Patent Law Practice Center

The Cost of NPE Litigation

Written by James Bessen, Boston University School of Law, and Research on Innovation, and Michael J. Meurer, Boston University School of Law.

The America Invents Act requires the GAO to “conduct a study of the consequences of litigation by non-practicing entities… and assess [t]he economic impact of such litigation on the economy of the United States ….” Although we found it hard to get very excited about the smorgasbord of patent reforms bundled together in the AIA, this provision made us smile, and feel a little bit hopeful. Perhaps this signals a growing taste on the part of Congress for evidence over anecdote as the basis for patent policy-making. We’ve recently conducted two empirical studies of NPE patent litigation which we hope will prove useful to the GAO and other policy-makers.

One study, The Direct Costs from NPE Disputes, estimates the costs of NPE assertions based on a survey of defendant firms. We find that the aggregate accrued payments for outside counsel, licenses, and other direct payments to resolve patent disputes are large and growing rapidly; they totaled $29 billion in 2011, up from $6.5 billion in 2005.

The other study, The Private and Social Costs of Patent Trolls, estimates the cost of NPE litigation based on stock market reaction to the filing of lawsuits. We find that the filing of NPE patent lawsuits is associated with an $80 billion average annual loss of share value for defendant firms over the years 2006-2010. The higher costs in the second study are not surprising because rational investors take account of the direct costs enumerated above and also indirect costs such as business disruptions arising because researchers’ and managers’ attention is diverted from productive activity to litigation related issues, delays in product development and new product introductions caused by litigation concerns, and costs arising from litigation worries that spill over to suppliers and customers.

(more…)