'Patent Troll' Study Weighs Positive, Negative Impacts

As Congress sits poised to tackle the problem of so-called “patent trolls” with at least six pending bills (see here, here, and here), patent assertion firms and their defenders have been arguing that these entities actually help small companies and inventors. The patent firms claim they make it easier for a failed startup to license its technology or, if necessary, sue those that steal their intellectual property.

But Santa Clara University law professor Colleen Chien, who has conducted detailed studies of patent assertion entities (also called non-practicing entities, or NPEs), recently published “Patent Assertion and Startup Innovation” [PDF], a new study from the New America Foundation showing that the negative impact NPEs have on innovation still outweighs the positive.

“Though partnering with NPEs to monetize patents can be beneficial to companies as well, the benefits do not appear to offset the harms, according to survey responses and VC interviewees whose companies had been sold to and been sued by NPEs,” she wrote.

Chien surveyed startups, venture capitalists that back startups, and patent lawyers—about 1,100 people in all, she said. After asking them about their experiences with patent monetizing firms, Chien reported four general conclusions in the study:

1. Patent assertion entities have a major impact on startups: “Based on survey responses, 75% of surveyed venture capitalists (VCs) and 20% of venture-backed startups with patent experience have been impacted by an NPE demand; nearly 90% of all tech VCs have been impacted.”
2. Patent assertion entities hurt more than a company’s bottom line: “Although NPE assertions are perceived as motivated primarily by money, respondents reported routinely experiencing non-financial consequences including delays in hiring, meeting milestones, and business line pivots and exits.”
3. A small percentage of respondents benefited from selling patents to NPEs: “An estimated 5% of startups have sold their patents to NPEs, experiencing positive benefits from doing so. However, most surveyed VCs, including the small number whose companies have sold to NPEs, believe that NPEs are harmful for innovation.”
4. NPEs are not the only part of the patent system harming startups: “Startup concerns with patent enforcement go beyond NPEs and extend to the disadvantages relative to larger incumbents that startups experience as a result of poor patent quality, high costs, and delays associated with the patent system. The inability of startups to defend their own patents, and suits brought by ‘patent predators,’ larger companies that sue with anti-competitive motives, also presented specific concerns.”