In 2012, 56% of all intellectual property lawsuits were filed by patent trolls, a marked rise from 24% in 2007. Leading the research and analysis of such cases is Lex Machina, an IP litigation data and analytics company which has its roots in the Stanford University Law School.
Patent trolls, or patent assertion entities (PAEs), acquire patents for other peoples’ inventions as a way to profit from them. Their business model is driven by the acquisition of as many patents as possible for various technologies and innovations (which are not their own) to threaten companies with litigation as a way to extort settlements.
Unfortunately, Lex Machina’s recent findings confirm what many companies already know: patent trolls are winning in the trend to use patents as legal weapons. Although over half of all patent lawsuits are driven by patent trolls, a more frightening reality is that many trolls are making a lucrative business through settlements, licensing fees, and threatening letters well before a court case is actually heard.
In an excerpt from Lex Machina’s research, this trend in pre-court payouts is explained in detail: "Cases filed by monetizers [i.e. trolls] rarely proceed to trial, usually settling early in the case. 75 percent of terminated cases filed by monetizers ended in a settlement, as did 72 percent of terminated cases filed by operating companies.”
Further analysis reveals other startling statistics. Fewer than 1% of troll-driven court cases were actually decided during or after a trial and fewer than 2% were decided on summary judgment. Out of the small number of cases decided in summary judgment, not one troll prevailed. With such negative odds for trolls who go to trial, it begs the question why so many companies settle well before their cases are heard.
According to the American Intellectual Property Law Association, the average cost of defending a patent for any value below $1million is $650,000. Furthermore, as of 2008, the average judgment for a patent case had risen to $17.8million. With such excessive costs to enter into a legal battle with a troll and the sky-high financial risks if a case is lost, it is no wonder a majority of companies pay out settlements rather than put up a fight.
As a result, patent trolls are making a successful living whilst driving up costs for everyone else. It is reported by Google’s senior competition counsel, Matthew Bye, that patent trolls are responsible for costing the US Economy $30billion per year. These costs trickle down to the consumer in the form of higher prices, thus hurting the economy even more. In addition, this litigious behaviour has ultimately transformed the innovative spirit of patents into one that is driven by litigation and greed.