The Patent Enforcement Iceberg

Abstract

How often do companies and individuals assert patents outside of litigation? No one knows for sure. The problem is that licensing negotiations and license deals that don’t result in litigation are almost invariably kept secret. The result is that patent litigation is like the proverbial tip of the iceberg – the observable piece sticking out of the water, but probably not all or even most of what there is. Various people have speculated that unlitigated (and therefore unobserved) assertions are a majority and probably as much as 90% of all patent enforcement. We wanted to know how often companies were approached to take patent licenses without a lawsuit being filed. So we asked them. Using a simple survey, we got data from dozens of companies about how often they were sued, how often they were approached to take a license without being sued, and the characteristics of those licensing proposals. The result is the first real look at what goes on beneath the surface of patent enforcement. We found that while patent litigation does not reflect everything that is going on, there was less unlitigated – and therefore unseen – patent enforcement than some of us had thought. Roughly one-third of all patent licensing efforts among our survey respondents end in litigation, significantly less than the 10% some had predicted. And, for the majority of respondents, about one half of the demands end in litigation. Our results allow us to get a handle on the actual size of the patent enforcement business and to try to estimate the total cost of responding to enforcement efforts. We offer some ballpark estimates of the cost of responding to patent assertions in Part III. Our survey respondents are a significant segment of the economy, but they are far from all of it. And they differ in certain ways from companies as a whole. We hope to be able to expand the universe of respondents in a later round of surveys. In Part I we explain what we did. In Part II we explain what we found. And in Part III we consider some implications for business and public policy if we extrapolate our limited results to the broader economy. Under plausible assumptions, responding to patent assertions costs defendants between $80 and $100 billion per year.