Patent News

Jul. 24, 2014

Patent Truth Blog: Patent Troll Narrative Feeds On Sloppy Reporting, by Joseph Schuman

This post originally appeared in Patent Truth blog on July 24, 2014.

A dangerous bias against patents increasingly pervades the conventional wisdom.

Case in point, the following Washington Post headline: “Patent trolls now account for 67 percent of all new patent lawsuits.”

This assertion fronted one of a dozen or so news stories out last week that ostensibly reported the findings of PricewaterhouseCoopers’ periodic snapshot of patent litigation. And like nearly all the related news coverage, this story focused on the toll purportedly inflicted by abusive “troll” lawsuits.

There are some significant inaccuracies in the Post headline. But before detailing them, we want to make clear that the overall impression of the statement and the public narrative in which the statement fits are what really concern us. (Please see this post on the unfortunate susceptibility among journalists to accept all academic studies as if they were peer-reviewed analyses of rigorously sifted empirical data.) As you’ll see below, news media, some policy makers and many other observers of the patent-policy debate now seem to approach the topic with an assumption that all patent lawsuits are detrimental unless proven otherwise.

“Patent Troll”

So, let’s start with that hopelessly ubiquitous moniker, “patent troll.” PricewaterhouseCoopers (PwC) doesn’t use that phrase, but rather the more polite label “nonpracticing entity.” “A nonpracticing entity (NPE) is defined as an entity that does not have the capability to design, manufacture or distribute products with features protected by a patent,” PwC says. As the PwC report makes quite clear, this includes small inventors who license their inventions because they don’t have the infrastructure to manufacture, distribute and market them. And it includes universities and nonprofits that spend years and millions or billions of dollars to create, for example, new technologies or lifesaving medicines that the universities then license to manufactures so they can use the licensing revenue to pay for new research.

“67 percent”

The PwC study didn’t actually produce this number. It offers no data, no investigations, not even anecdotal reports that support the notion that “67 percent of all new patent lawsuits” come from NPEs. Instead, the PwC introduction mentions in passing that a recent non-PwC 2013 analysis of new patent infringement cases makes this assertion. And in the PwC report, less than an inch from mention of the “67 percent,” is a footnote attributing the number to the RPX Corporation. RPX, as Patent Truth readers may remember, is a company whose business model is based on its credo: “Patents Have Become a Significant Operation Risk for Companies.” In exchange for a subscription, RPX offers its clients protection from “dangerous patents and patent rights.” It is in RPX’s interest to fan fears of patent litigation, and readers should note that RPX does not make public the data it uses to compile the analyses of patent litigation it regularly releases. What’s most puzzling about RPX’s “67 percent finding” is how reporters choosing to write about the PwC report somehow misattributed the number to PwC.

Artistic License

Lastly, the Washington Post used a graph from the PwC study that aims to compare growth over time in patent lawsuits and patents granted by imposing two line graphs over each other. But the two data sets use two different scales, painting a misleading picture that suggests the litigation trend is soaring.

A more careful analysis requires putting the two trends on a common scale and comparing them. We did exactly that, by comparing patents granted by the U.S. Patent and Trademark Office and the patent lawsuits filed in U.S. District Court during the same periods of time. The graph below shows the patent lawsuits filed as a percentage of the patents granted in a given year.

Now, back to the PwC report, which was compiled by PwC’s forensic services practice.

The PwC report acknowledges that the patent-lawsuit totals are skewed for comparison’s sake by how the 2011 American Invents Act changed the rules for patent litigation. (Patent owners who previously could include multiple alleged infringers in one lawsuit must now file a different suit for each alleged infringer.) But then PwC went ahead and used the inflated numbers anyway in reporting that the number of patent cases filed in U.S. District Court from 2009 through 2013 clocked in at a compound annual growth rate of 24 percent.

Separately, and without historical comparison, PwC says in the report’s introduction that 20 percent of patent court decisions in 2013 involved an NPE. In the next breath, PwC adds that these kinds of statistics “instigated multiple political responses,” including media discussions, comments from the White House, legislative proposals and a study of NPE activity by the Federal Trade Commission. Otherwise, in the report, PwC doesn’t elaborate on this 20 percent figure, what it means, whether it signifies growing or diminishing NPE activity.

It does, however, provide some insight into the nature of NPE patent litigation: which types of NPEs perform better in court. According to PwC, from 1995 through 2013, universities and nonprofits seeking to protect their intellectual property succeeded 45 percent of the time. NPEs identified as companies succeeded 31 percent of the time. And NPEs identified as individual/inventors had an 18 percent success rate.

It would be interesting to see PwC’s data and check the breakdown among these three categories of NPE, but PwC doesn’t share that data. Still, even the three percentages listed above show how ridiculous the “troll” narrative is. The most successful NPEs are universities/nonprofits.

Reading this part of the PwC report reminded Patent Truth of something Lita Nelsen, executive director of the Massachusetts Institute of Technology’s Tech Transfer Office, said last year when asked about why universities need, and must enforce, their patents.

“We’re attacking problems that haven’t been solved before; pathways for medicines for diseases that have no cures; completely new ways of gathering energy; very, very early — fortunately funded mostly by the federal government because it’s not a profitable stage. But translating the results of that science, that early stage engineering, into products for the public is a big risk,” Nelson said. “To go from the point where our professor publishes the paper to the product is going to take years, five, ten, and it’s going to take millions. … And the idea is that the start-up company will come in, will bring our — forgive me — but less than half-baked idea to the point where it’s sufficiently developed for potential partnership or acquisition with the larger manufacturers. Without a patent, that next stage won’t happen. And there’s the virtuous cycle that could be destroyed by a patent system that’s not affordable, not defendable, and not even legitimately defendable against large companies because it’s too expensive for a small company to get into the fight.”

A troll, in her own words. Anyone out there listening?