New report examines the economic cost of patent trolls

Study from the Progressive Policy Institute explains why there has been such an upsurge in patent litigation

Call them Patent Assertion Entities (PAE) or Non-practicing Entities (NPE). Or, if you will, call them “Patent Trolls.” But now matter how you label them, there are certainly organizations that are trying to game the system and turn a nice profit from patent litigation. But why has there been such an upswing in these types of suits in recent years? And what is the true economic cost of all of this? These are the types of questions that the folks at the Progressive Policy Institute (PPI) hoped to answer.

On a conference call, the report’s author, Phil Goldberg of Shook Hardy & Bacon LLP, spoke about “litigation prospecting.” He stated that current patent laws make this process easy. “Patents are so vague, so it’s hard to tell if something is infringing. If someone claims infringement, the only way to resolve it is through litigating.” He cited figures, stating that it costs, on average, $1.6 million to get through discovery and $2.8 million if the case goes to trial. Those costs are high and borne by the defendants. 

Since the “patent trolls” understand these costs, they will offer to settle for an amount far below the pain level, making it cheaper for defendants to drop the case. In the new PPI report, “Stumping Patent Trolls on the Bridge to Innovation,” Goldberg looks at three crosswinds that explain why these patent troll suits have exploded in recent years:

1) Opportunity: There has been an explosion in the number of patents recently, and many technologies incorporate a multitude of patents

2) Patent ambiguity: The patents are written in such a way that companies involved are unclear as to whether infringement is occurring

3) Litigation manipulation: Trolls can target companies that are “easy marks,” ones that have little choice but to settle.

Recently, Congress and the President have called for patent reform, but it remains to be seen if the federal government can get past a number of other roadblocks to enact this type of legislation.

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