New York, New York (August 18, 2014)The explosion of patent litigation is stifling technological innovation according to Independent Institute Research Fellow William J. Watkins, Jr., who examines an outmoded patent system that is ill-suited for the modern economy in his new book, Patent Trolls: Predatory Litigation and the Smothering of Innovation.
Chief Judge, U.S. Court of Appeals for the Ninth Circuit, Alex Kozinski says of the book:In Patent Trolls, William Watkins provides a thorough, yet surprisingly concise and readable, description of one of the most serious problems facing technological innovators: patent litigation and patent trolls. Thoroughly researched and documented, this book should be read by all who are concerned about the decline in Americas competitiveness in the world market.
Patent trolls are stifling innovation. Using overbroad patents often based on dated technology, trolls threaten litigation and bring infringement suits against inventors. Trolls, also known as Non-Practicing Entities (NPEs), typically do not produce products or services, but are in the business of litigation. They lie in wait for someone to create a process or product that has some relationship to the patent held by the troll, and then they pounce with threats and lawsuits. The cost to the economy is staggering.
Watkins calls attention to this problem and the challenges it poses to maintaining a robust rate of technological progress. He also examines a more fundamental problem: an outmoded patent system that is fundamentally ill-suited for the modern economy. Finally, he examines proposals for reforming the patent system.
- Patent trollsa.k.a. non-practicing entities that make money by buying, licensing, and enforcing patents rather than by selling productsare exploiting the U.S. patent system and stifling the innovation it was created to encourage. After trolls acquire a patent right, they often lie in wait while the industry is developing, before they identify targets and threaten legal action. From 2007 through October 2010, patent lawsuits reduced the capitalization of targeted firms by an estimated $83 billion per yearan amount equal to more than one-quarter of U.S. industrial R&D spending per annum. One study estimated, that from 1990 through October 2010, these lawsuits destroyed wealth valued at more than $500 billion.
- Patent trolls are targeting companies at the forefront of technological innovation. As of August 2013, the most pursued companies were Apple, Hewlett Packard, Samsung, AT&T, Dell, Sony, HTC, Verizon, LG, Google, Amazon, and Microsoft. The litigation is expensive, with multimillion-dollar damages not uncommon. In 2012, a Texas jury awarded VirnetX, a non-practicing entity, more than $368 million in damages payable by Cisco Systems. For many companies, patent lawsuits are a costly nuisance that diverts resources and managerial attention away from development, production, and marketing.
- For small companies with little means to defend themselves, a patent lawsuit is not simply a costly nuisance; its an existential threat. In the late 1990s, Brandon Shalton and a group of nuns developed technology that allowed clergymen to record messages that could be quickly digitized and posted on the Internet. Just before they were to launch their product, however, they learned that a patent troll held rights to a similar technology. Rather than risk a lawsuit that could have bankrupted them before the case was even decided, Shalton and his nuns closed up shop.
- The Eastern District of Texas, the mecca of patent litigation, is part of the problem. This jurisdiction has become the preferred venue for filing patent lawsuits. The local rules are plaintiff friendly, the rocket docket keeps defendants on their heels, and an undereducated jury pool doles out Texas-sized damages awards. Patent plaintiffs who bring suit in the Eastern District enjoy a 78 percent win rate, compared to a national average of 59 percent. Supreme Court Justice Antonin Scalia has rightly called the Eastern District a renegade jurisdiction.
As is detailed above, William Watkins chronicles this serious problem and provides a compelling case for reform by examining the patent system. His groundbreaking proposals set the stage for restoring intellectual property and igniting business innovation in the future.
The predatory practice of firms that bring lawsuits against inventors is creating mayhem in innovation from major technology players to entrepreneurial start-ups. They threaten innovation as entrepreneurs often find the cost of fighting these trolls to be too high, says William Watkins.
According to Watkins, reform is needed, both in Congress and in the U.S. Patent and Trademark Offices, to deter trolls and open the path to entrepreneurial innovation. Both large and small companies have fallen victim to patent trolls, resulting in higher research and development costs, which are then passed on to consumers.
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The Independent Institute is a non-profit, non-partisan, scholarly research and educational organization that sponsors in-depth studies of critical social and economic issues. For more information, visit independent.org
William J. Watkins, Jr. is a Research Fellow at the Independent Institute and attorney who has litigated fraud and legal malpractice cases. Frivolous lawsuits, filed by patent trolls, result in billions of dollars in costs to taxpayers in court costs, attorney fees, and lost productivity.
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