Patent Trolls and Innovation: Assessing the Damage

Patent trolls have been busy. Infringement suits rose 70 percent from 2004 to 2009. During the same period, requests for licensing fees jumped 650 percent [source: Lutts]. Much of this activity is the result of NPEs. They were plaintiffs in 5 percent of patent litigation during the period from 2000 to 2002. By 2009, that figure had jumped to 17 percent of high-tech suits [source: Bessen].

NPE proponents claim that all this activity is a "capital market for invention," an environment in which inventors can more easily cash in on their ideas [source: Bessen]. But a September 2011 study conducted by the Boston University School of Law suggests otherwise. The findings indicate that patent trolls impose a steep cost on innovation-focused businesses and on the economy. After examining more than 4,000 patent-related events over the period from 1990 to 2010, the researchers found that companies targeted in patent suits lost a total of more than $500 billion in market value. The losses, which were corrected for stock market trends and random events, represented "a significant fraction of U.S. R&D spending" [source: Bessen].

In other words, the impact of patent trolls falls most heavily on companies that invest in exploring and creating new products and technology. The cost, this study suggests, is a kind of tax on innovation. What's more, researchers found that very little of the wealth lost by target companies was transferred to inventors. In most cases, the companies that were sued were already using the technology, which they had developed independently. The lawsuits came years after the patent application, suggesting that the patent trolls were waiting until the related product achieved success in its intended market before striking.

The Boston University researchers concluded that patent trolls, for the most part, exploit weaknesses in patent law. By attacking companies that inadvertently infringe on vague patents, they stifle rather than promote innovation.

Some corporations have found ways to defend themselves against patent troll attacks. Learn more about their strategies -- and other reforms that could neutralize patent troll attacks -- on the next page.