Patent Trolls Drive Majority of All U.S. Patent Lawsuits

You rarely hear politicians talk about patent reform, but perhaps it's high time the topic merits some discussion. The alternative is to leave the system alone and let businesses pay the price, even if they can't afford it. According to researchers at Boston University School of Law, the cost for businesses paying royalties to patent owners has risen fourfold since 2005, and it's the so-called "patent trolls" that are running the system.

The study found that companies in 2011 paid a cumulative $29 billion in expenses associated with nearly 6,000 infringement claims filed by non-practicing patent owners using their IP portfolios solely to collect cash rather than build products. In 2005, there were 1,401 claims resulting in $6.6 billion in costs, Bloomberg reports.

Despite the high costs, it's not the richest companies that face the majority of lawsuits. In fact, 59 percent of the claims filed in 2011 were related to businesses making $1 billion or less in annual revenue. Larger companies still end paying more, but smaller firms have a tougher time absorbing the costs, which works out to an average of $1.75 million for a small or medium-sized company. That's just to cover the legal and settlement costs; it doesn't take into account delays in production or diverted resources.

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"I was surprised at the magnitude and how much of it is really hitting small companies," said James Bessen, a lecturer of law at Boston University. "It's having a bigger effect on innovation than we had thought."

Bessen's comments on innovation echo those of Amazon founder Jeff Bezos, who in October of this year called for a truce in the patent wars. According to Bezos, the patent system is killing innovation rather than protecting intellectual property like they're supposed to.

As currently constructed, the system has motivated companies to spend big bucks on patents, in many cases just to avoid lawsuits. A recent example is the $500+ million bid Apple and Google placed on Kodak patents, mainly to protect themselves from litigation. If that weren't an issue, that $500 million could have been spent on building and designing products.