On average firms reduced R&D speeding by $211 million after losing a lawsuit to a troll, says the report.
“Our evidence suggests that it really is the NPE (Non-Practising Entity – meaning troll) litigation event that causes this decrease in innovation,” say the report’s authors. “after losing to NPEs, firms significantly reduce R&D spending — both projects inside the firm and acquiring innovative R&D outside the firm.”
Trolls affect innovation merely by being who they are because fear of them encourages companies to spend more on lawyers than they otherwise would, so reducing cash available for R&D.
Naturally, trolls sue the companies with the most cash but a further downside to trolls is they sue companies which have gained their cash from other activities than the activity which is the subject of the alleged patent infringement.
This practice discourages companies from pursuing innovation in non-core activities.
“NPEs target conglomerate firms that earn all of their cash from segments having nothing to do with the allegedly infringing patents,” the authors write, “for example, an NPE is likely to sue a firm regarding a technology patent even if the firm is earning all its revenue from a lumber division entirely unrelated to the allegedly infringing technology patent — even if the division holding the patent is unprofitable.”
Trolls often sue before a product has been developed and sold which further deters companies from investing in technology.
The study concludes that the rising tide of low quality patents and their unscrupulous exploitation has made the patent system a deterrence to innovation rather than, as it was meant to be, an encouragement.