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11.17.11

Cost of Patent Trolls Studied as Acceptance of USPTO Falls, Developers Complain Even in Press Releases

Posted in Patents at 11:30 am by Dr. Roy Schestowitz

Bessen

Summary: More academic insight and more anecdotal evidence of the backlash against the existing patent laws and practices

The silly, meaningless measures that we see of innovation as function of patents continue to come from press outlets like the The New York Times, which in turn cites a “report by Thomson Reuters, published on Tuesday [and] tries to draw a more accurate link between corporate patent filings and real innovation. It does so by measuring not only the number of patents a company files, but also the influence, global reach and success of its patents.”

Innovation should not be quantified in these terms. Profit and patents are something better used as indicators of monopoly power, which is what patents are all about at the end of the day. To measure innovation properly, other yardsticks are definitely needed. Watch how Doom 3 source code fails to arrive due to patents. It was in the news yesterday and it’s a fine example of where patents do a lot of harm when geometric knowledge can be shared. There is a better — and for a change academic — work that helps shed light on the effects of patents. It was covered by CNN yet again (as before) and this time it focused on patent trolls. Bessen and his wonderful group published another paper which got the attention of those who keep abreast of the patents debate. Here is the original (Boston University) where the abstract states: “In the past, non-practicing entities (NPEs) — firms that license patents without producing goods — have facilitated technology markets and increased rents for small inventors. Is this also true for today’s NPEs? Or are they “patent trolls” who opportunistically litigate over software patents with unpredictable boundaries? Using stock market event studies around patent lawsuit filings, we find that NPE lawsuits are associated with half a trillion dollars of lost wealth to defendants from 1990 through 2010, mostly from technology companies. Moreover, very little of this loss represents a transfer to small inventors. Instead, it implies reduced innovation incentives.”

IDG covered this too. Notice the opening paragraphs:

For those of us who follow the tech industry closely, patents are a touchy subject lately thanks to all the litigation going on over software patents.

This is particularly true in the mobile arena, where companies including Apple and Microsoft have been especially enthusiastic in their use of patents as leverage over their competitors.

They do this because they are losing to Android/Linux.

Here is another IDG article, this one bearing the headline “Patent Trolls Cost Businesses $80 Billion Per Year, Study Finds”. To quote: ““Non-practicing entities” (NPEs) is the polite name given to patent trolls by Boston University School of Law researchers James Bessen, Jennifer Ford, and Michael Meurer, whose paper, “The Private and Social Costs of Patent Trolls” (PDF), will soon be published in the journal Regulation.

“Whereas such firms once helped enable technology markets and boost the profits small inventors could earn from their inventions, that’s no longer the case, the authors argue. Rather, today’s NPEs assert patents “on an unprecedented scale,” they write, involving thousands of defendants every year in hundreds of lawsuits.

“The researchers studied the effect of patent lawsuits on defendants’ wealth by examining the stock price of those companies around the time the lawsuits in question were filed. After factoring out market trends and random factors, they found that between 1990 and 2010, NPE lawsuits are associated with half a trillion dollars in lost wealth to defendants.”

Here is an example of a legal case that has been concluded after no less than 2 years (i.e. very expensive process):

A Portland, Ore.-based company that sued two multiple listing service software vendors for patent infringement has lost a two-year court battle, with a U.S. District Court Judge dismissing its claim against one of the vendors and invalidating the patent in question.

As the president of the FFII puts it in relation to another case:

ProSoftnet, creator of IBackup.com and IDrive.com, is now defending itself against patent trolls

There is actually a press release about it, which is a testament to the sad state this whole system is in. To quote:

Cloud Storage Pioneer Pro Softnet Faces Most Disruptive Patent Attack to Date

Pro Softnet, an independently owned and operated online backup and cloud storage company that provides service to over 800,000 subscribers through its popular IBackup and IDrive products, is now in the midst of defending itself against the largest patent attack it has yet faced brought on by a non-practicing entity, or NPE. With several new and exciting services in the cloud sharing space scheduled for release in the first quarter of 2012 – the pending lawsuit has the potential to interrupt growth for this pioneering company.

WIPO propaganda is trying to justify its existence, quite frankly as usual, while many genuine companies with real products (and no patent lawyers) are suffering. This leaves development and innovation crashing down and deterring participation. More and more people are starting to really get it. The patent system is on shaky grounds. It does not serve innovators.

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3 Comments

  1. Michael said,

    November 17, 2011 at 8:26 pm

    Gravatar

    FUD:

    It does so by measuring not only the number of patents a company files, but also the influence, global reach and success of its patents.”

    Innovation should not be quantified in these terms. Profit and patents are something better used as indicators of monopoly power, which is what patents are all about at the end of the day.

    And yet you did not complain when Google purchases massive “indicators of monopoly power”.

    Again, massive bias on your part.

    In any case, yes – the patent system is broken. It needs to be improved and it needs to be made more consistent around the world so people know what they are dealing with.

    But unless or until you have an actual solution, all you are doing is whining. Over and over and over.

    saulgoode Reply:

    And yet you did not complain when Google purchases massive “indicators of monopoly power”.

    Actually, Techrights — on several occasions — has complained about Google’s purchasing of patents.

    http://techrights.org/2011/07/25/cartels-part-of-the-problem/
    http://techrights.org/2011/04/06/benjamin-henrion-on-google-nortel/
    http://techrights.org/2011/09/15/brutal-nature-of-patents/

    Michael Reply:

    Fair enough… and thank you for the correction.

    But Google is not deemed “evil”. They are still the good guys – even if they play the same games as the “bad guys”.

    I would love to see Roy state what he sees as good and evil and then apply that equally to all of the companies he talks about: Apple, MS, Samsung, Google, HTC. Also apply it to the open source world.

    is it wrong to sue? Is it wrong to “slavishly” copy other’s work? Is it wrong to give products away for free? Is it wrong to collect users’ data?

    The answer changes with Roy depending on his preconceived notions of who is good or evil. Bottom line: if Apple or MS do any of those things it is wrong; if the others named above do it they are doing the right thing, or, at worst, are making a strategic mistake but are not being evil.

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