The cost of NPE disputes in the US and the $16.8 billion gap between RPX and Bessen & Meurer

In June 2012, James Bessen and Michael Meurer published their frequently-cited paper “The Direct Costs from NPE Disputes”, with its headline grabbing claim that US companies “accrued $29 billion of direct costs in 2011” as a result of NPE assertions. As they explained in the paper, they based their estimates on responses to a survey sent out to 250 companies by RPX and also the study of a database made available by RPX. What is puzzling, then, is why RPX itself provides a much lower estimate of NPE-related costs than Bessen and Meurer did three years ago.

Last week, the defensive patent aggregator published the high-level findings of its 2014 NPE Cost Report. It found: “In 2014, NPEs cost operating companies an estimated $12.2 billion in legal fees and settlement or judgment amounts related to NPE assertions and litigations.” That’s down from the $12.8 billion incurred in 2013. Obviously, neither sum comes close to the Bessen and Meurer $29 billion figure.

What can be the explanation for this divergence? Of course, it is possible that between 2011 and 2013, the direct costs to operating companies in the US of NPE suits fell spectacularly - before falling by a much lower amount between 2013 and 2014. If that is the case, it would be a most remarkable development and one that every lawmaker in the country needs to know about. Alternatively, either RPX or Bessen and Meurer have got it wrong. That may be the more likely scenario.

So, how can we find out? Well, RPX is pretty transparent about its workings and methodology, has been directly involved in the patent market for four years, is led by individuals whose experience pre-dates that for many more years and has no reason to underplay NPE costs (in fact, given its business model, it has every incentive to make them seem as big as possible).

By contrast, the two Boston University professors have never fully disclosed their workings or subjected them to peer review, are very free with their definitions, are demonstrably and profoundly wrong in some of their other claims, have no experience of working in the patent marketplace and were funded in their work on the $29 billion study by the Coalition for Patent Fairness, a grouping made up of companies very strongly in favour of significant patent litigation reform.

I know who I think is more likely to be right, but it would be nice if someone, somewhere in a decision-making position in the US actually bothered to look into the discrepancy to find out what causes it: $16.8 billion is not a small sum of money.