Boston University School of Law

The Costs and Benefits of United States Patents

Boston Univ. School of Law, Law and Economics Research Paper No. 13-24

John L. Turner
Department of Economics, University of Georgia

James E. Bessen
Boston University School of Law

Peter Neuhäusler
Fraunhofer Institute for Systems and Innovation Research ISI
Berlin University of Technology, Chair of Innovation Economics

Jonathan Williams
Department of Economics, University of Georgia

Abstract

We use a detailed data set to estimate the costs and benefits of United States patents. To estimate costs, we combine data from Derwent Litalert with a proprietary dataset of non-practicing entity (NPE) lawsuits collected by Patent Freedom, and use an event study approach to estimate losses suffered by alleged infringers during 1984-2009. To estimate benefits, we combine patent data from the USPTO and EPO with financial data from CRSP and COMPUSTAT, and use market-value regressions to estimate the value of patent rents for publicly-traded US firms during 1979-2002. We find that costs exceed benefits overall and that the gap between costs and benefits has grown across time. Surges in the number of NPE lawsuits, lawsuits filed over Computers/Communications patents, and lawsuits brought against non-manufacturing, software and telecommunications firms contribute to the increase in the gap. Growth in costs outstrips growth in lawsuits, in part, because events in these fast-growing categories have higher-than-average per-event dollar costs.

 

John L. Turner Contact Information
University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics
Athens, GA 30602-6254
Email:jlturner@terry.uga.edu

James E. Bessen Contact Information
Lecturer in Law
Boston University - School of Law
765 Commonwealth Avenue
Boston, MA 02215
United States
Email: jbessen@researchoninnovation.org

Director
Research on Innovation
202 High Head Rd.
Harpswell, ME 04079
United States
617-531-2092 (Phone)
Email: jbessen@researchoninnovation.org

Peter Neuhäusler Contact Information
Fraunhofer Institut für Systemtechnik und Innovationsforschung
Breslauer Str. 48
Karlsruhe, 76139
76139 Karlsruhe
Germany
Email: peter.neuhaeusler@isi.fraunhofer.de

Jonathan Williams Contact Information
University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics
Athens, GA 30602-6254
Email: jonwms@terry.uga.edu

 

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