[cross-posted at Prawfsblawg]
My study of non-practicing patent plaintiffs was sparked by a discussion with a colleague about where patent trolls come from. My theory was that patent trolls tended to enforce patents that startups obtained, but that lay fallow when the startups lost funding. Unfortunately, I had no data to back up my intuition, nor did anyone else. So, I thought I would gather that data.
Thus began two years of data gathering. I started with the top 10 most litigious NPE’s (since 2003), as reported by Patent Freedom. With some help from Patent Freedom, I then found every case I could involving these NPEs (1011 in total) and then found every patent asserted in those cases (400 total). I then drilled down, recording information not only the patents, but who obtained them. Finally, I gathered information about the organizations that obtained patents (121 total) .
Below is a summary of some interesting things I found. There’s a lot more in the draft, of course.
First, contrary to popular belief, not all NPE patents are business methods patents. Indeed, only 32 of the 400 patents (8%) included class 705 (the patent class most associated with business methods). Another 88 patents are in patent classes usually associated with software, for a total of 31% for both business method and other software patent classes. This probably overstates the number, because patents may be assigned to more than one class.
Of course, there may be others that are not classified as software, but certainly not the other 69%. Classifcations included telephonic communications, television, video distribution, and computer hardware. Many of the patents, unsurprisingly, related to communications — a field of growing importance.
Second, the study finds that NPE patents do not overwhelmingly come from non-productive companies. Of the 400 patents, 286 were initially assigned to a company; there were a total of 121 unique companies listed as initial assignees on these 286 patents. More than 75% were assigned to corporations while the remainder were assigned to LLCâ€™s and limited partnerships. Another five patents were initially assigned to three other entities: the U.S. government, a hospital, and a university.
Finally, the article makes some general observations about patent quality – namely that patents asserted by NPEs look a lot like patents asserted by productive companies according to objective measures. The next phase will look at the litigation outcomes to determine the patent quality of the studied patents. I hope to learn much more about quality over time and by technology category, among other things.
In the meantime, I look forward to any comments readers have about the study or its conclusions. I was surprised about how wrong my own intuition was, which is why I focus on the myths about patent trolls. Just about everything we thought we knew – good or bad – does not appear to be true. The article may not change too many minds about patent trolls. Those who believe NPEs are bad for society won’t care much about where they came from. However, I think that NPEs are a reflection of inventive society — their patents come from all sorts of sources, and how we feel about NPEs should depend on how we feel about the people who invested in the research that create the patents and the role patent law played in innovation.
Do you have any baselines to compare the data to,(e.g. how many active patents are business method patents)? Only reason I ask is because it seems like there is a much bigger issue if .01% of all patents are BMs, versus current BMs patents accounting for somewhere near 8% of those issued.
Also, why did you use patent issuance as the start of your timeline instead of first sale(or another time that is dependent on the infringers actions) of the issuing product? And does the date change much dependent on whether it’s an NPE v. small entity v. Corporation?
Good questions. Answers:
1. There are studies on business methods patents, and the percentage representation is much higher than the population at large. I think they are also larger (though not as much) for the population of litigated patents. I was looking more at the conventional wisdom that this is all that trolls enforce. I can look for and put some comparative info in.
2. Getting first sale data is just way too difficult to get. I do look at time from issuance to assignment of the patent, and that’s also long. I can look at timing by type of entity – that’s a good question. My gut tells me there is no difference based on my recollection of the data, but that can easily be tested.
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A secondary market for patents (research) is just beginning so you would be unlikely to see any significant liquidity being provided at this stage of the market. VCs have generally been very slow to see that there might be value in the patents from unsuccessful companies.
In the 1800s there was a thriving secondary market for inventions. In fact, Scientific American was created to promote the idea that an independent inventor could get rich licensing their inventions. What changed? Idiotic antitrust rules destroyed the secondary market for inventions, by first attacking various licensing arrangements, such as patent pools, and then by attacking patents directly.
It is a straight forward application of Adam Smithâ€™s division of labor that having a group of people focus exclusively on inventing is good for the economy. However, many corporations would rather steal other peopleâ€™s inventions than pay the inventor for their product.