Patent Trolls cost companies US$ 500 Billion

The US President Barack Obama recently signed the new patent legislation that brings in a great deal of reforms in the US patent system such as the shift from ‘first-to-invent’ to ‘first-inventor-to-file’ system. However, the new legislation has completely overlooked the increasing menace of patent trolls. In fact, the reform can result in increase in number of patent troll activities. Patent trolling is considered as jarring to any company that makes and sells products. Many Non-Practicing Entities (NPEs) that are better known as patent troll companies only license patents but do not actually sell anything. NPE such as Lodsys sues other companies in order to gain a financial settlement under the possible threat of a product ban. Lodsys sued iOS, Android and Blackberry developers for allegedly infringing its patents.

With the increase in number of patent trolls, many experts in IP field believe that the reform came too late to stop the fund drains which patent trolls resulted in last two decades. Boston University researchers James Bessen, Mike Meurer, and Jennifer have compiled the cost of patent trolling based on tangible costs such as legal expenses and settlement payouts.  By studying stock market event and analyzing 1630 patent troll lawsuits, the researchers estimated $500 billion out of innovating defendants since 1990 for publicly held US companies. However, researchers did not consider indirect expenses such as employee distraction, legal uncertainty, and cash spent on redesigning products, time and like.

Further, the researchers have calculated that in the last four years, the average cost of patent trolling has risen to $83 billion per year which is believed to be more than a quarter of U.S. industrial research and development spending during those years. Software patents represented 62% of the lawsuits, 6% involved mechanical patents, while only 2% were drug or chemical-related. However, NPEs argue that they help small inventors against big companies to protect their invention by suing big companies in case of patent infringement. NPEs recover the damage by filing a law suit against infringer and deliver a portion of it to the inventors. People believe that NPEs litigation exploits weakness of the patent system and the only way to handle these patent trolls is to fight against them.

News from here. Image by Michael Tiemann

Author: Sanjiv Saran