the number of patent cases indistrict courts increased from 1171 in 1991to 3075 in 2004; over a 250% increase, or anaverage increase equal to about 19% peryear. Accordingly, as economic growth asmeasured by GDP slowed, the number ofpatent cases in district courts increasedsubstantially. These data suggest that, atleast on a grand scale, changes in the USeconomy fail to influence patent litigationactivity. Rather, other factors are likely atplay for causing substantial shifts inpatent litigation activity in general.

On this large of a scale of change, anobserver’s first impression in comparingGDP to patent appeals filed in the CAFCwould be that there is very little correla-tion. It must be remembered, however,that the duration of patent appeal statis-tics is very limited.

Consider, for example, the period 1997to 2008 during which the GDP increasedfrom approximately 8.3 trillion US dollarsto approximately 14.4 trillion – an almost75% increase, or an average increase equalto about 6.5% per year. In contrast, thenumber of patent appeals filed in theCAFC increased from 402 in 1997 to 483 in2008; approximately a 20% increase, or anaverage increase equal to about 1.8% peryear. Accordingly, even though the GDPexperienced substantial average growth,the number of patent appeals in the CAFCexperienced only low to moderate growth.

Figure 21 illustrates percent changes inthe number of patent cases filed in districtcourts and the CAFC compared to percentchanges in US GDP. In particular, threedata sets are illustrated. First, percentchanges in the US GDP from 1960 to 2008are illustrated, similar to those provided inFigure 2. Second, percent changes in thenumber of patent cases filed in all US dis-trict courts during the period 1970 to 2008are illustrated, similar to those provided inFigure 9. Third, percent changes in thenumber of patent appeals from all US dis-trict courts to the CAFC combined withappeals from the ITC to the CAFC duringthe period 1998 to 2008 are illustrated, sim-ilar to those provided in Figure 13.

A cursory overview of percent changesdoes not reveal any substantial trend wor-thy of note. With closer scrutiny of the per-cent changes in the number of patent casesfiled in district courts, however, two trendsmay be gleaned from the data. First: his-


torically, there is an inverse relationshipbetween the number of patent suits filed indistrict courts and the percent changes inGDP. For example, after a number of yearsof decreasing GDP percentage changesbetween 1966 and 1970, the rate of patentsuit filings increased starting in 1974. Afterdecreasing GDP percentage changesbetween 1976 and 1982, the rate of patentsuit filings increased starting in 1983. Afterdecreasing GDP percentage changesbetween 1984 and 1991, after some fluctua-tion, the rate of patent suit filings increasedstarting in 1991.

Second: during every GDP contraction(i.e., negative percentage change) record-ed to date for which patent case statisticsare readily available, the rate of patentsuit filings substantially increases. Forexample, between 1974 and 1975, whenGDP contracted 0.6% and 0.2%, respec-

tively, the percentage change of newpatent suit filings increased from -0.5% to8.56%. Between 1980 and 1982, whenGDP contracted 0.3% and 1.9% (with anexpansion in 1981), the percentage changeof new patent suit filings increased from -2.2% in 1980 to 25.4% in 1983. During1991, when the GDP contracted 0.2% aftera number of years of slowing expansion,the percentage change of new patent suitfilings increased from -5.4% to 25.8%.

Notably, these trends concerning newpatent case filings in district courts startblurring after year 2000, suggesting exter-nal influences on the historical norm. Oneexternal influence may be the increasinglitigious activity of non-practicing entities(NPEs). For example, as illustrated inFigure 22, Patent Freedom, a companywhich provides certain information con-cerning NPEs,115 has reported almost a


Figure 21. Comparison between percentage change of GDP, change in percentage ofnew patent cases filed in US district courts, and change in percentage of new appealsfrom both the ITC and US district courts filed in the CAFC.

115 Patent Freedom, Home, 2008, available at https://www.patentfreedom.com/index.html (last accessed Aug. 20, 2009).

700% increase in patent cases involvingNPEs since 1998. As illustrated in Figure23, Patent Freedom has similarly reportedhow NPEs have become involved in over12% of ongoing patent litigations as of2008, as compared to their approximate2% involvement as of 1998. Some reportseven put the most recent (i.e., as of June30, 2009) NPE involvement rates at 17% ofall US patent cases filed in the first sixmonths of 2009.116 Other externalities mayalso be influencing the historical norms,such as changes in “court outcomes” (i.e.,increased likelihood of patentee win rates)and “increased research productivity.”117

Considering the percent changes in thenumber of appeals filed in the CAFC, it isextremely difficult to recognize any corre-

lation with economic fluctuations.Numerous reasons for such a lack of cor-relation likely exist. First, the data set forchanges in the number of appeals isextremely limited – beginning only in1998. Second, as previously mentioned,the fees and expenses of appeal are only asmall fraction of those incurred throughtrial. Accordingly, regardless of strong orweak economic conditions, pursuing anappeal is not likely to be significantlyaffected by economic considerations sincesubstantial costs have already beenexpended through trial. Third, appealsare legal – not factual – in nature, and thusare likely to be more influenced bychanges in the legal atmosphere.

116 RPX Blog, Defense Patent Aggregation, NPE Activity on the Rise as Economy Slumps, July 30, 2009, available athttp://rpxcorp.com/blog/?p=102 (last accessed Aug. 20, 2009).

117 Joseph P. Cook, On Understanding the Increase in US Patent Litigation, 9 AM. L. ECON. R. 48 (2007).

118 Patent Freedom, Current Research, Litigations Over Time, 2008, available at https://www.patentfreedom.com/research-lot.html(last accessed Aug. 20, 2009).


Figure 22. Number of cases filed by non-practicing entities from 1998 to 2008. 118

ConclusionsOn a macro-scale, i.e., considering long-term litigation trends and the constantlyincreasing US economy, there appears tobe no correlation between changes in theUS economy and patent litigation activity.On a micro-scale, however, when extremefluctuations in the US economy are recog-nized – in particular, contractions in theeconomy – patent litigation activity in thedistrict courts tends to increase substan-tially. This is in contrast with patent litiga-

tion activity at the appellate level, forwhich no relationship to GDP is recog-nized. These trends hold true up to atleast the end of the 20th Century. Morerecently, however, remarkable increases inpatent litigation activity in the districtcourts are likely a result of influencesother than changes in the US economy.Interestingly, legal services as a whole –and thus potentially legal services by IPpractitioners not gauged by a number ofpatent case filings – do tend to change instep with changes in the US GDP.

119 Id.


Figure 23. Percentage of all patent litigations by non-practicing entitiesfrom 1998 to 2008. 119

a correlation between the state of the us economy and...

Documents