Earlier today, the White House announced an executive order that will strike back against patent trolls.
From the White House press release, here’s a basic description of what a patent troll is:
Innovators continue to face challenges from Patent Assertion Entities (PAEs), companies that, in the President’s words “don’t actually produce anything themselves,” and instead develop a business model “to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.” These entities are commonly known as “patent trolls.”
The blog Boing Boing has covered the patent troll issue extensively, and has cataloged numerous incident of unscrupulous patent holders who tried to game the system. Just a few anecdotal incidents include:
- Trolls going after the successful open-source game Minecraft.
- Someone who claimed they patented the “Power Hour” drinking game.
- One who targeted all interactive websites because they claimed to have patented the idea for the interactive web.
- One guy who wanted $1,000 from anyone who had ever used a scanner.
The list goes on, but you get the idea. These are individuals with time and money to litigate, and they’re a huge drain on the innovative sectors of the economy.
Here are eleven facts from a 2012 study by James Benson and Michael Meurer on the legal disputes stemming from “non-practicing entities (NPE), the legal term for a patent troll.
- There were 5,842 suits by NPEs in 2011, a huge jump from 1,401 in 2005. It’s a growing, lucrative business.
- These 5,842 lawsuits were against 2,150 unique companies.
- Factoring in suits that didn’t go to litigation, lawsuits by NPEs cost a whopping $29 billion.
- Worst of all, it’s the small and medium sized companies — the ones which don’t have the resources to fight like the big companies — that take much of the hit. The median company sues in 2011 had only $11 million in revenues.
- According to the report, patent trolls have the effect of a massive drain on the entire marketplace:
Publicly-traded NPEs cost small and medium-sized firms more money than these NPEs could possibly transfer to inventors. This reduces the net amount that firms of any size have available to invest in innovation.
- According to the authors, “the annual wealth lost from NPE lawsuits was about $80 billion for publicly traded U.S. firms.”
- Mean settlement costs were $1.33 million for small and medium companies and $7.27 million for large companies
- Mean litigation costs were $1.75 million for small and medium companies and $8.8 million for large companies.
- Five per cent of the lawsuits for large companies cost more than $22 million.
- Small and medium sized firms — companies with less than $1 billion in revenues — made up 90% of the defendant firms.
- Given that they mounted only 59% of the defenses, small- and medium- sized firms were more likely to avoid litigation and settle out of court than fight the trolls.