Study: Small Firm Plaintiffs ("Trolls") Have Unexceptional Impact on Patent Litigation

A number of years ago, Jay P. Kesan and Gwendolyn Ball teamed together to write "How Are Patent Cases Resolved? An Empirical Examination of the Adjudication and Settlement of Patent Disputes" (link). Many practitioners have relied on the findings in the document, and the paper continues to enjoy a high rate of downloading in the SSRN E-Library.

Now, Kesan and Ball are back, this time with a study titled "Transaction Costs and Trolls: Strategic Behavior by Individual Inventors, Small Firms and Entrepreneurs in Patent Litigation." Using original court documents to identify the parties, outcomes and disputed patents in cases filed in 2000 and 2002, they explore how the resolution of patent cases relates to the nature of the parties (large, medium, small). They also examined whether individual inventors and entrepreneurs are able to defend their patent rights, and whether trolls are a significant problem.

Some preliminary findings:

• Small parties are quite active in the courts, constituting nearly half of all plaintiffs. However, most small parties are suing other small parties. Only about 20% of small plaintiffs are suing defendants with annual sales greater than $500M.

• Small firm plaintiffs are the most likely, among all plaintiff categories, to litigate to a trial against large firm defendants.

• However, large firm plaintiffs are just as likely to litigate to a trial when suing large firm defendants. This finding was surprising, given that conventional wisdom expects large parties (with large patent portfolios) to cross-license their way out of disputes.

• For small firm plaintiffs, various indicators of "patent quality" (number of claims, backward citations, etc.) increase with the size of the defendant. The same trend is not evident for large or medium sized plaintiffs. Thus, there is some evidence that when suing large firm defendants, small firms are only enforcing their most "valuable" patents.

Also, with regard to "trolls", Kesan and Ball write:

[W]e find little evidence that "trolls" are posing a serious problem. The number of patent licensing firms - the most obvious candidate for the role of troll - active in cases led in the study years was quite modest. Most of these licensing firms were small and they, for the most part, were equally likely to sue small, medium and large firms. However, there is some evidence that when a licensing firm sues a large firm they were less likely to pursue a judgment or a trial than were other small firms. Thus, our results suggest that patent litigation is not dominated by "trolls," but that the best candidates for the "troll" moniker do seem to behave differently when suing the largest firms than do other firms of similar size. Care needs to be used in interpreting this result, however, since the very fact that they were not present in large numbers may make it statistically difficult to analyze their behavior.

Read/download the paper here (link)

See additional coverage by Lawrence Ebert at IPBiz (link)