“Patent Trolls” Cost Productive Companies $29 Billion in 2011, Stall Innovation, and Hurt Small Businesses

In Patent Trolls Cost The Economy Half A Trillion Dollars since 1990 I noted a study by James Bessen, Michael Meurer, and Jennifer Ford, The Private and Social Costs of Patent Trolls, that showed that companies sued by patent trolls (non-practicing entities, or NPEs) have lost $500 billion from 1990 to 2010, with increasing annual costs of late, on the order of $80 billion per year over the last four years. Or as described by Bessen and Meurer in a new study, this paper was an estimate of “the total costs of NPE litigation for publicly listed firms using stock market event studies.”

The new “study complements our earlier study by obtaining estimates of the direct cost portion of total costs using data from a survey of defendants. Direct costs include the cost of outside legal services, licenses fees, and other direct costs incurred in response to NPE litigation risk.”

The new study, The Direct Costs from NPE Disputes, “estimate[s] that firms accrued $29 billion of direct costs in 2011.”

As Mike Masnick observes:

This does not include indirect costs, like the distractions of dealing with trolls or companies shutting down, products delayed or destroyed, etc. This is just about the direct costs, covering things like fighting in court and also settlement fights with the trolls. The study also found that small and medium businesses were the most impacted by this, often having to pay out to patent trolls (and to lawyers to deal with patent trolls).

I.e., the $29 billion cost imposed by patent trolls is conservatives—it underestimates the cost of patent trolls. And patent trolls are just a fraction of the costs imposed by the patent system as a whole, which I’ve estimated are at least $100 billion per year in the US alone, and that’s still a conservative estimate; I would not be surprised if it’s $300 billion, $500 billion, or even more (see Costs of the Patent System Revisited).

See also the summary of the study’s findings at the Coalition for Patent Fairness.