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The Effect of New Information on Patent Litigation: Evidence from U.S. Inter Partes Review

We analyze the effect of new information on the subsequent behavior of litigants in patent cases. A party accused of patent infringement in the U.S. may – in parallel with defending itself in court – additionally challenge the validity of the allegedly infringed patent by petitioning the Patent Trial and Appeal Board (PTAB), an administrative tribunal within the U.S. Patent and Trademark Office. PTAB validity challenges generate new information at several points in time, and this new information can directly affect the district court case. We study this effect empirically, with a focus on settlement. Using data on U.S. district court cases and PTAB validity challenges initiated between 2012 and 2016, we examine each of the three main events that comprise a PTAB proceeding: (i) the filing of a petition to challenge a patent’s validity, (ii) PTAB’s decision to grant or deny the petition based on its assessment of a “reasonable likelihood” of invalidity, and (iii) PTAB’s final determination of the patent’s validity. We find that all three decision points have large effects on the settlement of parallel court proceedings. While the filing of a petition increases the likelihood of settlement, we find to the contrary that PTAB’s preliminary assessment of validity reduces the odds of settlement. Moreover, we find that the effect of the PTAB’s final decision depends on whether the patent is determined to be valid or (partially) invalid.