Study By MIT Professor Maps How Patent Trolls Reduce Venture Capital Investment, Provides Empirical Support For Strong Litigation Reforms

BY Heather Greenfield
June 12, 2014

Washington – Each side in the legislative fight over patent reform has always treated equally the debate between protecting patented intellectual property and reining in abusive patent troll litigation. But a study by MIT Professor Catherine Tucker has actually quantified the tipping point at which the patent system falls out of balance in favor of abusive patent litigation. It also quantifies the harm to capital investment and, by extension, jobs, R&D and our economy.

The Computer & Communications Industry Association commissioned the study by Professor Tucker. CCIA represents companies that develop, own, license and rely on patents, but are also among those increasingly targeted by patent trolls.

“For the first time, we have an economic model proving patent reform is not a zero sum game between protecting intellectual property and reducing abusive patent litigation,” said CCIA patent counsel Matt Levy. “Professor Tucker’s research reveals the harms of skewing the patent system too far in favor of protecting low-quality patents.”

Upon release of her paper today, Professor Tucker said: “Some protection of intellectual property can lead to more innovation. However, more patent litigation does not imply more innovation. In fact, it implies less innovation. My analysis showed that litigation by patent trolls did not foster entrepreneurial investment at all. It is instead associated with significantly reduced venture capital investment in entrepreneurship, preventing startups from developing and suppressing job growth.”

In order to conduct this research, Professor Tucker examined the impact of different patenting standards on litigation, as well as the impact of patent litigation on venture capital investment, small business creation and research and development in the United States.

Among the economic impacts discovered in Professor Tucker’s research is that “frequent patent litigators” (a proxy measure for Patent Assertion Entities) led to a loss of at least $8.1 billion in venture capital that would have been otherwise invested in American business enterprises over the course of five years. The direct costs of legal fees and settlements for this type of litigation were between approximately $3.77 and $18.9 billion in 2012.

To correct these imbalances and reduce the economic harms caused by reduced investment and job creation, the paper suggests changes to the patent litigation system that would shift fees to a ‘loser pays’ system in certain, egregious cases and for a review of the patent approval system to ensure that higher quality patents are granted.

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