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 publicly 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 (2012)

Cornell Law Review

Findings

• definition of non-practicing entities
  • "parties who own and sometimes assert patents but do not practice the technology covered by their patents"
  • "individuals and firms who own patents but do not directly use their patented technology to produce goods or services, instead asserting their patents against companies that do produce goods and services"
• "the estimated direct, accrued costs of NPE patent assertions totaled $29 billion in 2011"
• "much of this burden falls on small and medium-sized companies"
• "publicly traded NPEs likely cost small and medium-sized firms more money than these NPEs transfer to inventors"
• "the distribution of costs imposed by NPEs is highly skewed, probably because NPEs pursue a range of different business strategies"
• "In 2011, 2150 unique companies were forced to mount 5842 defenses in lawsuits initiated by NPEs" (based on RPX database)

Data Sources

• "We present answers to these questions based on a unique survey of defendant companies and a comprehensive database of NPE litigation [developed by RPX]."

Survey

• includes defendant companies that are privately held, including small firms
• reveals costs associated with cases in which NPE patents are asserted but which are resolved before a lawsuit is filed
• provides aggregated information about NPE patent license fees
• "Between February and April 2012, RPX invited about 250 companies to participate in a survey of their NPE-related costs. The pool of invitees included RPX clients and nonclient companies with whom RPX has relationships."
  • used RPX NPE Lawsuit Database's definition of NPE: patent assertion entities, individual inventors, universities, and non-competing entities
  • 82 out of 250 provided data on lawsuits and of these, 46 also provided data on non-litigation patent assertions and related costs
• Of 1,184 defenses, 784 (66%) resolved by adjudication or settlement

NPE Lawsuit Database

• based on cases coded "830 Patent" in the PACER database (maintained by Administrative Office of the U.S. Courts
• uses broad definition of NPE (e.g. includes universities), criticized for overstating costs
  • counterarguments: only about of 1% of NPE lawsuits come from universities; universities still create social costs when they litigate patents

Critiques

Survey utilizes a small sample size that was not randomly selected and that is mostly composed of large companies that are more likely to be public and to be sued.

Average costs are generally much larger for large companies than for small and medium-sized companies.

Conflict of interest mentioned above in Bessen, Ford, Meurer's 2011 paper.

Other Findings

"[S]maller companies pay more in direct NPE-litigation costs relative to their size."'

"About a third of the cost to defendants involves patent assertions that do not go to court"

Government Accountability Office: Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality

This study was mandated by Section 34 of the Leahy Smith America Invents Act. The purpose of the study was to determine the consequences and effects of NPEs on patent litigation.[4]

Findings

• Patent lawsuits spiked in 2011 after passage of Leahy Smith America Invents Act.
  • GAO partially attributes this spike to the provision that no more than one defendant may be listed in a lawsuit, unless they are related through business partnership (e.g. person who is infringing and corporation of infringer). So, if a PAE wished to sue three persons, they would have to file three separate suits. This new provision would increase the number of lawsuits.
  • "AIA restricts this practice by prohibiting joining unrelated defendants into a single lawsuit based solely on allegations that they have infringed the same patent."[5]

• "According to our analysis of data for this period, operating companies and related entities brought an estimated 68 percent of all lawsuits." (Lex Machina)
• "PMEs and likely PMEs brought 19 percent of the lawsuits." (Lex Machina)

• Operating companies sued 51% of defendants. PAEs sued 42% of defendants. (RPX)

Data Sources

• Lex Machina for patent lawsuits from 2007 to 2011.
  • Lex Machina selected a sample of 500 lawsuits (100 lawsuits per year) to determine margin of error was 5% for combined years of 2007-2011 and 10% for any particular year.

• Data from RPX - Deemed sufficiently reliable for the purposes of the GAO report

Critiques

• "A limitation of [Lex Machina] categorization is that litigants were not contacted to verify their identity, so there is some uncertainty about the accuracy of the category in which Lex Machina placed them."

Other Findings

Criteria for defining a PAE versus an operating company.

• Defendants per suit ratio (how many defendants are listed on one lawsuit)
  • From 2007-2011: "There were about 1.9 defendants on average for suits filed by operating companies, and about 4.1 defendants on average for suits filed by [PAE]s." (Lex Machina)

Reasons why ED Texas is a popular venue:

• "Eastern District of Texas, the Eastern District of Virginia, and the District of Delaware were among the top districts for quicker trials, higher success rates, and higher damage awards for patent owners." PricewaterhouseCoopers, 2012 Patent Litigation Study: Litigation continues to rise amid growing awareness of patent value. [www.pwc.com/us/en/forensicservices/publications/2012-patent-litigation-study.jhtml]