How Current IP Patent Litigation Trends are Changing Risk Exposures

How Current IP Patent Litigation Trends are Changing Risk Exposures
July 18, 2023 8 mins

How Current IP Patent Litigation Trends are Changing Risk Exposures

How Current IP Patent Litigation Trends are Changing Risk Exposures Hero Image

As patent litigation continues to evolve worldwide, analyzing past trends can help support informed risk management decisions for the future.

Key Takeaways
  1. Lessons were learned in late 2022 where, despite decreased patent cases, the proportion of suits filed by non-practicing entities (NPEs) reached a seven-year high.
  2. The upward trend in damages awarded signifies a higher risk for companies.
  3. Intellectual property insurance coverage continues to improve, trending towards increased capacity, and stabilizing pricing.

The source of value and revenue for many companies has been dramatically shifting from the tangible (such as property and equipment) to the intangible (such as brand, patents and trade secrets). As organizations assess the risk associated with defending their intangible assets and intellectual property (IP), they will also need to consider what’s been happening in patent litigation.

In assessing the activity throughout 2022 and H1 2023, four key IP litigation trends continue to challenge businesses. Business leaders will need to stay informed and prepared for the road ahead, pausing to consider the impact of these four trends and what they mean for the risk their companies face, the necessary IP liability insurance, and any adjustments in their risk management strategies.

1. Lawsuits are Trending Downward

The number of patent litigation lawsuits fell steadily year-over-year from 2015. This downward trend was ultimately reversed at the start of the COVID-19 pandemic. After that point, patent litigation continued to increase through 2021. However, in 2022, 3,829 patent cases were filed — a decline of five percent from the 4,006 cases filed in 2021. This dip halted the rising trend in cases year-on-year that began in 2020. The downward trend in patent litigation continued in the first half of 2023 with 1,539 cases compared to 1,958 in H1 20221.

Cases Filed by Year: A Spotlight on the U.S.2

Diagram 1 - Cases Filed by Year: A Spotlight on the U.S.

2. There’s a Shift Toward NPE Suits

While the number of lawsuits may have fallen, there has been a marked shift in the type of litigant. In the world of IP, a non-practicing entity (NPE) is a party that holds a patent for a product or process but does not produce the product. Since 2018, there has been a rise in the proportion of cases filed by NPEs. In 2022, NPEs filed 63 percent of cases, the highest percentage of NPE suits since 2015. In H1 2023, roughly 51 percent of cases were filed by NPEs, which is significantly higher than the proportion of NPE suits in H1s over the past 10 years3.

Competitor interests in a business’s IP are typically well known, and associated risks can be managed in many ways — from building a defensive patent portfolio to pursuing insurance, to name a few. But litigation stemming from NPEs is harder to predict and manage. Roughly half of all suits filed by NPEs target technologies outside of a company’s core business. Organizations are facing new pressures to address changing exposures in their risk management strategies.

3. Patent Lawsuits are Dominating the Technology Industry

In an increasingly digitalized world, industries are continuing to upgrade their operations and service delivery models to remain competitive. As a result, new players are now entering new industries and territories. This exponentially increases the risk of patent litigation for the technology and software sector.

Technology companies continued to suffer the largest share of patent lawsuits in H1 2023 at 42 percent of the actions filed. Software and data processing companies were defendants in 15 percent of all patent lawsuits with parties that could be mapped to an industry. The largest damage awarded in H1 2023 was $470 million and for 2022, it was $950 million, both levied against technology giants4.

Aside from the latest trends in the technology industry, the automotive industry has experienced the longest continued growth in the number of suits, with an increase of 150 percent from 2019 to 2022. This can be attributed to the industry’s growing dependence on sophisticated technology, including the production of electric and self-driving vehicles. Other industries where suits increased were B2B services, retail and semiconductors5.

Patent Litigation by Industry 6

Diagram 2 - Patent Litigation by Industry

This table shows counts of unique defendants sued in particular industries. Not all defendants are assigned an industry and cases may have more than one unique defendant.

51%

In H1 2023, roughly 51 percent of cases were filed by NPEs, which is significantly higher than the proportion of NPE suits in H1s over the past 10 years.

4. Damage Awards Reflect the Changing Landscape

While the sheer number of litigation suits steadied in 2022, the drivers behind this trend indicate a shift in behavior and exposures. According to Lex Machina data, damage awards reflect this changing landscape:

  • More damages awards were won in H1 2023 than in previous years’ first halves: 49 damages awards were handed down in H1 2023 versus 31 in 2022 and only 28 in 2020, a low number likely due to court closures during the onset of the COVID-19 pandemic.
  • There were five damages awards of $100 million or more in H1 2023 — this highest number of awards in the first halves of the past nine years.
  • The trend shows the number of large awards is increasing over time, with correlated costs.

Awards of More than $100 Million in Damages7

Diagram 3 - Awards of More than $100 Million in Damages
Quote icon

In response to changing exposures, investing in IP/patent liability insurance can be an important tool for companies to help manage risk, hedge volatility in litigation budgets, and protect balance sheets.

Peter Holz
Senior Vice President and Head of Commercial IP Risk, North America

How Patent Litigation Insurance Evolved in 2022

There have been material changes in the IP insurance marketplace throughout 2022 and H1 2023 that have continued to improve the ability for companies to help protect against IP exposures and are driving increased demand for coverage:

  • Introduction of breach of contract coverage for situations where the insured is alleged to be in breach of an agreement’s provisions with a supplier (of inbound services). Such scenarios could include non-payment of royalties, breach of confidentiality or use of IP outside agreed terms. These new stipulations can also cover issues relating to the insured’s obligations regarding their outbound contracting activity, namely confidentiality and hold-harmless provisions.
  • IP rights enforcement provisions can cover the legal costs and expenses incurred when the insured needs to enforce their IP against an infringer or bring claims regarding “passing-off.” This can occur when a company misrepresents its goods or services as being the goods and services of another.
  • Contract enforcement language may include the legal costs and expenses incurred when the insured needs to enforce their rights under a contract that controls the exploitation of their products/solutions or IP.
  • Trade secret enforcement rules now may cover the legal costs and expenses incurred when the insured needs to pursue a third party that has misappropriated the insured’s trade secrets (this is not available in the U.S.).

Loss coverage is expanding. Originally, it covered representative fees and expenses, liability, loss mitigation and emergency costs. Now it also can offer coverage for adverse media costs, bonds, business interruption loss, court attendance costs, damages (i.e., liability), investigation costs, professional fees, and expenses and withdrawal costs.

What’s Next in IP Litigation?

Looking ahead, we can speculate that these significant emerging trends will continue and ultimately come to define the IP litigation risk landscape.

The fact that the software and technology sectors are currently generating the most lawsuits indicates that advancing technologies will likely trigger an increase in IP litigation across different sectors. Given this rising demand, lower pricing and plentiful capacity, the market for IP liability insurance will likely continue to boom.

Quote icon

We've seen an increase in demand for coverage coupled with decreasing pricing (especially for SMEs). We also anticipate new legislation to impact IP insurance activity in certain regions as companies compete for valuable intellectual property rights.

Will Kier
Head of Aon’s IP Solutions Europe, Middle East and Africa

Although data show decreased patent cases in 2022, the sweep of NPE activity – with suits reaching a seven-year high – signals a changing risk landscape.

Read more about how to prepare for tomorrow’s contingencies today.

Footnotes:

1Litigation data derived from Lex Machina 2023. U.S. Federal Patent Litigation [Data File]. http://lexmachina.com
2 Litigation case data derived from Lex Machina.
3 NPE data derived from Aon’s proprietary review and Stanford Law School (2023). NPE Litigation Database [Data File]. https://npe.law.stanford.edu. Litigation data derived from Lex Machina. Corporate industry data derived from Factset.
4 Litigation data derived from Lex Machina.
5 Corporate industry data derived from Factset (2023). Corporate Metadata [Data File]. https://www.factset.com. Litigation data derived from Lex Machina.
6 Aon Proprietary Data & Analytics.
7 Damages data derived from Lex Machina.

General Disclaimer

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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