Analyzing the Role of Non-Practicing Entities in the Patent System

Abstract

Currently, there is an important debate about the role of non-practicing entities in patent litigation. People are asking: what are the costs and benefits associated with NPE litigation? Are they too high, too low, or just right? This paper makes two contributions to the discussion. First, we review a recent study, Direct Costs of NPE Disputes, by James Bessen and Michael J. Meurer. The study presents new data on the litigation costs and settlement expenses incurred by a subset of defendants in NPE cases. Some of their findings are provocative, but we find their methodology to be deficient in several respects, which limits the usefulness of the data and thus the implications that can be drawn from them. We also offer suggestions for future research on NPEs, including data collection and analysis. Second, we argue that the study asks the wrong question. The debate should be reframed to focus on the merits of the lawsuits, including patent system changes focusing on reducing transaction costs (e.g., lawyers’ fees) in patent litigation, instead of focusing solely on whether the patent holder is a non-practicing entity.