The Direct Costs from NPE Disputes
James E. Bessen
Boston University - School of Law; Research on Innovation
Michael J. Meurer
Boston University - School of Law
June 28, 2012
Boston Univ. School of Law, Law and Economics Research Paper No. 12-34
In the past, “non-practicing entities” (NPEs), popularly known as “patent trolls,” have helped small inventors profit from their inventions. Is this true today or, given the unprecedented levels of NPE litigation, do NPEs reduce innovation incentives? Using a survey of defendants and a database of litigation, this paper estimates the direct costs to defendants arising from NPE patent assertions. 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.
An InformationWeek article provides some details from this paper:
-- A total of 2,150 companies had to defend themselves 5,842 times against patent suits in 2011 alone--an amount of litigation that represents "a wholly unprecedented scale and scope."
-- Those claims accounted for $29 billion in direct costs--outside legal fees, damages, and settlement amount. And, oh yeah, it doesn't include indirect costs, like the time and resources it takes a company to defend itself and the price of product delays and market share losses.
-- The amount represents a nearly 10% hunk of the $250 billion devoted by all U.S. business to R&D. Much of the burden has fallen disproportionally on small businesses: The defendants in that universe had median revenue of just $10.8 million.
To repeat just one more time this insight extracted from Thomas Jefferson's letter to Isaac McPherson, 13 Aug, 1813.
"If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property."
Jefferson himself reluctantly went against his better judgement in helping to establish the patent system in the United States in the hope that the public interest would benefit on balance. He should have stuck to his natural law convictions as nature once again proves itself superior to human efforts to defeat it.