We have often written that the continuous stream of patent lawsuits and injunctions that are pushed around the globe are costly, dangerous and anti-consumer, but now someone has actually gone out and done the math to find out just how much damage they do per year. The study performed by James E. Bessen and Michael E Meurer both from the Boston University School of Law states that in 2011 more than $29 Billion (with a B) in direct costs were incurred all because of what are called Non-Practicing Entities (most call them patent trolls). This $29 Billion also came during a down economy and affected small to medium sized businesses the most.So everyone is clear, an NPE (Patent Troll) is a company that owns the rights to a technology, but does not produce that technology. This is not like Samsung or Apple that actually produces the majority of the items they are suing each other for. This would be more like MOSAID Technologies whose corporate profile reads like this:
| “Mosaid Technologies Incorporated operates in the Patent owners and lessors sector. MOSAID Technologies Incorporated (MOSAID) focuses on the licensing and development of semiconductor and communications technologies. MOSAID conducts its business through multiple departments: Patent Licensing, Patent Acquisition, Patent Administration and Technology research and development (R&D). The mandate of the Licensing department is to monetize the portfolio asset by entering into licensing agreements with third parties and to lead the mining activity that can be used in licensing or other monetization activities. The mandate of the Patent Acquisition department is to evaluate and acquire new patents, while the Patent Administration department is responsible for filing new patent applications, prosecuting pending patent applications and maintaining existing patent filings. In September 2011, the Company acquired Core Wireless Licensing S.a.r.l.” |
As you can see they are a company that exists to buy, sell and license patents. It is this type of company that is causing some of the biggest costs (Not MOSAID directly, but companies that operate in the same business model). Originally the NPE business model actually allowed smaller companies to profit from their innovations through selling the rights to the NPE and allowing them to go after anyone that violated their intellectual property. Now the problem is that with the massive number of law suits flying around the purpose of the NPE is no longer to protect the smaller inventor from the larger company, but to simply monetize the patents in any way possible. As the report points out quite clearly;
“We find little evidence that NPEs promote invention overall. Publicly-traded NPEs cost small and medium-sized firms more money than these NPEs could possibly transfer to inventors. This reduces the net amount that firms of any size have available to invest in innovation”.
There is another impact as well. When companies have to maintain strong legal defenses and massive insurance against this type of lawsuit it impacts the employees of the company as well. When a company has to tighten its belt after a large payout of damages they are more likely to cut jobs than any other cost saving measure.
In the end in 2011 alone there were 2,150 different and separate companies that totaled 5,842 defenses against patent litigation from NPEs. The total amount of “wealth” lost in 2011 was $80 Billion in publicly traded companies in the US. So you can bet that the NPEs have a big reason to try and keep their system alive (it is a money maker now).
The study also emphatically shows that the costs end up being more than payments for damages and royalties. During litigation many companies do not continue to innovate on a product that is at question in a law suit. This delays new products, updates and also hurts sales. The study found that in situations where a company was involved in an NPE patent case their sales were as much as 1/3rd what other companies making a similar device were.
Overall the study has found what many are waking up to. The business model of the NPE and the patent system as a whole needs massive reform. The NPE and patent system in general is no longer protecting innovation. It is now hindering it and it has the added effect of hurting the economy as a byproduct.
We wonder if Judge Posner and a few other judges in our legal system have had the chance to read over this as they preside over these open patent cases. We know that at the very least Judge Posner gets the harm that these bans, injunctions and other patent suits casue, maybe we need to send a copy of this to every Senator, Congress Person, Judge, Member of the ITC and DoJ just to be sure that the people that are out there making and interpreting our laws are aware of what their decisions do to the economy as a whole….
In fact that is a good idea. You can down load a copy at the link below. Send this to your representatives with a note reminding them that it is their job to make sure things like this do not happen.
Grab the report here
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