'Patent trolls' cost tech companies $29 billion last year, study says

The patent system should be reformed to constrain the practice of frivolous nuisance lawsuit, the Boston University study suggests

Patent litigation caused by "non-practicing entities" (NPEs), better known as "patent trolls," cost U.S. software and hardware companies US$29 billion in 2011, according to a study from the Boston University School of Law.

NPEs are individuals and firms that own patents but do not directly use their patented technology to produce goods or services and instead assert their patent rights against companies that do. Patent litigation costs to technology companies from NPE lawsuits have risen quickly, from $6.7 billion in 2005 to $12.6 billion in 2008 and more than $29.2 billion in 2011, according to the study.

"This figure does not include indirect costs to the defendant's business such as diversion of resources, delays in new products, and loss of market share," the researchers said in their paper, which was released Monday. Direct costs are high relative to total business spending on R&D, which totaled $247 billion in 2009.

The researchers said this implies that NPE patent assertions effectively impose a significant tax on investment in innovation, stressing that the money spent on the lawsuits is a social loss and not a mere transfer of funds. About a quarter of the litigation cost consisted of legal fees and of the total cost, no more than a quarter could possibly represent a flow to fund innovative activity, they wrote.

The data in the study was provided by 82 software and hardware companies.

The study also looked at the impact of NPE litigation on small/medium-sized and large companies. Much of the burden fell on small and medium-sized companies, the study said. Besides that smaller companies pay relatively more to the NPEs from assertions that do not go to court, according to the research.

"The burden of all of these costs appears to rebut the assertions that NPEs play an important role in improving the profits of innovative start-ups," the researchers said.

Much of the litigation brought by NPEs consisted of so-called nuisance suits that are settled for a few hundred thousand dollars, they wrote. Only a few were "big game hunters" that seek and get settlements worth tens or hundreds of millions of dollars, they added.

"The rapid growth and high cost of NPE litigation documented here should set off an alarm warning [to] policy makers that the patent system still needs significant reform to make it a truly effective system for promoting innovation," they wrote.

To change things, it is crucial to provide greater transparency in the patent system and courts should rigorously supervise patent damages awards to make sure that damages are proportional to the value of the patented technology, the study said. Besides that, the researchers called for policy reforms to constrain the generic problem of frivolous lawsuits.

Loek covers all things tech for the IDG News Service. Follow him on Twitter at @loekessers or email tips and comments to loek_essers@idg.com

Join the Good Gear Guide newsletter!

Error: Please check your email address.

Our Back to Business guide highlights the best products for you to boost your productivity at home, on the road, at the office, or in the classroom.

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Loek Essers

IDG News Service
Show Comments

Most Popular Reviews

Latest News Articles

Resources

PCW Evaluation Team

Azadeh Williams

HP OfficeJet Pro 8730

A smarter way to print for busy small business owners, combining speedy printing with scanning and copying, making it easier to produce high quality documents and images at a touch of a button.

Andrew Grant

HP OfficeJet Pro 8730

I've had a multifunction printer in the office going on 10 years now. It was a neat bit of kit back in the day -- print, copy, scan, fax -- when printing over WiFi felt a bit like magic. It’s seen better days though and an upgrade’s well overdue. This HP OfficeJet Pro 8730 looks like it ticks all the same boxes: print, copy, scan, and fax. (Really? Does anyone fax anything any more? I guess it's good to know the facility’s there, just in case.) Printing over WiFi is more-or- less standard these days.

Ed Dawson

HP OfficeJet Pro 8730

As a freelance writer who is always on the go, I like my technology to be both efficient and effective so I can do my job well. The HP OfficeJet Pro 8730 Inkjet Printer ticks all the boxes in terms of form factor, performance and user interface.

Michael Hargreaves

Windows 10 for Business / Dell XPS 13

I’d happily recommend this touchscreen laptop and Windows 10 as a great way to get serious work done at a desk or on the road.

Aysha Strobbe

Windows 10 / HP Spectre x360

Ultimately, I think the Windows 10 environment is excellent for me as it caters for so many different uses. The inclusion of the Xbox app is also great for when you need some downtime too!

Mark Escubio

Windows 10 / Lenovo Yoga 910

For me, the Xbox Play Anywhere is a great new feature as it allows you to play your current Xbox games with higher resolutions and better graphics without forking out extra cash for another copy. Although available titles are still scarce, but I’m sure it will grow in time.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?