Who deserves more money from a jury: a company that uses its patents to sue a competitor using its technology? Or a band of lawyers and investors that sues whole industries through shell companies?
The answer is the latter group — who are better known as patent trolls. In the latest depressing indictment of the U.S. patent system, this chart shows how, from 2010-2013, so-called “non-practicing entities” (trolls) cashed out at three times the rate of real companies:
The chart shows how the median damage awards for trolls was $8.5 million, which is just one of many sobering statistics published by the law firm Goodwin Procter as part of a manual that provides tips for fighting patent trolls.
Michael Strapp, a partner at Goodwin and one of the guide’s authors, explained by phone that the disproportionate damage awards for trolls is the result of several factors.
These include the economic model of patent trolling, which in many cases entails the troll building up a legal war chest by squeezing settlements from dozens of smaller companies, and then suing a big fish. Such big fish, like Google or Apple, are more capable than small firms of absorbing a loss — which, in turn, can lead to higher than usual damage awards.
Another factor for the high figure, Strapp said, relates to another dysfunctional feature of America’s patent system: the trolls’ ability to choose a handful of notorious venues. Unlike ordinary patent plaintiffs, which sue evenly across the company, the trolls flock to East Texas and Delaware:
Despite higher court rulings intending to limit the jurisdiction of East Texas and Delaware, trolls are suing in these places at higher than ever rates — in no small part because the local judges, perhaps recognizing that the troll lawsuits help the local economy, are reluctant to grant venue changes.
These stats are a sobering reminder that, even as patent reform advocates have won some key battles at the Supreme Court, the trolls are still winning the war.
As Strapp noted, the court’s “Alice” ruling this summer on software patents means that more such patents are vulnerable to invalidity challenges — but that this nonetheless requires a defendant to spend large amounts of money to bring the case to trial. According to Strapp, only about 5 percent of patent lawsuits even get this far, as defendants recognize it is more efficient to settle instead.
As such, the basic business model of trolls like Intellectual Ventures is still intact.
All of this suggests that a renewed push for patent reform, such as that touted by Sen. John Cornyn (R-Tx), will be necessary to fix a system that, despite recent patches, remains fundamentally broken.