The Direct Costs from NPE Disputes
54 Pages Posted: 25 Jun 2012 Last revised: 27 Mar 2015
Date Written: June 28, 2012
In the past, “non-practicing entities” (NPEs), popularly known as “patent trolls,” have helped small inventors profit from their inventions. Is this true today or, given the unprecedented levels of NPE litigation, do NPEs reduce innovation incentives? Using a survey of defendants and a database of litigation, this paper estimates the direct costs to defendants arising from NPE patent assertions. We estimate that firms accrued $29 billion of direct costs in 2011. Although large firms accrued over half of direct costs, most of the defendants were small or medium-sized firms. Moreover, an examination of publicly listed NPEs indicates that little of the direct costs represents a transfer to small inventors. This updated version of the paper includes a reply to critics.
Keywords: patent, litigation, litigation cost, non-practicing entities, software patents
JEL Classification: O31, O34, K41
Suggested Citation: Suggested Citation