Style: 2D Cartoon Animation
Length: 3 mins 49 seconds
Client: Harvard Business School
In recent years, there has been a sharp rise in patent litigation, driven by non-practicing entities—NPEs—firms that amass patents just for the sake of pursuing license fees and litigation (rather than producing commercial products).Is this good or bad for innovation?
Proponents of NPEs point out that NPEs can help protect small inventors’ intellectual property against infringement by well-funded firms; opponents argue that NPEs exploit imperfections in the legal system to pursue opportunistic litigation.
To bring data to the debate, we assembled large-sample evidence on which corporations NPEs target in litigation, when NPE litigation occurs, and how NPE litigation impacts targeted firms’ innovative activity.
Our analysis shows that NPEs appear to behave opportunistically, on average:NPEs “forum shop,” bringing a disproportionate share of their lawsuitsin plaintiff-friendly Eastern Texas. Moreover, NPEs specifically target firms that are flush with cash. It doesn’t really matter where the cash comes from—NPEs are equally likely to target profits from business segments having nothing to do with the alleged infringement.
You might think that cash-targeting is nothing special—in principle, every lawsuit should target a defendant that can pay up. But in fact, cash-targeting is unique to NPE patent litigation. Patent lawsuits by firms that produce products don’t specifically target cash—and neither do lawsuits over contractsor torts.
Because intellectual property infringement is assessed subjectively, and because intellectual property lawsuits put upfront costs on defendants rather than plaintiffs, there is special scope forNPEs to act as “trolls,” bringing opportunistic, purely profit-driven litigation.
NPE patent trolling isn’t just a legal anomaly—it has real consequences. Firms that lose to NPEs invest significantly less in research and development going forward. And this reduction in innovation does not appear to be counterbalanced by increases in invention elsewhere (say, by small inventors).
Since 2010, Congress has considered over a dozen bills seeking to reduce patent trolling. Most of the proposed policy changes focus on punishing trolling “after‐the‐fact,” for example by forcing plaintiffs to pay defendants’ legal fees after frivolous lawsuits. But due to the huge costs of patent litigation, targeted firmsoften find it necessary to settle with NPEs long before any fee-shifting might be possible.
We need tofight patent trolling upfront by adopting mechanisms that weed out low‐quality patent lawsuits early in the litigation process.
We propose a system of “advance screening,” in which patent litigation is preceded by a preliminary evaluation of whether the plaintiff’s infringement claims are reasonable, and of whether the asserted patents are of high quality. Pre-litigation review can separate good NPEs (and, more generally, good patent lawsuits) from bad—legitimate infringement claims will be encouraged, whereas trolling will be screened out.