Patent Litigation Cost US Business About A Trillion Dollars In A Quarter Century, Outweighing Benefits

from the trolls-strike-again dept

Techdirt recently wrote about the ever-growing flood of patents being granted by the USPTO. As we’ve emphasized, more patents do not mean more innovation; nor do they necessarily lead to greater overall benefits for business. That’s clear in an important new paper from a team including James Bessen, whose work has been mentioned here several times before. It builds on the approach described in the 2008 book “Patent Failure” by James Bessen and Michael Meurer, and seeks to estimate both the private costs and private benefits accruing from patents in the US during the years 1984 to 2009. Here’s how the costs are obtained:

We obtain lower bound estimates of the private costs of patent litigation by performing stock market event studies around the dates of lawsuit filings. This approach provides estimates of total cost that are greater than direct legal costs and include the costs of lost business, the costs of management diversion, and anything else that reduces the wealth of a firm as the result of defending a patent lawsuit.

As for the benefits, these include:

upper bound estimates for patent rents, the stream of additional profits that firms gain from patenting, including gains from strategic uses of patents.

As the paper explains, this produced the following results:

We have direct aggregate litigation cost and aggregate rent estimates for 1984-2002. During this period, we estimate about $240 billion in private costs and about $195 billion in private benefits. Hence, private costs exceed private benefits by about 24%. Assuming average growth in private benefits during 2002-09, we estimate about $385 billion for 1984-2009. Private costs exceed private benefits by about 29% over this longer period.

One estimate by the researchers puts the total costs at about $538 billion, while another obtains an even more eye-watering $1.49 trillion. The latter figure is consistent with previous work from Bessen, done with Michael Meurer and Jennifer Ford, which suggested that patent trolls — or “Non-Practicing Entities (NPE)” — are alone responsible for $500 billion of costs to US companies.

The new study notes how the patent landscape has changed in recent years:

we also identify rapid growth in NPE lawsuits, in lawsuits that include a patent in the Computers/Communications technological area, and in lawsuits brought against alleged infringers in the non-manufacturing, software and telecommunications industries.

While patent stocks have increased at about 6% per year, the values of patents and the associated rents per patent have not changed significantly. The result is a widening gap between the private costs of patents and the private benefits received by publicly listed firms. … the upward trend in private costs is far lower if we restrict attention just to cases where a practicing entity (PE) files suit. Indeed, without NPE cases, aggregate private benefits would likely exceed aggregate private costs in the years since 2002.

From this we see that one of the key problems that needs fixing in the US patent system is the parasitical behavior of NPEs. Pity that, once more, it looks like this isn’t going to happen.

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Comments on “Patent Litigation Cost US Business About A Trillion Dollars In A Quarter Century, Outweighing Benefits”

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Anonymous Coward says:

Not to mention the costs patents have on destroying startups which prevents competition in the marketplace. Leading to monopolistic prices, especially in lifesaving pharmaceuticals. Ultimately holding back innovation and research and development.

Patents are serving their true purpose quite well. They’re building overpriced monopolies at the expense of everyone else.

ECA (profile) says:


Lets ask a few alternative ways to do this..

IF the company ITSELF does it..
They can raise prices on the products they sell.
they can be SUPER diversified tot eh point that 1 company may be taking the HIT but Many companies are PAYING for it..
The company could be cutting back on Advertising and other Parts of business..
In the end the customers STILL end up paying for it.

Another thought,
Is that the Lawyer firm(s) hIRE THEMSELVES OUT. So that they get the MOST money out of any suit they bring, and also PAY for it. they ARNT part of the company. but they get MOST of the money. CAN YOU SAY ambulance CHASER?
Its an easy way to have 3-4 firms(?) chasing around the states and doing many Suits at a time, hitting each of the states and locals. AND the Company is NOT LIABLE for their service or WHAT/HOW they do things..

David says:

What's that supposed to prove?

During this period, we estimate about $240 billion in private costs and about $195 billion in private benefits. Hence, private costs exceed private benefits by about 24%.

Well, big surprise: laws to redistribute money according to some metric (in this case patents) don’t achieve more than redistributing money according to some metric, minus administrative efforts.

That’s just how the system works, and how it is supposed to work. That’s not even a sensible question.

The premise is that the recipients of those moneys do more for the ultimate public good with that money than those who have to pay it would do, even when taking the administrative costs into account.

Which is basically the underlying metric for any sustainable business: both sides are better off as a result because what they receive is ultimately more to them than what they give. It does not mean that magically everybody gets more than what he puts in, but rather that everybody gets something that’s worth more to him than what he puts in.

Which is why financial markets are such a crock: people are not actually exchanging money for money (there would be no net gain possible) but probabilities. It’s sort of a “pick your personal lottery” market where the big players (for whom a billion dollars is pretty much a thousand times as useful as a million dollars) leech on the small players for whom small and large sums of winnings and losses are not merely proportionally useful to their amounts since they can start and/or end existences.

Anyway: naturally the patent system itself consumes a net amount of money. That’s not the question. The question is whether the redistribution of money that is its principal operation (minus churn) is in the public interest. You need to look at other numbers for that, and figuring out their relation to “what-if-we-had-no-patents” involves a lot of speculation and leaps of faith since there are rather few “comparable” economies “only” differing in patent laws.

Anonymous Coward says:

Re: What's that supposed to prove?

Uhm, patents were supposed to provide an incentive for individuals to create new things. That’s where the public benefit is supposed to come in. I don’t know a lot of people that are incentivized to invest in something that has a 24% loss built-in.

And as a company today, you might have to be burdened with this cost whether you like it or not because patents are so pervasive. So where’s the public benefit when otherwise upstanding businesses are crushed under litigation because someone somewhere has a piece of paper that says their idea is worth gold.

And I would love for you to explain how any NPE does any sort of public good by simply sitting on patents waiting for opportunities to litigate. The entire system is corrupt.

Anonymous Coward says:

Re: Re: What's that supposed to prove?

How do you go from NPE’s to “the entire system is corrupt”? As noted in the cited paper, “without NPE cases, aggregate private benefits would likely exceed aggregate private costs in the years since 2002.” So, if the system is not gamed, it seems that the benefits outweigh the costs.

staff (profile) says:

more dissembling by Masnick's puppets

‘Patent Litigation Cost US Business About A Trillion Dollars In A Quarter Century, Outweighing Benefits’

No doubt, if you are an infringer. As they say, crime does not pay.

Can you say dissemble? All this talk about trolls and so called ?patent reform? is just spin control by large infringers and their paid puppets to cover up their theft.

The patent system now teeters on the brink of lawlessness. Call it what you will…patent hoarder, patent troll, non-practicing entity, shell company, etc. It all means one thing: ?we?re using your invention and we?re not going to stop or pay?. It?s a pure red herring by large invention thieves and their paid puppets to kill any inventor support system. Their goal is to legalize theft. The fact is, many of the large multinationals and their puppets who defame inventors in this way themselves make no products in the US or create any American jobs and it is their continued blatant theft which makes it impossible for the true creators to do so. To infringers the only patents that are legitimate are their own -if they have any. Meanwhile, the huge multinationals ship more and more US jobs overseas.

It?s about property rights. They should not only be for the rich and powerful -campaign contributors. Our founders: Jefferson, Franklin, Madison and others felt so strongly about the rights of inventors that they included inventors rights to their creations and discoveries in the Constitution. They understood the trade off. Inventors are given a limited monopoly and in turn society gets the benefits of their inventions (telephone, computer, airplane, automobile, lighting, etc) into perpetuity and the jobs the commercialization of those inventions bring. For 200 years the patent system has not only fueled the US economy, but the world?s. If we weaken the patent system, we force inventors underground like Stradivarius (anyone know how to make a Stradivarius violin?) and in turn weaken our economy and job creation. Worse yet, we destroy the American dream -the ability to prosper from our ingenuity for the benefit of our families and communities. To kill or weaken the patent system is to kill all our futures. Show me a country with weak or ineffective property rights and I?ll show you a weak economy with high unemployment. If we cannot own the product of our minds or labors, what can we be said to truly own. Life and liberty are fundamentally tied to and in fact based on property rights. Our very lives are inseparably tied to our property.

Prior to the Supreme Court case eBay v Mercexchange, small entities had a viable chance at commercializing their inventions. If the defendant was found guilty, an injunction was most always issued. Then the inventor small entity could enjoy the exclusive use of his invention in commercializing it. Unfortunately, injunctions are often no longer available to small entity inventors because of the eBay decision so we have no fair chance to compete with much larger entities who are now free to use our inventions. Essentially, large infringers now have your gun and all the bullets. Worse yet, inability to commercialize means those same small entities will not be hiring new employees to roll out their products and services. And now those same parties who killed injunctions for small entities and thus blocked their chance at commercializing now complain that small entity inventors are not commercializing. They created the problem and now they want to blame small entities for it. What dissembling! If you don?t like this state of affairs (your unemployment is running out), tell your Congress member. Then maybe we can get some sense back into the patent system with injunctions fully enforceable on all infringers by all patentees, large and small.

Those wishing to help fight big business giveaways should contact us as below and join the fight as we are building a network of inventors and other stakeholders to lobby Congress to restore property rights for all patent owners -large and small.

For the truth about trolls and so-called patent reform, please see

Pragmatic says:

Re: more dissembling by Masnick's puppets

Patents and copyright are monopoly privileges, not property rights. That’s why they’ve NEVER been treated in that way under law. They’ve also been restricted to “a limited time” for the advancement of science and the arts.

My goodness, you hate it when due process is enforced, don’t you? And copyright/patent law, for that matter. It’s when they are not that we get annoyed.

Anonymous Coward says:

Re: Re: more dissembling by Masnick's puppets

Legally, patents are exclusionary rights (as described in the law) to exclude others from making, using, selling, or offering for sale an item that is covered by that patent. To the extent that a patent is a “monopoly privilege,” it does not permit anyone to DO anything.

Some texts inaccurately and falsely claim that patents grant exclusive privilege to a private entity to be the sole provider of a good or service. The reason that such a statement is false is that granting of a patent does not permit the receiver to practice an underlying patented invention, so the receiver of a patent most typically has relatively limited power to do anything, particularly if no one chooses to practice the patented invention.

As noted by many experts in the field, for example Rothbard “a patent and a copyright are exclusive property rights.” Of course, a patent may also, in addition to being a property RIGHT (not physical property), be a monopoly privilege in SOME circumstances. After all, if no one wants to practice the right, monopoly privilege is a term that has no practical legal.

Copyright is somewhat different from a patent in that it invests in a specific expression (i.e., a book, film sound recording, etc.), and all others are prohibited from producing that same exact item. Copyright is similar to patent from the perspective that it is an exclusionary right. However, copyright is less exclusionary than patent because there is a lengthy list of exceptions to copyright, and no such exceptions exist (in the US) for patents. Thus, if your definition of “monopoly” is an absolute ability to prevent someone from producing a covered item, then patents better fit that definition than copyrights with their list of exceptions or “limitations on exclusive rights.”

It may be of interest that neither the term “property” nor “monopoly” appear in the Copyright Act.

Anonymous Coward says:

Re: Re: Re: more dissembling by Masnick's puppets

While the term “property” may not appear in the Copyright Act, it does appear in the patent laws. Specifically, 35 USC 261 states: Subject to the provisions of this title, patents shall have the attributes of personal property.

You may claim “monopoly privilege,” “exclusionary rights,” and whatever else you like, but under the law, patents are consider “personal property.”

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