Beyond the bottom line: The true cost of patent trolls

The costs of patent trolling often aren't directly visible, but the benefits of fighting back are coming to light

If there's a bigger legal scourge in the tech world right now than patent trolling, it's hard to say what it might be. Even worse, the costs of patent trolls -- legal, social, and otherwise -- aren't always obvious to those who haven't been directly sued.

It's becoming clearer, though, that turning the other cheek doesn't work for patent trolls; it simply empowers them to continue with business as usual. The costs of fighting them in the short term may be high, but the benefits in the long term are even higher and are getting all the plainer with time.

What are the costs? Let's start with the most obvious one: cash.

Lost money

Being the victim of a patent troll is expensive in what turns out to be finely calibrated way. Patent trolls ask for widely varying amounts of money as "licensing fees," but one rule of thumb is that it's typically far less than the cost of going to court. Sometimes, though, for a particularly high-profile target, the trolls go all-out. According to comments to the Federal Trade Commission filed by book merchants Barnes & Noble in March 2013, that company has spent somewhere in the realm of nine figures -- tens of millions of dollars -- fighting various patent trolls in court.

But money's lost in ways aside from court costs or licensing fees. In a report entitled "The Private and Social Costs of Patent Trolls," by James Bessen, Jennifer Ford, and Michael J. Meurer of the Boston University School of law, the authors noted that public companies sued by patent trolls (as opposed to the costs of more conventional lawsuits) experience less of a loss in their stock price because of such a suit but experience larger mean losses overall because "the market capitalization of the [patent troll] defendants is that much larger."

The losses are also greater across the economy generally, the authors further argue, because such suits often involve multiple defendants at once, including mutual competitors. If two competitors sue each other, there's a transfer of wealth between them, and a likely increase of competition in the marketplace overall. If both are sued by a patent troll, it merely impoverishes everyone.

Worse, the legal costs of patent trolling fall disproportionately on the defendants since filing a lawsuit is relatively cheap (around $450). Some legislation is in the works to fix this -- for example, losers in a patent litigation suit would be expected to cough up court costs -- but such changes could take years to enact and take effect.

Lost opportunities

The prospect of being hassled by patent trolls doesn't thrill developers, who wonder if they're simply going to be rewarded for their work with a lawsuit they won't have the resources to fight. Some close shop entirely and never bring a product to market when faced with such suits. Many developers prefer to settle, which simply emboldens other trolls to step in and do the same.

This sort of chilling effect is more difficult to document, since it's hard to tabulate the costs of things not done, but a report by the New America Foundation described the hardships faced by startups when dealing with patent trolls. Slightly more than half of the companies being sued have less than $10 million in revenue, but nearly 90 percent of all startups with venture capital backing have been patent-trolled at one point.

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