The Fatally Flawed Findings Behind the Shield Act


Joseph Schuman
March 22, 2013
Capitol Hill

From bad data come bad policies. And from bad data gone viral online come legislative blunders.

Take the fabled “$29 billion” that frivolous patent-infringement lawsuits cost American companies in 2011. That number, cited on the floor of the House of Representatives this month during introduction of the Saving High-tech Innovators from Egregious Legal Disputes Act – a.k.a. SHIELD – comes from a report prepared by two Boston University researchers. And like the fundamentally flawed SHIELD Act, the misleading number and its implications threaten to weaken a patent system that has nurtured innovation and invention in the United States throughout the country’s history.

As law professor and legal historian Adam Mossoff points out, that “$29 billion” has become cemented in the conventional wisdom. His Google search of the term “patent troll 29 billion” produced 191,000 hits. A similar search of the term “NPE 29 billion” turned up 605,000 mentions. But it turns out the number is no more credible than labels slapped on the alleged miscreants it purportedly counts.

“Patent trolls,” Mossoff notes, is a term “used loosely enough that it sometimes covers and sometimes excludes universities, Thomas Edison, Elias Howe (the inventor of the lockstitch in 1843), Charles Goodyear (the inventor of vulcanized rubber in 1839), and even companies like IBM.” The term NPE – or non-practicing entity – may sound more factual than fairy-tale, but it’s just as amorphous as the dastardly moniker “troll.”

And definitions can be dangerous, as you’ll see below.

The “$29 billion” comes from a paper called “The Direct Costs from NPE Disputes,” which was released online last summer. It supposedly covers the cost of litigation brought by patent-licensing companies that sue technology companies.

But its overly broad description of “trolls” and NPEs “covers almost every person, corporation or university that sues someone for infringing a patent that it is not currently being used to manufacture a product at that moment,” Mossoff notes. He goes on to explain: It includes nearly every university in the world that sues for infringement of the patents that protect the intellectual property rights of its research. It includes nearly any start-up company that plans to produce its own inventions and tries to sue an infringing competitor that steals its ideas and gets to market first. It includes nearly any high-tech or biotech firm or traditional manufacturer that has “at least one patent among a portfolio of thousands that is not being used at the moment to manufacture a product because it may be ‘well outside the area in which they make products.’”

In other words, any manufacturer can be accused of being a “troll” or an NPE if its inventions aren’t judged to be part of its rightful repertoire.

“What company is not branded an ‘NPE’ or ‘patent troll’ under this definition, or will necessarily become one in the future given inevitable changes in one’s business plans or commercial activities?” Mossoff asks.

Putting the core problem of definition aside, the methodology for the tallying of the “$29 billion” can’t be evaluated because it’s a secret. The researchers say they got the data from consulting firm RPX, whose business is to defend customers from – you guessed it – “patent trolls.” RPX got the data by surveying its customers, who, it turns out, were told their answers would be mustered for the lobbying fight to change the patent system.

So here we are: Numbers are gathered by a company whose business model depends on stoking fears about the results. The numbers are secretly compiled from companies who also want the bottom-line number to fuel fear. And they’re used to count a phenomenon so poorly defined that the results are meaningless. Yet the resulting bold-faced “$29 billion” makes its way to the House of Representatives as the key numerical reason for a wide-reaching piece of legislation.