Half a trillion dollars is a lot of money. The co-founder of Microsoft tries to hijack a system that is worth half a trillion dollars per year while also promoting patents for fame and profit. But that is a subject for another day.
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.
We all know patent trolls waste everyone’s time and money, leech off the productive and innovative, and are generally annoying. If you’re into the independent software development scene at all, you probably support a few developers that have been trolled. It’s expensive and wasteful and we all know it — well, we all have anecdotal evidence to support that claim anyway, but now, thanks to researchers at Boston University, we now have a study we can point to and that study shows innovators have lost $500 billon to patent trolls since 1990.
Aside from the patent trolls themselves, few have a good word for them, since it's pretty obvious to everyone that they suck money out of companies that make stuff, and thus act as a brake on real innovation. But those feelings have been largely unquantified. Now, thanks to recent work of the authors of the seminal book “Patent Failure”, James Bessen and Michael Meurer, along with a third author, Jennifer Laurissa Ford, we have perhaps the first rigorous estimate of the damage they cause. It's even worse than we thought...