Technology: Patent Trolls Stifle Innovation and Drain Coffers

A patent troll is someone or some company which owns the rights to a patent, makes no product, and sues others for infringement on an idea described in a patent.  In polite language, patent trolls are sometimes called Non-Practicing Entities (NPEs).  Less polite terms include  “robber barrons”, “parasites” and “suckers”.

Now a study out of Boston Univerisity by James Bessen and Michael Meurer, and Jennifer Laurissa Ford their book Patent Failure and now a new paper called The Private and Social Costs of Patent Trolls looked at and tried to quantify the effect of patent trolling on innovation.  The authors estimate that more than $500 billion has been lost to patent trolls since 1990m, a number which includes only losses to publicly traded companies.  And the recent proliferation of patent trolling has only increased these losses which the authors say have exceeded $80 billion over each of the last four years.  But it appears that the people reaping the most benefit from trolling are the lawyers who represent these cases — the report finds that only about 10 percent of the settlement money paid in these cases goes to those who were represented with the remainder going to lawyers.

Why do patent trolls exist?  The authors argue that they exist primarily to make money.  Trolling requires very little or no capital investment.  Patents are relatively cheap to file, but if found valid in court, patent owners have been able to extracts millions of dollar settlements for damages.  While the intent of a patent is to encourage and to protect true innovation, increasingly patents appear to be getting used to block innovation and for extracting large sums of money.

An irony that illustrates the problem with patents is that companies manufacturing products are less likely to sue over patent infringement than the patent trolls.  Companies that acutally manufacture products are often locked into a Cold War scenario with their competition’s competing patent arsenal.  Patent litigation is extremely expensive, and large companies manufacturing complex products like cell phones may use ideas and processes described by tens of thousands of different patents.  Companies with products fear being counter-sued over patents held by the competition for ideas which they may knowingly or unknowingly be infringing on in the manufacture of their products.  Those companies don’t want to start a war of patent litigation which might escalate out of control.  Patent trolls, on the other hand, have no such restriction.  Patent trolls make no product and risk only the costs of litigation when filing for patent infringement.

The authors argue that “patents on software and business methods are litigated much more frequently because they have fuzzy boundaries. The scope of these patents is not clear, they are often written in vague language, and technology companies cannot easily find them and understand what they claim. It appears that much of the NPE litigation takes advantages of these weaknesses.”