Patent Trolls Cost U.S. Companies Billions in Patent Infringement Lawsuits

By Joseph Mandour on July 5, 2012

courthouse-thumb-200x121-33967 California – Trolls are well known for their appearance in fairy tales and children’s books. However, trolls of a different kind, patent trolls, or non-practicing entities, are companies that buy patents with no intention of producing or manufacturing any actual products.

Instead, they make money by suing companies that produce products using the patents or parts of the patent they own. A recent study from Boston University claims that patent trolls cost U.S. Companies a staggering 29 billion dollars in damages and fees per year. The study, conducted by two Boston University professors, determined that businesses suffered massive losses during the litigation from over 5,842 lawsuits filed in 2011 related to patent infringement.

Data was provided by 82 software and hardware companies and included research on small, medium and large sized companies. The study showed that small and medium sized companies bear most of the cost burden for patent litigation. Small businesses are the hardest hit because they typically do not have as much funding to devote to expensive litigation. In addition, most of the litigation was comprised of “nuisance lawsuits”, that were settled for a few hundred thousand dollars, or less. Only a few of the lawsuits studied were worth millions of dollars. The authors of the B.U. report argue that the rapid growth of patent lawsuits and high court cost should trigger significant warnings for policy makers. They insist that the patent system needs major reform, and the way patent litigation is handled by the courts needs greater transparency. Furthermore, the system also needs better supervision of patent damage awards, and damages must be more proportionate to the value of the patented technology.

According to the B.U. study, costs have grown significantly for patent litigation over the last ten years. Companies spent $6.7 billion in patent infringement costs in 2005 and $12.6 billion in 2008, before that number jumped to an astonishing $29.2 billion dollars in 2011. These numbers clearly demonstrate that patent trolls cause significant losses by funneling money away from innovation, research and development and into lawsuits and litigation. As such, policy reform may be in order to help provide necessary changes to the patent system, as well as prevent needless and frivolous lawsuits.

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Posted in: Patent Infringement