Previous studies have shown a statistically significant increase in the rates of total federal civil litigation as well as bankruptcy and employment litigation following economic downturns. However, no scholars have examined the effects of downturns on patent litigation, a field in which there are widely held competing views among practicing attorneys. One camp argues that patent litigation should increase, because potential plaintiffs have a greater incentive to squeeze patent assets for their full value. The other camp posits that low free cash flow and available capital lead to less litigation.
Analyzing quarterly patent infringement suit filing data from 1970-2009, we show that economic downturns may both increase and decrease patent litigation. Specifically, increases in GDP and the NASDAQ index are correlated with significant decreases in patent litigation, leading to countercyclical trends. On the other hand, increases in T-bill rates and decreases in economy-wide financial risk are correlated with significant decreases in patent suits, leading to cyclical trends. As such, the specific nature of a downturn predicts whether patent litigation increases or decreases following it. Thus, both theories of economic downturns and patent litigation are likely correct.