The Washington Post, August 20, 2014.
Right up until this summer, the tech industry seemed poised for a win against patent trolls, the companies that go around accusing other companies of patent infringement in hopes that the defendants will settle for money rather than go to court.
In rare cases, defendants will fight back. It’s a crowd of strange bedfellows, including the likes of Martha Stewart, the online retailer Newegg, and the TV personality and podcaster Adam Carrolla. In this last case, Carrolla was being sued by a company known as Personal Audio, which claimed that Carrolla was infringing on podcast-related patents.
Podcasting has become a large and vibrant industry, and public interest groups have petitioned to have Personal Audio’s patent invalidated. When Carrolla himself resisted, showing in the discovery phase of the lawsuit that he didn’t make all that much from podcasting, Personal Audio reversed course and offered to drop the suit. Now the two have reportedly reached a settlement. The terms aren’t being disclosed, and neither side is talking about it until the end of September. But the fact that Personal Audio gave up the chase only when it became unprofitable just underscores how many NPEs are in it as a rent-seeking exercise. And what an exercise it is: A recent study by PricewaterhouseCoopers found that 67 percent of all new patent lawsuits now are brought by patent trolls.
That’s also consistent with new data from the National Bureau of Economic Research confirming that patent trolls overwhelmingly target companies that are either “flush with cash,” beset by other lawsuits or have tiny legal teams that trolls likely perceive as weak.
Using data compiled from court records dating back to 1977, researchers at Harvard University and the University of Texas studied lawsuits from over 4,000 NPEs. The full dataset amounts to nearly 12,000 cases, but the researchers concentrated on the roughly 3,600 in more recent years that affected publicly traded companies.
“They target firms opportunistically,” the researchers wrote. “Not on the merits of the case but rather on the ease of extracting rents.”
The researchers even looked at what happened to companies’ R&D after they resolved their patent litigation. Companies that lost to trolls in court or settled were grouped into one category, while defendants that managed to have their cases dismissed were put into another. What they found is that those in the second group spent way more on R&D than those who were forced to pay out, suggesting that patent trolling does indeed affect the pace of technological and economic progress at some companies:
Specifically, in the years following litigation, firms against whom cases are dismissed spent on average $211 million more on R&D expenditures than firms that lost to NPEs. These firms also spent on average $49 million more to acquire more in process R&D from outside. Furthermore, in the years following litigation, firms against whom cases are dismissed produced 63.52 more new patents, and these new patents received 723.98 more citations, relative to the group of firms that suffered the cost of NPE litigation. These large differences in R&D expenditure, patent production and in the quality of produced patents do not appear until after NPE litigation.
Adam Carrolla probably doesn’t do any R&D. But it’ll be interesting to see whether he does anything differently as a result of his settlement.