Examining Empirical Evidence From Publicly Traded Patent Licensing Firms

As usual, the dubious “patent troll” narrative does not stand up to scrutiny once the data are analyzed. Rather than just repeat hyperbolic and anecdotal claims of alarmists, the Hoover Institution Working Group on Intellectual Property, Innovation, and Prosperity (Hoover IP2) at Stanford took the shocking and almost unprecedented step of *gasp* examining facts and data and applying logic and reason to see what that data teaches us about patent licensing specialists. The entire paper is definitely worth a read, but the conclusions are significant.

First, the researchers summarize the narrative claims, i.e. that these fabled entities “purchase specious intellectual property and then file frivolous lawsuits in order to extort revenues from operating companies.” However, they point out that if these parties were, in fact, “filing nuisance lawsuits using valueless intellectual property, then they would be highly profitable.” The reality, however, is quite different, as the report concludes that most of the entities studied actually lose money. In fact, only 23% of the companies researched actually turned a profit. Further, they conclude that these companies only did so by “accepting considerable risk.”

Even more telling, their analysis found that the identified companies “spent nearly twice as much on R&D (as a percentage of revenues) than the weighted average of the 153 largest American high technology companies.” Further still, a full 65% of the companies studied spent the same, or greater, share of revenues on R&D as Apple or Hewlett-Packard.

As a reality check on their data, the researchers then turned their attention to the total amount of revenue diverted as a result of these patent licensing specialists. In other words, they examined revenues plus an estimation of litigation costs imposed as a result of their licensing activity. Overall, these entities accounted for a mere 0.28% of high tech sector revenues. Meanwhile, dead weight losses (defined as “the effect of the tax on consumer and producer surplus … [i.e.] that never happen because of the tax”) were found to be 0.003%.

The data confirms what many working this sector have long suspected: that the fable of the “patent troll” as a systemic problem is just a tall tale. That’s not to say bad actors are non-existent. Rather, the question is whether patent enforcement activity presents systemic issues requiring massive policy changes to address. The answer to that appears to be a resounding “no,” at least insofar as the considered changes are meant to further inhibit the progress of licensing.

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