The cost of defending patent lawsuits from non-practising entities (NPEs) rose to $29bn in 2011, according to research by Boston University School of Law. In the working paper, The Direct Costs From NPE Disputes, authors James Bessen and Michael J Meurer define NPEs as ‘individuals and firms who own patents but do not directly use their patented technology to produce goods or services’. Their findings show that litigation involving those bodies has reached a ‘wholly unprecedented scale and scope’ – with 2,150 unique companies forced to mount a total of almost 6,000 defences against NPEs last year.
The authors also found:
- Small or medium-sized enterprises (SMEs) are particularly vulnerable, with 82% of defendants having less than $100m in annual revenues.
- Mean legal costs range from $420,000 for SMEs to $1.52m for larger companies.
- Indirect costs of NPE litigation – such as diversion of resources, delays in new products and loss of market share – are also taking a toll on defendants.
‘We find little evidence that NPEs promote invention overall,’ the authors wrote. ‘Publicly traded NPEs cost SMEs more money than those NPEs could possibly transfer to inventors. That reduces the net amount that firms of any size have available to invest in innovation.’ While the authors note that much of the litigation consists of ‘nuisance suits’, settled for a few hundred thousand dollars; they added that select NPEs are ‘big game hunters’, who seek, and win, settlements amounting to tens or hundreds of millions of dollars.
NPEs fell under the spotlight at a recent conference hosted by media and technology website AllThingsD.com. Attendees heard from Nathan Myhrvold, chief executive of patent portfolio holding company Intellectual Ventures, who set out a defence of the NPE position.
‘We believe it’s important that there is a liquid capital market around any valuable asset,’ he said. ‘Around startups, that liquid capital market is called venture capital. For existing businesses of larger sizes, it’s called private equity. When they become public, it’s called the NASDAQ stock exchange. We think that there’s a lot of value in people investing in stuff, and being able to realise a return. So, in exactly the way that private equity and venture capital revolutionised their parts of the economy, we think that [the patent system] needs revolutionising.’
In contrast to the assessment of Bessen and Meurer, Myhrvold added that his company’s business model plays a vital role in stimulating the economy around intangible assets and supporting those who work in that economy. ‘I think the idea that inventors should get rich, that inventors should get funding, [and] that we should have more inventions, is good for everybody,’ he said.
To download Bessen and Meurer’s report, click here