BU Law Professors Author Influential 'Patent Trolls' Study

Mike Meurer and Jim Bessen calculate the cost of NPE disputes totals $29 billion

BU Law Professor Michael J. Meurer and Law Lecturer James Bessen have authored an important new study, "The Direct Costs from NPE Disputes," on the economic impact of Non-Practicing Entities (NPEs), more commonly known as "patent trolls."  

NPEs are individuals and firms that obtain patents but don't use their patented technologies for production. Instead, they assert their patents in court against companies that do produce goods and services, often collecting thousands, if not millions, of dollars for patent infringements.

In the study, Bessen and Meurer use data from a survey of defendants and a database of NPE litigation to show that the patent troll practice is expanding rapidly. They found that in 2011 alone, 2,150 unique companies were forced to mount 5,842 defenses in lawsuits initiated by the actions of NPEs. In 2005, the number of defenses was 1,401.

It's not only the number of lawsuits that are rising. Costs are climbing dramatically, too. Bessen and Meurer estimate that the direct costs of NPE patent assertions totaled about $29 billion in 2011, up from $7 billion in 2005.

Surprisingly, the study found that it's not just major companies that are getting hit by NPE litigation. "Very many of these troll lawsuits are targeted against relatively small firms," Meurer said. "We expected that most [of the lawsuits] would be against the big, highly recognized brands like Google, Cisco, IBM, Microsoft. It turns out that the majority of the targets are not such big firms."

In fact, data shows that small and medium-sized entities made up 90% of the companies sued, accounted for 59% of the defenses, and paid about 37% of the aggregate costs in 2011.

There are likely other costs to patent trolling, as well. This study measured the direct costs of litigation, without including indirect penalties to businesses, such as diversion of resources, delays in new products, and loss of market share. When Bessen and Meurer did factor indirect expenses in a similar study—co-authored in 2011 with Jennifer Ford, then a third-year student at BU Law—they found that overall costs from patent troll litigation jumped to $80 billion per year.

According to Meurer, the two began their joint research on the US patent system in the mid 2000s. Their initial goal was to understand the explosion of patent lawsuits that started in the early 1990s. They discovered that the best explanation for the explosion is that the patent system often fails to work like a property system; in particular, interested innovators often can't locate or understand the patent rights that might be asserted against them as they develop and introduce new technology. They elaborate on this theory in their book, Patent Failure: How judges, bureaucrats and lawyers put innovators at risk, published by Princeton University Press in 2008.

"We had a new take on what was important about getting a patent system to work," Meurer said. "The patent system can work well if it can emulate other kinds of property systems. It more often failed when it didn't operate like a property system, and caused problems for innovative parties.

"Parties that are supposed to benefit from patent system actually suffer because it creates a headache for them," he added. "In many cases, it turned into a system that imposes a tax on innovators instead of stimulating innovation."

Up next, the professors are most interested in work on solutions. "We and many other law professors have recognized these problems are very serious, and the community needs to start thinking creatively about what sorts of solutions could deal with them," Meurer said.

Some of the solutions proposed by Bessen and Meurer include reforming the patent fee system, requiring patent owners to better define the scope of their patents, and demanding that information provided during the application process is quickly made public.

Policy bodies that Bessen and Meurer have presented to include the Federal Trade Commission and European Parliament. Their book on patent failure has been cited by the U.S. Supreme Court, by judges at the Court of Appeals for the Federal Circuit, and in a report by the Federal Trade Commission on patent notice.

Reported by Chelsea Sheasley
July 30, 2012

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