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Costs Soar for Trade Secrets, Pharma Patent Suits, Survey Finds

Sept. 10, 2019, 12:01 PM

The costs of litigating multimillion-dollar trade secrets and pharmaceutical cases have spiked over the past four years, even as the price of overall patent litigation has plummeted, an American Intellectual Property Law Association report shows.

The report’s data serves as a guidepost when attorneys discuss budgets with clients and is often cited in court filings when parties are looking to recover attorneys’ fees from the losing side, practitioners say.

The median cost of pharmaceutical patent cases rose 67 percent, to $2.5 million, in 2019 from 2015, according to the group’s “2019 Report of the Economic Survey.” Those cases had $1 million to $10 million at risk.

Litigating cases under the Hatch-Waxman Act, the federal law that regulates generic drugs, rose from $3 million in 2015 to $3.5 million in 2019, the report shows. Those cases had $10 million to $25 million at risk. Costs include pre- and post-trial expenses, and appeals when applicable.

More pharmaceutical patent cases are heading to trial, and costing more money, because antitrust regulators are cracking down on “pay-to-delay agreements,” in which branded drug companies pay generic drug makers to keep generics off the market, Stephen Chow, managing attorney at Hsuanyeh Law Group PC in Boston, said.

Median litigation costs in trade secret cases with risk over $25 million nearly tripled to $7.5 million over the four-year period, while cases with risk of $10 million to $25 million more than doubled to $4.1 million, the report shows.

Trade secrets disputes, which often involve misappropriation of emerging technologies such as artificial intelligence and self-driving vehicles, “are expensive, as damages are very hard to prove,” Chow said. The pre-trial discovery process in trade secrets cases is also exorbitant, he said.

“You have a lot of back and forth in discovery over, ‘Please be more specific about what we allegedly stole,’” Chow said.

The survey gathers data such as annual incomes and billing rates from IP law practitioners. This year’s report was based on responses from 961 association members to an online questionnaire.

Overall Costs Down

Technology, meanwhile, may be driving down the costs of litigating general patent infringement cases.

The median cost for a patent infringement case with $1 million to $10 million at risk fell 250 percent, to $1.5 million, since 2015, the study shows. Patent disputes with more than $25 million at risk dropped 20 percent, to $4 million, according to the survey.

High-tech tools have reduced overhead costs of gathering evidence before trial, attorneys said. Courts are setting limits on evidence to speed up cases, and electronic tools are helping law firms inexpensively analyze documentary evidence, they said.

“The discovery part of litigation, which used to be the most expensive, has stabilized quite a bit,” Chow said.

Attorneys also can use artificial intelligence and predictive coding tools to analyze and organize documents at a lower cost, compared to paying associates $400 to $500 an hour to review materials, he said.

Discovery costs are also dropping because many district courts have implemented rules in recent years to rein in the amount of evidence parties must obtain from each other in patent litigation, Barbara Fiacco, a partner at Foley Hoag LLP in Boston, said.

“The local patent rules and more aggressive case management by judges handling patent cases are part of it,” she said.

New PTAB Data

The 2019 report added new data on administrative patent challenges filed at the Patent Trial and Appeal Board, a tribunal of the Patent and Trademark Office. It includes costs for such challenges against patents in electrical or computer and mechanical fields.

The median cost of challenging an electrical or computer-related patent at the PTAB is $150,000 in 2019, the survey shows. The same cost involving a mechanical technology patent is $100,000, it said.

The most common PTAB challenge, called an inter partes review, gives someone accused of infringing a patent another route, in addition to court, to defend themselves by attacking a patent’s validity.

The patent office rolled out a pilot program in March to give patent owners a chance to amend claims while their patents are being challenged. Such changes in PTAB procedures could increase costs moving forward, attorneys say.

“If more patent owners utilize motions to amend procedures under the pilot program the USPTO has implemented, it will certainly add to the cost of inter partes review and post-grant review proceedings,” Sharon Israel, a partner at Shook, Hardy & Bacon LLP in Houston, said.

To contact the reporter on this story: Malathi Nayak in Washington at mnayak@bloomberglaw.com

To contact the editors responsible for this story: Rebecca Baker at rbaker@bloomberglaw.com; Keith Perine at kperine@bloomberglaw.com