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It may sound like something out of Grimm’s fairy tales but patent trolls are not imaginary but real and formidable. In the world of intellectual property, a patent troll is properly called non-practicing entity (NPE) — a patent owner who does not manufacture or use the patented invention but seeks to make their fortune in patent infringement litigation. The problem of patent trolls has reached the point where the Obama administration will be taking executive actions to curb the practice.

How deep does the troll problem run? Much like a vampire or zombie, seemingly close allies can turn troll in an instant and attack. If reports are to be believed, an attorney at one of Apple’s preferred law firms turned troll and had a lawsuit ready to go against Apple within six days of a new iPhone launch.

How serious in the troll problem in the world of litigation? One news outlet revealed some shocking statistics from a recent study concerning patent troll litigation:

  • There were 5,842 suits by NPEs in 2011, a huge jump from 1,401 in 2005. It's a growing, lucrative business.
  • These 5,842 lawsuits were against 2,150 unique companies.
  • Factoring in suits that didn't go to litigation, lawsuits by NPEs cost a whopping $29 billion.
  • Worst of all, it's the small and medium sized companies — the ones which don't have the resources to fight like the big companies — that take much of the hit. The median company sues in 2011 had only $11 million in revenues.
  • According to the report, patent trolls have the effect of a massive drain on the entire marketplace: Publicly-traded NPEs cost small and medium-sized firms more money than these NPEs could possibly transfer to inventors. This reduces the net amount that firms of any size have available to invest in innovation.
  • According to the authors, "the annual wealth lost from NPE lawsuits was about $80 billion for publicly traded U.S. firms."
  • Mean settlement costs were $1.33 million for small and medium companies and $7.27 million for large companies.
  • Mean litigation costs were $1.75 million for small and medium companies and $8.8 million for large companies.
  • Five percent of the lawsuits for large companies cost more than $22 million.
  • Small and medium sized firms — companies with less than $1 billion in revenues — made up 90% of the defendant firms.
  • Given that they mounted only 59% of the defenses, small- and medium- sized firms were more likely to avoid litigation and settle out of court than fight the trolls.

A full study on the costs of patent troll litigation can be found here.

What can we learn from patent trolls? The moral of this fairy tale is that there will always be monsters hiding in the forests of the law who seek to plunder all who enter. Fighting them, in their various guises, is a perpetual task for government and the legal profession. After all, if we lived in the world of happily-ever-after there would be no laws and no lawyers.

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