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How Much Is a Patent Worth?

Should patent lawyers be worried about job security? Maybe so, if there's any truth to a recent study by two researchers who found that for most public companies, the profits from patents are overshadowed by the cost of securing patent rights and protecting them through ensuing litigation. The New York Times covered the study by James Bessen and Micheal Meurere in this article,
A Patent Is Worth Having, Right? Well, Maybe Not
.

From the article:

The two researchers have analyzed data from 1976 to 1999, the most recent year with complete data. They found that starting in the late 1990s, publicly traded companies saw patent litigation costs outstrip patent profits. Specifically, they estimate that about $8.4 billion in global profits came directly from patents held by publicly traded United States companies in 1997, rising to about $9.3 billion in 1999, with two-thirds of the profits going to chemical and pharmaceutical companies. Domestic litigation costs alone, meanwhile, soared to $16 billion in 1999 from $8 billion in 1997.  Things have probably become worse since then. For instance, patent litigation is up: there were 2,318 patent-related suits in 1999, and 2,830 in fiscal 2006 (though that’s down from the peak year, 2004, when 3,075 were filed). Mr. Bessen said awards in patent cases also seemed to be up, though he was less confident in that data. Worse, he says, companies doing the most research and development are sued the most.

Of course, the study is not without critics. John Duffy, quoted in the article, opined that
Mr. Bessen’s data is controversial. Duffy, a law professor at George Washington University, opined that the study undervalued the profits generated by patents, thus skewing the results. And Duffy added that patents also benefit society at large -- benefits that are not reflected in the analysis.

Wired GC isn't surprised at these results, pointing out that they explain why many firms have moved to expand their IP practices -- where you "bill to file, prosecute, get the patent, watch for infringers, send out cease & desists, and file again (only this time it’s a lawsuit). Then you wade into discovery unlike anything you’ve ever seen, and likely settle at some point." And while all this money is being spent, Wired GC asks "meanwhile, has the client done anything to actually monetize the patent?"

But others in the blogosphere are more critical of the study. For example, Chicago IP Litigation Blog wonders whether study results were skewed by a few companies with weak cases:

I suspect that much of the increased patent litigation costs come from companies that are bringing questionable cases based upon inflated damages theories or refusing to settle infringement cases against them despite the fact that the facts do not support their case.  One of the most important skills in patent litigation is self-reflection.  You have to be able to take a step back and review your case with a disinterested eye to truly determine your strengths and weaknesses.  An outside counsel who has the ability and the courage to do that for a company is an invaluable asset, who will likely save you far more than he or she will ever cost the company in legal fees.

Kevin Noonan views the study (and the NYT report) as a continuing assault on innovation at the New York Times. Noonan writes that the Times and the Bessen report reflect only one side of the story and, indeed,

is at odds with the results of a study by the European Commission reported in 2005 and directed to the very question of the economic value of patents in Europe (the study was entitled "Study on Evaluation the Knowledge Economy - What are Patents Actually Worth?").  The study was comprehensive, surveying 9,000 patent owners who had used the European Patent Office to obtain patents between 1993 and 1997.  The study showed that the median value (half the respondents reporting more and half less) of the patents produced was €300,000, and 10% of the respondent patent owners reported values of €10 million or more.

Noonan also rejects the NYT article's implication that "innovation is damaged by patenting." Noonan writes that patents provide incentive for investors that will not fund innovation without the security of a patent.

The NYT article and the study don't seem as negative about the value of patents but, rather, whether unnecessary legal costs and litigation are diminishing their value. My own takeaway from the article and the study isn't so much that the patent system needs re-examining, as it is the methods that lawyers have used to implement it.   

Posted by Carolyn Elefant on July 19, 2007 at 05:39 PM | Permalink | Comments (1)

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