If companies did not infringe NPE patents, the cost they incurred from NPE litigation would be much lower

Yesterday this blog took a look at the huge difference in the amount of costs incurred by operating companies in the US as the result of NPE litigation put forward by Boston University professors James Bessen and Michael Meurer on the one hand, and RPX on the other. The former estimated $29 billion in 2011, the latter $12.2 billion in 2014. Either there has been a massive reduction in three years, we said, or one of the parties has got it very badly wrong.

Today we’ll focus on the RPX findings. Although it is considerably less than $29 billion, the $12.2 billion sum the defensive aggregator says was incurred by operating companies last year as a result of NPE litigation is still pretty large; and, on the face of it, is something that deserves to be worried about. But when you look at where the costs actually come from, what you quickly realise is that a large part of them are down to decisions that operating companies themselves have taken. Indeed, in other contexts, they might even be called self-inflicted wounds.

In fact, 70% of the $12.2 billion for 2014 (around $8.5 billion) was incurred because operating companies either agreed pre-trial to accept that they were infringing NPE patents or were found at trial to be infringers. Of course, some may have settled just to make a suit go away, but, generally speaking, if the operating companies concerned had not used NPE patents without authorisation they would not have needed to fork out the money they did. Put another way, the expense of fighting an NPE suit is generally dwarfed by the cost of being found out using NPE IP without permission. And it’s hard to see why NPEs should be blamed and demonised for owning stuff that other people have decided to take without asking.  

So, based on the RPX figures what we can conclude is that infringing NPE patents led operating companies to pay out $8.5 billion to NPEs in 2014. Other direct NPE related costs – including legal fees and agreeing licensing deals pre-litigation – amounted to a further $3.7 billion. The lesson here, it seems to me, is not that NPEs are wicked, but that getting caught stealing their IP is going to cost you a good deal of money.