Thursday, 5 May 2016

NPEs and the cost of patent litigation: not so bad after all?

Patent litigation can cost you ...
Writing last month for the IAM Blog ("If companies did not infringe NPE patents, the cost they incurred from NPE litigation would be much lower", here), Joff Wild made reference to the huge difference in the amount of costs incurred by operating companies in the US as the result of NPE litigation put forward by Boston University professors James Bessen and Michael Meurer on the one hand, and patent aggregator RPX on the other (which Wild discusses here).  Bessen and Meurer put the figure at an eye-watering $29 billion in 2011, while RPX's estimate for 2014 stood at the more modest but not insubstantial figure of $12.2 billion. Added Wild: "Either there has been a massive reduction in three years,  ..., or one of the parties has got it very badly wrong" [his earlier blogpost makes it plain which of the two methodologies he prefers, and why].

Addressing the RPX findings, Wild conceded that, prima facie, even the mere $12.2 billion sum the defensive aggregator said operating companies faced as a result of NPE litigation was still pretty large. However, drilling down to take a look at where the costs actually come from, it was soon apparent that a large part of those costs was incurred as a consequence of decisions that operating companies themselves have taken ("self-inflicted wounds"). Wild continued:
" ... 70% of the $12.2 billion for 2014 (around $8.5 billion) was incurred because operating companies either agreed pre-trial to accept that they were infringing NPE patents or were found at trial to be infringers. Of course, some may have settled just to make a suit go away, but, generally speaking, if the operating companies concerned had not used NPE patents without authorisation they would not have needed to fork out the money they did. Put another way, the expense of fighting an NPE suit is generally dwarfed by the cost of being found out using NPE IP without permission. And it’s hard to see why NPEs should be blamed and demonised for owning stuff that other people have decided to take without asking.

So, based on the RPX figures what we can conclude is that infringing NPE patents led operating companies to pay out $8.5 billion to NPEs in 2014. Other direct NPE related costs – including legal fees and agreeing licensing deals pre-litigation – amounted to a further $3.7 billion. The lesson here, it seems to me, is not that NPEs are wicked, but that getting caught stealing their IP is going to cost you a good deal of money".
These figures -- and the legal and commercial context in which they are calculated -- offer a good deal of food for thought, with the proviso that they are derived from competing methods of establishing how much patent litigation costs industry in the United States.  The unique combination of conditions that pertain in that jurisdiction is not replicated elsewhere. 

It would be good to know the extent to which the patent litigation rulings and pre-trial settlements affect infringements and licences that govern territories outside the United States as well as within it. There is a good argument for suggesting that much of the cost of establishing liability and setting royalty rights for the non-US versions of some patents is incurred solely in the US.  In an increasingly global market, with technologies bundled into packages that can create technical standards with international effect, should we be factoring in the global savings that can be made by litigating patents in the US as well as the costs incurred?

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