The scholars of Boston University have provided another thought-provoking analysis of the costs of patent troll litigation.  The article is backed by some excellent and thought-provoking data from RPX and the Coalition for Patent Fairness.  For context, this is what the article says about the state of patent troll litigation:

  • There were 5,842 patent troll defendants in 2011 (2,150 unique companies) – a massive number.
  • Direct costs of NPE assertions were $29 billion (yes, with a “b”) for 2011 alone.  Extrapolating that number over time is astounding, and horrifying.
  • Small and medium companies face a disproportionate burden – a reality that retailers know all too well.  82% of troll defendants had less than $100 million in revenue.  Those small companies account for 37% of accrued direct costs — $10.73 billion.

And trolls are not facilitating inventions and innovation:

  • There was little evidence that trolls promote inventions.
  • Trolls cost small and medium-sized companies more money than they could or do transfer to inventors.
  • And of course, money transferred from defendants and licensees to trolls reduce the amount of money available for those companies to innovate.
  • Many troll litigations are “nuisance” cases settled for low six-figures or less, but there are also “big game hunters” seeking and getting eight and nine-figure settlements.

 Retailers already know that troll cases are exploding and that trolls drain significant resources – legal fees, settlement costs, corporate attention, and the time of key corporate legal and business personnel.  So, what value can retailers take from this article and the RPX data?      

  •  The 250 companies invited to participate in RPX’s survey, which is the backbone of the report, included retailers with e-commerce troll exposure.  So, the data is not only from high-tech companies and is directly relevant to retailers.
  • The RPX data does not include ITC cases, which means that the total costs are likely under-reported.  But because retailers continue to face fewer ITC proceedings even as trolls increasingly go to the ITC, the data is even more relevant to retailers than to other companies.
  • Median costs for litigation companies are approximately $500,000, with the numbers slightly lower for small companies ($318,000 for companies less than $100 million) and slightly higher for large companies ($646,000 for companies greater than $1 billion companies).
  • A particularly interesting statistic is that in the median case, legal fees are roughly equal to settlement costs.
  • For the entire sample, troll costs are evenly split between non-litigation resolution costs and litigated resolutions.  But small/medium companies (less than $1 billion in revenue) spend significantly more on non-litigated resolutions than on litigated resolutions.  The authors posit that this could be because smaller companies lack internal legal resources making litigation more expensive.  That is valid, but another factor is likely that the trolls, knowing these smaller companies will not have the economic ability to defend themselves in court, hold out for larger settlements.
  • Overall costs are growing significantly over time, from $7 billion in 2005 to $29 billion in 2011.