Study: Patent trolls cost a half a trillion dollars in "lost wealth"
In a study by researchers at the Boston University School of Law, it is estimated that non-practising entities, also known as NPEs or "patent trolls", were responsible for half a trillion dollars in lost wealth between 1990 and 2010. NPEs are companies which make no products but instead hold onto patents, and either license them or sue companies for allegedly infringing those patents.
In "The private and social costs of patent trolls" by James Bessen, Jennifer Ford and Michael J. Meurer, the researchers looked at the stock prices of defendants around the time of the filing of patent lawsuits by NPEs and, after taking into account the market trends, formed an estimate of how that lawsuit affected the value of the defendant company. For each of the last four years, they estimate that $80 billion has been lost by companies defending against patent trolls. The research also finds that little of this "lost wealth" ends up in the hands of the NPEs; it has been suggested that patent litigation by NPEs acted as a redistribution system for wealth, benefiting small inventors, but it appears that there is no increase in incentives to these inventors.
The study also found that the cases that involved patent trolls were distinctive; they focused on software and related technologies, tended to target firms that had already developed technology, and most of the lawsuits involved multiple large companies as defendants. This suggested that the NPEs were specifically exploiting weaknesses in the patent system. Since 2004 that exploitation has increased, with litigation by NPEs rising from around 500 cases per year to 2600 in 2010.
Although non-practising entities have, in the past, served a purpose, enabling technology markets and providing small inventors with vehicles for licensing their intellectual property, that appears to no longer be the case. Overall, the paper concludes that NPE patent lawsuits and the related loss of wealth harms society and increases the incentive to get "vague, over-reaching patents" instead of incentivising real innovation.