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The Meteoric Ascent of the Patent Troll and the Devastating Consequences for Innovation

The views expressed are those of the author and are not necessarily those of Scientific American.


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Today it is perfectly legal for companies to buy and sell the rights to unlimited numbers of ideas, a company is not required to have any interest in making these ideas a reality. It is perfectly legal for companies to sit on patents and wait for others to create before either suing the creator or charging licensing fees.  The following pair of quotes is pulled directly from the promotional material on the website of just one prolific patent troll:

“$2 Billion+ cumulative licensing revenue”

“70,000 IP assets acquired and nearly 40,000 in active monetisation programmes”

In fact it is not just legal, patent trolling is an industry on a colossal scale. According to research recently published by Boston University School of Law, last year patent trolls won a cool $29 Billion. One of the most worrying findings of research in to patent trolls is that the mere threat of a suit is enough to put the frighteners on and make creators pay up:

“The average legal cost to defend a patent case is $420,000 for small and medium sized companies and $1.52 million for large companies. The average settlement costs are $1.33 million for small and medium companies and $7.27 million for large companies.”

It appears that a vast majority of the money acquired by “non practicing entities” is creamed off, according to the research by the Boston researchers:

“no more than a quarter (of the direct spending by defendants ) could possibly represent a flow to fund innovative activity”

Despite this, the Boston University School of Law researchers demonstrate that money flowing in to the coffers of patent trolls is rising at a colossal rate. The following figures do not include indirect costs such as loss or delay of revenue or abandonment of new inventions:

Patent trolls however are by no means the only people in the bulk patent buying business; last August Google spent $12,500,000 on 17,000 patents. Perhaps most worrying of all is the catastrophic state of affairs with regard to the utterly overwhelming volume of software patents that continue to be filed year on year. According to a study published by Yale Law School last year:

“We’ll estimate the number of firms that create software at 600,000. The number of software patents issued, is around 40,000 in a typical year (and growing). That means that there are around 24 billion new patent-firm pairs each year that could produce accidental infringement. Even if a patent lawyer only needed to look at a patent for 10 minutes, on average, to determine whether any part of a particular firm’s software infringed it, it would require roughly 2 million patent attorneys, working full-time, to compare every firm’s products with every patent issued in a given year. At a rate of $100 per hour, that would cost $400 billion. For comparison, the software industry was valued at $225.5 billion in 2010.”

In essence, it would cost more money than the entire US software industry earns each year just for each software firm’s lawyers to skim read the 40,000 software patents published in the US each year. Obviously this is a ridiculous statement, there are only 40,000 registered patent attorneys in the US so this cannot happen, leaving the gate wide open to frivolous legal suits from competitors and patent trolls. In reality it seems, many patents don’t even get read. It’s almost as if we have taken our collective creativity and placed it in to a locked box where the main benefactors are lawyers and profiteers. In fact, there is no almost about it.

For further reading on the patent problem check out Wired Magazine’s excellent current series on patent issues and Village Voice’s excellent feature last week on “the new cold war”. Also read at the Big Think about a recently uncovered rare and worrying case of patents encroaching into the realm of Psychology.

References:

Bessen, James E. and Meurer, Michael J., (2012) The Direct Costs from NPE Disputes. Boston Univ. School of Law, Law and Economics Research Paper No. 12-34. Available at SSRN: http://ssrn.com/abstract=2091210 or http://dx.doi.org/10.2139/ssrn.2091210

Mulligan, Christina and Lee, Timothy B., (2012) Scaling the Patent System. NYU Annual Survey of American Law, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2016968

 

Neuro Bonkers About the Author: Neurobonkers is an anonymous science writer focusing on scientific controversy and the science of the mind. His work can be found at the Big Think where he currently blogs and at Neurobonkers.com. Follow @Neurobonkers on Twitter, Facebook or Google+.

The views expressed are those of the author and are not necessarily those of Scientific American.






Comments 13 Comments

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  1. 1. thymecop 11:14 am 12/5/2012

    My small company was “victimized” by a patent troll group. Even though we did not believe we were violating the patent in question (which had been purchased by the firm a month prior) we were forced to settle to avoid incurring the ASTRONOMICAL cost of a defense in court. This is a clear loophole that allows savvy lawyers to abuse the legal system to shakedown small (and large) companies. This is VERY bad for innovation and innovators!

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  2. 2. gripperDon 11:46 am 12/5/2012

    I have many dozens ofpatents many, very few have every been brought to market. Those in the market have earned many humbreds of millions in product sales. Not a penny to me the inventor, only the company I worked for. Legal, yes MORAL NO!. My question is, where you state at the beginning of you excellent article ” The fact is, it is just not legal” wWere does any law stipulat that it is not legal? I would really like to know. Also should there really not be something for the Inventor,besiges his engineers salary? I helped prepair the patent application, educated many lawyers in the technology and at time was deposed in legal cases. I took many carer chances to “Push and Idea” Fight for funding and if I failed bye bye career. Thanks for a reply please !

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  3. 3. Neurobonkers 12:14 pm 12/5/2012

    @GripperDon I said “it is not just legal..” not “it is just not legal”. Meaning it is not only legal but also extremely profitable to make money from trading patents. My argument is that the law should allow inventors to profit from a good idea but not bankers who played no role. So by the sound of things, we are agreed.

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  4. 4. brhans 3:35 pm 12/5/2012

    @GripperDon:
    If you produce something during work time that is even vaguely within the scope of your employment, then it belongs to your employer, not you.
    If you want to own your patent/invention then you need to work on it in your own time and with your own funding.
    You were doing what you were paid to do, so your ‘work product’ belongs to whoever paid you.
    If you were working on something outside of the scope of your employment then you should have come to some arrangement with your employer about how you would be compensated for this extra work.
    As a 10-year-plus consultant in the electronics industry I am well aware that my customers own the vast majority of the IP I have produced in that time.

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  5. 5. Amoeba IP 4:02 pm 12/5/2012

    To the meteoric masses misinformed about patents: Patents are right established by our US Constitution. Patents grant the right to exclude (not the requirement to practice) for LIMITED TIMES in order to further promote innovation. Specifically, there is a quid pro quo, which is basically, if you the inventor disclose to the world how to make and use your invention, you get to exclude others from practicing your invention for a limited period after which your invention is dedicated, i.e. FREE for the public to use. Nothing stops one from learning from the patent application disclosure in order to try to build a better mouse trap or design around. Whole industries have been built on software patents. Without the first software patents, you the PUBLIC would not have the computer you are blogging with. Without the first software patents, millions more people would not be employed by the huge industries built on software patents. Get a grip and stop demanding entitlements and free stuff. Our Forefathers were smart enough to know that no one will be motivated to spend time, money and resources to create inventions that are of great benefit to all if there are no incentives. Do you love your iPhone, your iPad, Android, etc.? They are not free and you wouldn’t have it without patents.

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  6. 6. tucanofulano 4:14 pm 12/5/2012

    Monsanto’s practices come to mind, don’t they ?

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  7. 7. rsabbatini 4:29 pm 12/5/2012

    This state of affairs, like malpractice suits against physicians, elevates the cost of being in business in the USA to so high levels, that the whole economy sector will start to crumble. Physicians are now abandoning practice in increasing droves, and a deficit of more than 100,000 physicians is predicted for 2050. The same will happen with software firms. Greedy US lawyers and the way jurisprudence law is practiced in the States will ruin the country.

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  8. 8. Amoeba IP 7:42 am 12/6/2012

    tucanofulano and rsabbatini: You still have no clue. You will find that most patent attorneys, not litigators, write-off (i.e. do not bill their clients) large sums of money because clients want discounts and/or clients simply don’t have the budget for the patent application preparation and prosecution (arguing for one’s patent rights). A patent attorney’s “product to sell” is his brain and time. No one has every become rich working by the hour as there are so many hours in the day. You also don’t realize the high cost of malpractice insurance and how much it costs to go to law school and become an attorney. Nothing is free, i.e. NOTHING is actually free, but it is the PUBLIC who wants something… many things for free. As for the comment about Monsanto, patent exhaustion is a completely different issue. As savvy as you both might be, you should be ashamed of your attempts to side-track this dialogue by posting completely off-topic inflammatory issues.

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  9. 9. bufo marinus 1:40 pm 12/6/2012

    The original post is misleading on several points. First, it conflates non-practicing entities (NPEs)with software patents. There are many good and valid software patents procured by the likes of Intel and IBM, for example, that are not owned or asserted by NPEs. Second, it is absurd to think that someone with a new software product would need to search 40,000 patents. Patents are classified and the 40,000 can be easily reduced to a managable number. Third, it is good commercial hygine to perform an infringement search before introducing a new product. This has been done by manufacturers for many years. Why should software be exempt? Software developers spend a lot of time and effort generating their products. If they were forced to give their products away for free, they would stop producing and we would all be poorer. The patent system is a way for them to be able to stop copying competitors. While we may need to do something to reign in NPEs, let’s not throw out the baby with the bathwater.

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  10. 10. gmperkins 3:20 pm 12/6/2012

    This was all brought about by the changes in the 90s where they began to allow patenting of ‘business methods’. This then could be applied to any method, such as software. It is basically laughable what simplistic software programs you can patent, ones that are quite obvious. this is one problem that should be fixed but the American congress just won’t, they don’t get it. You shouldn’t be able to patent fundamental ideas that are being mapped onto some new area/application.

    Next are lawyer costs, litigation costs in particular. But that is not something that can be readily corrected.

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  11. 11. mounthell 4:30 pm 12/6/2012

    There’s a major problem awaiting independent inventors unable to “reduce their patent to practice”; say they can’t find money and related expertise in prototypes embodying the patent IP. Perhaps a couple of years after an inventor’s patent issues she notices a product on the market that appears to incorporate her IP, assume its a large company like Microsoft (BTW, Google seems not to sue others).

    So she writes the company a nice letter explaining her situation and asks the company to pay a modest royalty for using it. How does Big company respond? Big company SUES the inventor asking for a Declarative Judgement (DJ) in order to invalidate her patent, which invites her to spend some $10^5 for the privilege.

    Knowing that she will be involved in a lawsuit either way, the wise inventor takes on legal partners in order to encourage Big and other companies to buy a license (modest, but 10 times what she asked for earlier). So now is she a troll or is she simply doing business like Microsoft and licensing her IP?

    If a reader here were to use Microsoft’s software and M found out about it, would M simply pat the unlicensed user on the head and ask for her/him to kindly purchase the software, naughty girl/boy? How about downloading music, fans?

    @Amoeba: Rather than cutting your rates for poor inventors (the 99%), why not hook up with potential capital sources and partner with some of your more promising clients. (Note: some patent ideas are really not marketable; the best one’s, the bankable ones are broad in scope and have lots of facets.)

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  12. 12. bufo marinus 5:06 pm 12/6/2012

    gmperkins, If the patent is obvious, put the references in the file. You can do this under rule 501. Anyone can do this and can do it anonomyously. If the patent owner sues on the patent, the references you submitted will be used by the person being sued to invalidate the patent. The Supreme Court in the Mayo decision has made it very clear that abstract ideas are not patentable.

    mounthell: You make a good point about patent trolls. Sometimes they are the only way for a small inventor to monetize her patent. Another idea is to obtain insurance in case your patent is challenged. You can also get insurance in case it’s infringed. It is expensive but, if you have a patent, you may be able to attract venture funding. Good luck getting venture funding if you don’t have a patent.

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  13. 13. bucketofsquid 3:43 pm 12/7/2012

    While many patent trolls do sit on patents it is quite common for them to simply waste the money spent acquiring it. After a few years the patent runs out and it is indeed free. This is why many items are now made by third parties instead of the companies that invented them.

    Contrast this with copyright where, thanks to Disney Corporation and the scum in congress, an item can be copyrighted for 70 years after the death of the creator. Ever wonder why most movies and TV shows are idiotic remakes? The answer is that everyone is afraid to create new entertainment because they can be sued for similarity to something they have never heard of because it is old, dead and published/produced on the other side of the planet.

    Patents are not destroying creativity but stupid copyright law passed by stupid legislators very visibly is.

    Never the less, technology and science continue to advance at an accelerating rate and cost to customers continues to drop.

    As for the comment trolls – Monsanto and similar companies keep roughly 2 billion people from starvation every year. Hate them if you want but you are a decided minority.
    Who cares if doctors are “leaving practice”? First of all, it is general practitioners that are predicted to be in short supply not doctors over all. An increasing number of doctors are no longer accepting insurance or federal assistance programs but they all accept cash.
    Secondly, more and more is done by nurse practitioners and recently by robots. Within a decade or two things will be mostly automated so we won’t need as many doctors anyway. If you ever get the chance to pay with one of the surgery bots at a demo, do it! They are awesome.

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