Bach Seat

The United States patent system is costing the industry more than $29 billion a year in unnecessary legal fees. A Boston University study crunched the numbers and worked out that the legal action conducted by “patent trolls” cost U.S. companies an estimated $29 billion during 2011.

Fortune defines patent trolls as entities that own the intellectual rights to innovations without innovating anything themselves, so-called “non-practicing entities.” They buy patents to sue infringers. According to the study, last year, 1,150 companies defended themselves against 5,842 patent troll lawsuits. Nearly half of those companies made less than $100 million during the year, which showed the authors that patent trolls aren’t just a problem for large firms, but rather a problem for smaller firms who have less money to invest in their own research.

The result is that the companies lost $29 billion in direct costs – legal and licensing fees. The study did not estimate indirect losses for defendants in things like delays in new products, loss of market share, or the need to change products.

Study authors James Bessen and Michael Meurer also found that the patent troll costs have escalated since 2005 when the study found a total of 1,401 claims were $6.6 billion in direct costs. The authors say increasing patent litigation in the U.S. is a significant tax on investment in innovation. To put the figure into perspective the total U.S. spending on research and development is $249 billion in 2009 but it is still a big tax.

Bessen and Meurer said it was rubbish that asserting patents played a socially valuable role in enabling small inventors to realize greater profits from their ideas. The report said that the costs of defending such legal action meant these organizations had less money to invest in their own research. The report claims that patent lawsuits were a social loss and not a transfer of wealth as the trolls claim.

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I have followed patent trolls for a while here, here, and here.

The ineptitude of Washington to do anything right enables patent trolls. The report concludes “The rapid growth and high cost of NPE litigation …  should set off an alarm warning [to] policymakers that the patent system still needs significant reform to make it a truly effective”

Most reasonable people should agree with the study’s recommendation to increase transparency in the patent system and that the courts should rigorously supervise patent damages awards to make sure that damages are proportional to the value of the patented technology.

Related articles

• Patent Absurdity: Trolling the Courts for Profits (aleksandreia.com)

 

Ralph Bach has been in IT long enough to know better and has blogged from his Bach Seat about IT, careers, and anything else that catches his attention since 2005. You can follow him on LinkedIn, Facebook, and Twitter. Email the Bach Seat here.