The Direct Costs from NPE Disputes

Intellectual Property and Patents

Article Snapshot

Author(s)

James Bessen and Michael Meurer

Source

Boston University School of Law, Law and Economics Research Paper No. 12-34, 2012

Summary

The authors empirically study the direct costs resulting from NPE litigation and its negative impact on innovation.

Policy Relevance

The large cost that results from NPE litigation is a social problem because it results in a tax on innovation. Better patent notice and patent policy will likely be the required solutions to address the problem because NPEs tend to be heterogeneous rather than homogenous.

Main Points

  • NPEs (non-practicing entities) are parties who own and sometimes assert patents but do not practice the technology covered by their patent.
     
  • Direct costs include the cost of legal services, license fees, and other direct cost in response to NPE litigation risk.
     
  • NPE litigation has been around for a long time but recent litigation has exploded to an unprecedented level and scope.
     
  • Previous literature suggested that NPEs provide a social benefit by helping small innovators access the market; but, the authors’ previous study and this one debunk that assertion and find that many NPE lawsuits are a social loss.
     
  • Notice failure is a common theme in NPE lawsuits, especially software, whereas the effectiveness of notice in chemical and pharmaceutical inventions is high and the patent system works well for those industries.
     
  • One notable problem for NPE litigation relating to smaller firms is that legal defense costs represent a greater proportion of their overall revenue, thus making it more costly for them than for larger firms.
     
  • The data show NPE litigation does not help small innovators.
     
  • Possible biases and miscalculation concerns raised by the data set are addressed by the authors and explained or refuted.
     
  • NPE litigation is a problem because NPE direct costs, estimated to be about $29 billion by this paper, are essentially a tax on innovation.
     

 

Get The Article

Find the full article online

Search for Full Article

Share