Patent Trolls Cost Businesses $80 Billion Per Year, Study Finds

For those of us who follow the tech industry closely, patents are a touchy subject lately thanks to all the litigation going on over software patents.

This is particularly true in the mobile arena, where companies including Apple and Microsoft have been especially enthusiastic in their use of patents as leverage over their competitors.

Of course, it’s one thing for a company with products to protect to begin asserting patents against others; it’s quite another, however, for companies to buy and assert patents without producing any goods of their own.

“Patent troll” is the name typically given to firms in this latter category, and–according to a new study–they’re depriving technology businesses of more than $80 billion per year, to the detriment of small inventors and society as a whole.

Half a Trillion Dollars

“Non-practicing entities” (NPEs) is the polite name given to patent trolls by Boston University School of Law researchers James Bessen, Jennifer Ford, and Michael Meurer, whose paper, “The Private and Social Costs of Patent Trolls” (PDF), will soon be published in the journal Regulation.

Whereas such firms once helped enable technology markets and boost the profits small inventors could earn from their inventions, that’s no longer the case, the authors argue. Rather, today’s NPEs assert patents “on an unprecedented scale,” they write, involving thousands of defendants every year in hundreds of lawsuits.

The researchers studied the effect of patent lawsuits on defendants’ wealth by examining the stock price of those companies around the time the lawsuits in question were filed. After factoring out market trends and random factors, they found that between 1990 and 2010, NPE lawsuits are associated with half a trillion dollars in lost wealth to defendants.

‘They Decrease Incentives for Innovation’

Over the past four years, in fact, that lost wealth averaged more than $80 billion per year–primarily at the expense of technology companies that invest heavily in R&D.

Such litigation typically focuses on software and related technologies, the authors note; most often, it targets firms that have already developed technology. Particularly telling is that “the loss of incentives to the defendant firms is not matched by an increase in incentives to other inventors,” they write.

The bottom line is that patent trolls are simply exploiting weaknesses in the patent system without adding value, the study concludes. In fact, they harm society by doing so: “While the lawsuits increase incentives to acquire vague, over-reaching patents, they decrease incentives for real innovation overall,” the researchers explain.

‘Fuzzy Boundaries’

It’s easy to lay blame at the feet of the patent trolls themselves, of course, but the authors of this study point squarely at the “fuzzy boundaries” and unclear scope of patents on software and business methods, in particular.

I couldn’t agree more. We’re all paying a heavy price for this broken patent system. It’s long past time to abolish software patents, once and for all.