The BBC ran another article in a tired meme about evil patent owners supposedly “costing” billions per year. Of course, the article doesn’t specify who supposedly bore this $29 B “cost” or how it was calculated, but instead cites a Boston University paper by Professors James Bessen and Michael Meurer. According to the BBC article, “Intellectual Ventures, one of the highest-profile NPEs, was not available for comment.” However, an IV spokeswoman told Gametime IP that she was surprised by the article and that the BBC had not, in fact, reached out to them for comment. Fortunately, I did speak with IV co-founder Peter Detkin, to get his take on Bessen and Meurer’s latest research, and the role of NPEs in general.
Previous work by Bessen and Meurer has already been debunked by Gametime IP not once, but twice. While the previous research included substantial flaws in assuming a direct correlation between stock price and patent owner activity, the new paper rests mainly on survey data collected through the Coalition for Patent Fairness and RPX, focusing on the amount of money spent by companies to defend and resolve patent claims against NPEs while inferring effects of NPEs generally based on only a subset of NPE behavior.
“They are taking a small piece of the puzzle and extrapolating out to the entire puzzle,” explains Detkin. He believes that the basic premise behind the research is a real phenomenon–that there are bad actors who impose costs onto everyone because of the improper way in which they use the legal system. “When I coined the term ‘troll’ more than 10 years ago, I was talking about people who take specious patents that were likely invalid and asserted them broadly across an industry to extract nuisance value settlements.” Ten years later, Detkin thinks some of the research validates his suspicions that a lot of people are “gaming the system and that there is a consummate cost to society.”
What’s improper, Detkin warns, is inferring based on this subset of patent activity onto NPEs as a whole. “They take that point and then say ‘therefore, all patent assertion by non-practicing entities is bad.’ And that’s like saying all personal injury litigation is bad.” Are there people who game the personal injury system? Sure, says Detkin. “But that doesn’t mean we should eliminate the entire personal injury system because, on balance, we think it serves a purpose.”
As evidence that Bessen and Meurer cast too wide a net over their supposed ‘bad actors’ is the rather cursory treatment of NTP, Inc. The Boston paper calls the company’s lawsuit against Research in Motion “a good example,” adding that “NTP asserted patents of doubtful validity but managed to win at trial and obtain a settlement of $612.5 million from RIM.” The paper refers to NTP as an example of a “big game hunter,” lumping their activities in with other NPEs. Detkin takes issue with the rather cursory manner in which the ‘big game’ activities are treated by the paper, adding “To me, when you win at trial and on appeal, that means that your patents are not of ‘doubtful validity’ anymore.” In fact, the amount of the settlement alone speaks volumes about the strength of NTP’s claims. As former head of IP litigation for Intel, Detkin agreed, saying “I would have to be hard pressed to go to my management and say ‘You should pay more than half a billion dollars for patents we don’t think we infringe.’”
Another aspect of the Bessen/Meurer paper is the assumption that money flowing to NPEs, as opposed to flowing directly to inventors, is supposedly “lost.” The BBC notes the paper’s $29 B “estimate” against total R&D spending for 2009 of $247 B. In other words, the estimated “losses” accounted for 11.5% of R&D spending. In light of that figure, the article goes on to mention an other inane statement mentioned from the paper:
The authors added that about one quarter of the cost of NPE litigation consisted of legal fees – money, they said, that could otherwise be used to fund innovation.
First of all, companies pay fees for things other than NPE litigation, including paying legal fees for other administrative functions, taxes, accountants to figure out how much to pay in taxes, auditors to make sure the numbers accountants work with are correct, and salaries for sometimes ineffective managers. All of this money could be spent on innovation, but it’s all necessary as part of running a successful business. Sophisticated companies should think of legal fees, even fees spent defending NPE litigation, in the same way. “Just like keeping your aisle-way clean is a cost of doing business for a grocery store–as is paying for injuries caused when your workers are negligent–when you come up with a new product and you want to build on the inventions of those who came before, you have to pay to use those inventions.”
Lost in this conversation, however, are costs incurred by patent owners who find they are unable to obtain fair value for use of their patents without resorting to lawsuits. Behind every NPE is an inventor or someone who invested (directly or indirectly) in an inventor. The same is true whether it’s a company using employee-technology to create and sell products, or whether an NPE buys a patent portfolio Detkin mentioned an example the world took notice of last year: “Nortel is the extreme. People invested in Nortel; the bondholders got their money back, and they can go on to invest in the next great thing.”
Delays and expenses associated with collecting a return on that investment limit the amount that could otherwise be re-invested in future inventions. Inventors are faced with a Hobson’s choice between giving up a large share of future wealth produced from an invention or possibly getting nothing at all in return for their work. Either way, inventors sacrifice resources that could be re-invested to create new technologies that benefit future generations. Detkin’s company invested billions into acquiring invention rights, including more than $400 M paid to individual inventors according to an IV spokesperson. “Perhaps [Bessen & Meurer] are faulting us for not paying inventors enough, and we can argue about what is a fair deal. But I haven’t heard any inventors coming back and saying we short-changed them and, more importantly, it’s a lot more than they would have gottenbefore we came long because this market did not exist.”
In reality, both inventors and implementers have a role to play in creating and incorporating new technologies. However, its long past time to worry about wasteful legal expenses for only one half of the innovation cycle. Instead, patent owners and operating companies should work together to eliminate unnecessary transactional costs associated with licensing. Doing so benefits inventors and innovators alike, which ultimately benefits us all.