The Court of Appeals for the Federal Circuit’s Impact on Patent Litigation

Abstract

More than 20 years after the establishment of the Court of Appeals for the Federal Circuit (CAFC), research has yet to explain accurately the new court’s impact on patent litigation, patenting, and inventive activity. To address this shortcoming in the literature, we analyze a novel data set that permits us to consider separately the issues of validity and infringement in comparing the tendencies of the CAFC with those of its predecessor appeals courts. Our analysis of district and appellate decisions spanning 1953–2002 yields a recasting of the “pro-patent” nature of the CAFC: while it has been significantly more reluctant than its predecessors to affirm decisions of invalidity, it has not been more reluctant to affirm “not infringed” decisions. Because of the CAFC’s tendencies, district courts have decided patents to be invalid significantly less often, patentees have appealed decisions of invalidity significantly more often, and infringement has become the more frequently decisive inquiry.

The Market Effects of Patent Litigation

“…I develop a model of how a firm's market value should react contingent on a court ruling on one of the firm's patents. I then test this model using a subset of data originally gathered for and published in [2]. The subset has rulings on 544 patents that were published in the United States Patent Quarterly between 1962-2002.…”

“…I find that the expectations aspect is at least as important in determining value as the characteristics of the patent. Importantly, the creation of the Court of Appeals for the Federal Circuit (CAFC), which is generally thought to be decidedly pro-patent, substantially increased the value of patents to firms 2 . For instance, I find that while a firm, on average, loses 0.85% (about $19 million) of its market value following a court decision that a patent is "Invalid", the average decline in firm value was 0.7% greater after the establishment of the CAFC.…”

“…[3] study litigated patents, which they argue are more valuable. They find litigated patents are typically younger, owned domestically, issued to 2 The CAFC was created by legislation in 1982 (and started hearing cases in 1983) to unify intellectual property law and, ostensibly, to end forum shopping in patent cases. The CAFC hears cases appealed from any federal district court in the nation.…”

“…The evidence supports this conclusion as to the question of validity, but not for the infringement question. For a more thorough description of the court and the changes in outcomes over time, see [2]. 1 See [1], page 27. individuals or small companies, cite more prior art and are cited more by others, have longer prosecution times, more claims, and are concentrated in certain industries, such as the mechanical, computer and medical device industries 3 .…”

“…Specifically, any factor that decreases the probability of an "Invalid" decision,  , should decrease the observed abnormal return. After the Federal Circuit was created, [2] found that invalidity rates dropped by 28%. Thus, abnormal returns should be less after the Federal Circuit was created (i.e., more negative for "Invalid" decisions, less positive for "Valid & Infringed" decisions).…”