Patent Troll Lit Review

This page contains summaries, explanations, and data pulls from some of the most cited papers related to patent trolls. Information on this page will be used for The Truth Behind Patent Trolls Issue Brief.

Bessen, Ford, Meurer: The Private and Social Costs of Patent Trolls (2011)

Findings

• "NPE lawsuits are associated with half a trillion dollars of lost wealth to defendants from 1990 through 2010, mostly from technology companies."

• "During the last four years the lost wealth has averaged over $80 billion per year."

• "We argue that patents on software and business methods are litigated much more frequently because they have “fuzzy boundaries.”"

• "Some characteristics of defendant firms in our sample are reported in Table 1. These are, on average, large firms."

Data Sources

The $500 billion of lost wealth is calculated by measuring the loss in stock price after the announcement of a patent lawsuit.

NPE list is taken from [Patent Freedom https://www.patentfreedom.com/], which is owned by RPX Corporation. RPX Corporation provides services to defend against NPE lawsuits.

RPX: "Since 2008, we have spent $2+ billion on patent assets, acquiring more than 15,000 US and international patent assets and rights."[1] RPX is an NPE.

Critiques

Share price analysis only works for privately traded companies.

RPX Corporation's business model of litigation protection services may benefit from an increased number of NPE lawsuits, especially those that they claim were defended effectively due to RPX Corporation help. A conflict of interest exists for RPX between providing accurate database information and inflating numbers to generate more revenue for the business.

RPX explains how they define PAEs[2]:

"• RPX identifies public PAEs through a manual review process performed by experienced employees with knowledge of the patent industry. • The process includes, among other things, reviewing public filings; searching for evidence of operating or patent monetization activities on the Internet, including company websites; reviewing complaints, with a focus on accused products and allegations regarding products and/or services sold by the patent owner; considering the outside counsel employed by the entity (e.g. whether outside counsel has a history of representing public PAEs); reviewing corporate disclosure statements filed in litigation; and soliciting market intelligence from patent professionals. • The public PAEs for this particular report represent the largest, most established public PAEs as well as several recently formed public PAEs that have become public via reverse mergers. • While there are elements of subjectivity in this approach, RPX believes that the process is robust based on feedback from other patent professionals "

Other Discoveries

Yanagisawa and Guellec (2009) provide definitions on NPEs.

Public PAEs are under performing the market (based off share price). If PAEs are not making enough money, will they become desperate and sue more firms, or reduce their assertion activities because of high court costs?[3]

Lanjouw & Schankerman: Protecting Intellectual Property Rights: Are Small Firms Handicapped? (2004)

Findings

• "Both trading patents and repeated interaction are important for patent dispute resolution."

• "As a consequence, small firms are at a disadvantage in terms of their ability to protect their patent rights."

• "The total number of patents grew by 71 percent over the period, but in drugs, biotechnology, and medical instruments patenting nearly tripled, and in computers it grew fourfold. Once the growth in patenting is taken into account, the table demonstrates that there has been no trend increase in the filing of suits in any technology field over this period."

• "The first column of Table 3 shows that the probability of litigation sharply declines with portfolio size."

Data Sources

• "We identify litigated patents from the LitAlert database produced by Derwent [internal note: now Thomson Reuters], a private vendor. This database is primarily constructed from information collected by the U.S. Patent and Trademark Office (PTO). The data used include 13,625 patent cases filed during the period 1978–99"

• "We then matched the Derwent data to information on all U.S. patent-related cases (those coded 830) from the court database organized by the Federal Judicial Center (FJC)."

Bessen, Meurer: The Direct Costs From NPE Disputes

Findings

• "We estimate that firms accrued $29 billion of direct costs in 2011. Moreover, although large firms accrued over half of direct costs, most of the defendants were small or medium-sized firms, indicating that NPEs are not just a problem for large firms."
• "The median company sued had $10.8 million in annual revenues. 82% of the defendants had less than $100 million in revenue and these accounted for 50% of the defenses. Small and medium-sized companies account for 37% of the accrued direct costs."