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Some findings about the costs of patent troll litigation

A pair of professors at Boston University’s School of Law have calculated a price tag for the direct costs stemming from patent troll activity: about $29 billion. The $29 billion figure excludes a host of indirect costs to the defendants’ business, “such as diversion of resources, delays in new products, and loss of market share,” the study states.

James Bessen co-authored the study with Michael Meurer, “The Direct Costs from NPE Disputes.”. In 2011, companies defended 5,842 suits initiated by NPEs, up from 4,445 in 2010, and 1,401 in 2005.

The professors analyzed a database of NPE-related lawsuits developed by RPX Corporation, which specializes in patent risk solutions, as well as a survey of defendant companies about their costs.

Annual revenues for the median company being sued totaled just $10.8 million, and 82 percent of the defendants earned less than $100 million in revenue. “Small and medium-sized companies account for 37 percent of the accrued direct costs,” the authors write. “Moreover, compared to revenues, the direct costs of NPE-patent assertions are relatively larger for small companies.”

The authors determined that the average legal costs per defense “range from $420,000 for small/medium companies to $1.52 million for large companies.”  When companies paid to settle, the average settlement costs reached $1.33 million for small/ medium companies and $7.27 million for large companies.  “Legal costs are about a third as large as settlement costs, or about one quarter of total litigation costs,” the authors write (See my post of Jan. 20, 2009: settlement costs in relation to costs of outside counsel.).