Moreover, these costs fall disproportionately on innovative firms: the more R&D a firm performs, the more likely it is to be sued for patent infringement, all else equal. And, although this fact alone does not prove that this litigation reduces firms’ innovation, other evidence suggests that this is exactly what happens. A researcher at MIT found, for example, that medical imaging businesses sued by a patent troll reduced revenues and innovations relative to comparable companies that were not sued. But the biggest impact is on small startup firms — contrary to Haber and Levine, most patent trolls target firms selling less than $100 million a year. One survey of software startups found that 41% reported “significant operational impacts” from patent troll lawsuits, causing them to exit business lines or change strategy. Another survey of venture capitalists found that 74% had companies that experienced “significant impacts” from patent demands.
Three recent econometric studies confirm these negative effects. Catherine Tucker of MIT analyzed venture capital investing relative to patent lawsuits in different industries and different regions of the country. Controlling for the influence of other factors, she estimates that lawsuits from frequent litigators (largely patent trolls) were responsible for a decline of $22 billion in venture investing over a five-year period. That represents a 14% decline.
Harvard Business Review
November 2014
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