Our interest was piqued by the sheer unbelievability of the quoted cost, and in addition to questioning the plausibility of the conclusion we raised three main criticisms of the assumptions and methodology in the Besson and Meurer study:
- there is ‘selection bias’ in the sources of the data used in the study;
- the study makes no meaningful distinction between different types of non-practicing entity (NPE), and thus fails to distinguish between deadweight costs (which are genuine burden on the economy) and transfer costs (which are not); and
- the statistical methods and assumptions employed in the study are decidedly opaque, and fail to place any estimate of confidence on the $29 billion figure.
Schwartz and Kesan of course do a more comprehensive job of analysing the assumptions and methodology of Besson and Meurer. However, they not only arrive at our three criticisms, they also provide a far more comprehensive critique of the claim by Besson and Meurer that their non-random sample is representative of the much larger number of patent disputes which fall outside the limited survey results on which their study is based. In particular, Schwartz and Kesan base their comparison on the assumption that ‘most lawsuits are not settled by an initial summary judgment but are settled before trial,’ whereas earlier work by Kesan indicates that this is a pessimistic assumption, and that most cases settle much earlier and more cheaply.
Overall, Schwartz and Kesan’s main conclusion are that:
- Besson and Meurer’s figures are based on a biased sample, and that the $29 billion calculation of the direct cost of NPE patent assertions should be viewed as the highest possible limit, with the true number very likely to be substantially lower;
- there is a lack of basis in Besson and Meurer’s work for comparison of figures, with the vast majority of the $29 billion figure consisting of settlement, licensing, and judgment amounts, which for economists are not ‘costs’, but rather ‘transfers’;
- the definition of NPE is questionable, with Bessen and Meurer’s calculations resting upon a questionable and very broad definition of NPE; and
- Besson and Meurer’s paper lacks credible information on the benefits of NPEs.
They further conclude that:
With respect to the debate about NPEs, we believe that focusing on costs and transfers from NPEs are somewhat beside the point. The bigger picture is whether the lawsuits are being brought because the defendants are infringers of a valid patent, or whether the defendants are merely easy targets for a nuisance lawsuit. That requires looking beyond the identity of the patentee. It means we need to evaluate the patents being asserted to see if there are credible patent claims that are valid, enforceable, and infringed.
The paper is only 12 pages long, and a relatively easy read. We commend it to anybody interested in the ongoing debate about non-practicing entities, patent aggregators, patent assertion entities, and trolls.