Invalid but infringed? An analysis of the bifurcated patent litigation system

•Theoretical and empirical analysis of benefits and costs of bifurcated vs. non-bifurcated patent litigation systems using data for Germany and the UK.•In German bifurcated litigation system, in 12% of infringement cases where infringement was found by the courts, the infringed patent was eventually invalidated.•Alleged infringers are significantly more likely to challenge validity in the non-bifurcated U.K. system.•In German bifurcated system, smaller defendants are significantly less likely to challenge the allegedly infringed patent's validity.•Alleged infringers are significantly less likely to settle before challenging validity in the non-bifurcated U.K. system whereas in the German bifurcated system smaller defendants are significantly less likely to settle. In bifurcated patent litigation systems, claims of infringement and validity of a patent are decided independently of each other in separate court proceedings at different courts. In non-bifurcated systems, infringement and validity are decided jointly in the same proceedings at a single court. We build a model that shows the key trade-off between bifurcated and non-bifurcated systems and how it affects the incentives of plaintiffs and defendants in patent infringement cases. Using detailed data on patent litigation cases in Germany (bifurcated) and the U.K. (non-bifurcated), we show that bifurcation creates situations in which a patent is held infringed that is subsequently invalidated. We also show that having to challenge a patent's validity in separate court proceedings under bifurcation implies that alleged infringers are less likely to do so. We find this to apply in particular to more resource-constrained alleged infringers. Finally, we find parties to be more likely to settle in a bifurcated system.