Is Innovation Another Cost of Defense?

People in the patent and tech communities have strong opinions about patent trolls/non–practicing entities, not even agreeing on what to call them. The moniker “patent troll” reflects the fact that these entities only use the patents they own negatively, i.e., to block other people from engaging in the sphere of productivity allegedly covered by the patent until they pay a toll in the form of a license fee. Defenders of NPEs argue that the so–called monetization of patents ensures that patents are valued properly, rewarding the innovation of their inventors. Opponents of patent trolls rejoin that patent license fees are driven not by the value of inventions, but the cost of defending patent litigation, and that the real loser is innovation as companies are forced to divert limited resources from productive activities to lawyers and license fees.

We wrote last year about a study that attempted to measure the economic cost of the patent trolling phenomenon, which concluded that it imposed approximately $80B in losses on public companies, only a fraction of which found its way into the hands of the inventors of asserted patents. As reported in Slate, MIT economist Catherine Tucker, who studies the field of medical information technology, has sought to measure the toll of trolling in another way, by examining how the activities of the publicly traded NPE Acacia Research Corporation directly affected the market in medical information technology. Her study, available for download here, concluded that by filing suit against GE Healthcare, Siemens, and Philips for patent infringement in east Texas, Acacia directly (and negatively) impacted the market for medical information software for the duration of the lawsuit. While demand for medical imaging software continued to grow, and companies not named as defendants in the Acacia suit continued to sell their products at the same rate as before, “there was a large reduction in sales of imaging software products affected by patent litigation relative to other similar products that were produced by the same firms.” Further, “there was no incremental product innovation in imaging IT by the affected vendors during the period of litigation” (emphasis added). Thus, “even if patent assertion entities do not prevail in the courtroom, their actions can have significantly negative consequences for incremental innovation while litigation is ongoing.”

According to Tucker’s research, innovation itself may be a hidden “cost of defense” of patent litigation. If defendants must put product development on hold while they litigate with patent trolls—and trolls only engage in patent licensing, not product development—then patent trolls can halt innovation in a technology field just by filing suit against the major players.

Posted by David Swetnam-Burland