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Money for Nothing: How to Stop 'Patent Trolls' From Stifling Innovation

Money for Nothing: How to Stop 'Patent Trolls' From Stifling Innovation

Photograph by Cannon Films via Everett Collection

When it comes to smothering good ideas, no group does it better than the so-called patent trolls, also known by more flattering euphemisms as “patent assertion entities,” “nonproduct entities,” and “nonpracticing entities.” Whatever you prefer calling them, these “entities” do little more than feed off the work of companies that actually make things.

Deep-pocketed corporations are often the targets of lawsuits brought by patent trolls. According to William J. Watkins Jr., author of the forthcoming book Patent Trolls: Predatory Litigation and the Smothering of Innovation, the world’s most-innovative companies have been hit with hundreds of patent-troll lawsuits since 2009. The result, Watkins notes, is that some of America’s top technology companies in recent years have spent more money on patent litigation and “acquisition”–much of the latter under threat of legal harassment–than on research and development. This is not a healthy sign.

Big companies are not the only ones being clobbered. According to a 2012 study by Boston University Law School professors Michael J. Meurer and James Bessen, some 90 percent of all patent-troll lawsuits are aimed at small and midsize companies. And these companies, when faced with unfathomable potential legal costs, often pay off the trolls just to make them go away.

Overall, Meurer and Bessen found, this abusive system is draining billions of dollars annually from the economy, transferring an estimated $29 billion in 2011 alone from the bank accounts of companies that produce things to patent trolls. Of this, small and midsize businesses, the types that are often at the cutting edge of innovation, paid about 37 percent of the total–money that could have been put to much better use.

Watkins offers some thoughtful solutions. He suggests creating a parallel universe of federal district courts “where judges have technical background and decide patent matters only.” Another proposal would require jurors in patent trials “to possess a formal education in the sciences or technology and in some cases specialized knowledge in the … field related to the patent.” Or, as patent attorney Yan Leychkis has suggested, require patent cases to be heard by “professional juries” of technical experts.

The current system seems to have few defenders. In April of this year, the GOP-controlled U.S. House of Representatives passed patent reform legislation that aims to curtail the trolls. A Senate bill, introduced by Judiciary Committee Chairman Patrick Leahy (D-Vt.), appeared to have similar bipartisan support. And President Obama has been quite clear (and vocal) about the importance of patent reform.

Yet it looks as if chances are good that Congress won’t deal with the problem soon. Senate action, which already has been delayed multiple times, now appears to be on indefinite hold.

The main effect of the patent troll activities, as Watkins points out, is to stifle innovation. In our highly competitive world, this is anything but helpful. The tens of billions of dollars that patent trolls are taking out of the pockets of U.S. companies each year is pure waste. Congress needs to fix this problem.

Harold L. Sirkin is a Chicago-based senior partner of The Boston Consulting Group (BCG), a professor at Northwestern University’s Kellogg School of Management, and co-author, most recently, of The U.S. Manufacturing Renaissance: How Shifting Global Economics Are Creating an American Comeback (Knowledge@Wharton, November 2012).

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