Private Costs of Patent Litigation, The

Intellectual Property and Patents

Article Snapshot

Author(s)

James Bessen and Michael Meurer

Source

Law and Economics Working Paper No. 07-08, Boston University School of Law

Summary

This paper tries to estimate the costs of patent litigation.

Policy Relevance

This paper shows that patent litigation costs make patents less benecial to firms than they once were. This supports proposals for patent reform that address the problem at the level of the courts.

Main Points

  • This paper uses stock market events between 1984 and 1999 to estimate the cost of patent litigation.

 

  • The mean cost to infringers of a patent lawsuit is $28.7 million ($92); the median cost is $2.9 million. Infringement risk rose sharply during the late 1990s to over 14% of R&D spending.

 

  • Small firms have lower risk of litigation relative to R&D, perhaps because legal costs are higher and create a floor for litigation costs.

 

  • Some limited evidence shows that R&D intense firms suffer more negative returns from litigation. Some evidence shows returns worsened between the 1980s and the 1990s.

 

  • Patents may reduce profits of public firms and discourage innovation; this suggests the need for patent reform.

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