Trolls or market-makers? An empirical analysis of nonpracticing entities

Columbia Law Review

Volumn 110, Issue 1, 2010, Pages 114-160

  Shrestha, Sannu K ^a  

^a NONE

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EID: 77950547105     PISSN: 00101958     EISSN: None     Source Type: Journal    
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References (255)

1. See Complaint at 2, NTP, Inc. v. Research in Motion, Ltd., 261 F. Supp. 2d 423 (E.D. Va. 2002) (No.3:01CV767);
2. Michelle Kessler, High Court Refuses to Hear BlackBerry-Maker Case, USA Today, Jan. 24, 2006, at IA.
3. See Teresa Riordan, Patents;
4. A Canadian Company Appeals in Court for the Right to Keep Selling Blackberries in the U.S., N.Y. Times, June 7, 2004, at C2 ("NTP does not make anything [from the patents].").
5. NTP, Inc. v. Research in Motion, Ltd., No.3:01CV767, 2003 U.S. Dist. LEXIS 26837, at *l-*3, *5 (E.D. Va. Aug. 5, 2003).
6. See NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282, 1325-26 (Fed. Cir. 2005) (affirming in part, reversing in part, and remanding the case back to the district court);
7. NTP, Inc. v. Research in Motion, Ltd., 397 F. Supp. 2d 785, 786-789 (E.D. Va. 2005) (describing RIM's efforts to challenge validity of NTP patents before the PTO and refusing to stay remand proceedings pending PTO reexamination).
8. Yuki Noguchi, Patent Dispute Is Settled, Wash. Post, Mar. 4, 2006, at Al.
9. See, e.g., Ian Austen &: Lisa Guernsey, A Payday for Patents 'R' Us, N.Y. Times, May 2, 2005, at C1 (describing criticism of small patent holding companies);
10. William M. Bulkeley, Aggressive Patent Litigants Pose Growing Threat to Big Business, Wall St. J., Sept. 14, 2005, at Al (same). The tone of the criticism was also unusually vituperative, with one commentator comparing NPEs to "patent system bottom feeders." Patent Quality Improvement, Hearing Before the Subcomm. on Courts, the Internet, &: Intellectual Prop, of the H. Comm. on the Judiciary, 108th Cong. 21 (2003) [hereinafter Patent Quality Hearings] (statement of David M. Simon, Chief Patent Counsel, Intel Corp.). Another commentator referred to NPEs as the "mold that eventually grows on rotten meat." Tim Wu, Weapons of Business Destruction: How a Tiny Little "Patent Troll" Got BlackBerry in a Headlock, Slate, Feb. 6, 2006, at http://slate.msn.com/id/2135559/ (on file with the Columbia Law Review).
11. See FTC, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, ch. 2, at 31 (2003), available at http://www.ftc.gov/os/ 2003/10/innovationrpt.pdf (on file with the Columbia Law Review) [hereinafter FTC, Innovation Report] ("[NPEs] may be design firms that patent their inventions but do not practice them or patent assertion firms that buy patents from other companies . . . .").
12. See, e.g., Robin M. Davis, Note, Failed Attempts to Dwarf the Patent Trolls: Permanent Injunctions in Patent Infringement Cases Under the Proposed Patent Reform Act of 2005 and eBay v. Mercexchange, 17 Cornell J.L. & Pub. Pol'y 431, 438 (2008) ("Most patent trolling behavior thrives on the inequities of enforcing patent rights without contributing anything to either the invention or production of new technologies.");
13. Jason Kirby, Patent Troll or Producer?, Fin. Post, Jan. 14, 2006, available at http://www.financialpost.com/story.html?id=1509d361-0144-4432-b6dc- 2c14026c98d6 (on file with the Columbia Law Review) ("Companies who do the costly grunt work of actually developing and marketing new technologies are being held ransom by tiny outfits whose only assets are 'kooky and vague' patents . . . .");
14. Joe Beyers, Rise of the Patent Trolls, CNET News.com Oct. 12, 2005, at http://news.cnet.com/Rise-of-the-patent-trolls/2010-107l-3-5892996.html (on file with the Columbia Law Review) ("[Patent Trolls] seek to quietly acquire significant patent portfolios with the intent of threatening lengthy and costly patent infringement lawsuits against operating companies.");
15. Maggie Shiels, Technology Industry Hits Out at 'Patent Trolls,' BBC News, June 2, 2004, at http://news.bbc.co.uk/1/hi/business/3722509.stm (on file with the Columbia Law Review) ("An added problem is the growth of so called 'patent trolls' who can be likened to modern day highway robbers . . . .").
16. See, e.g., Spencer Hosie, Patent Trolls and the New Tort Reform: A Practitioner's Perspective, 4 I/S: J.L. & Pol'y for Info. Soc'y, 75, 78-86 (2008) (challenging "myths" about patent trolling);
17. James F. McDonough III, The Myth of the Patent Troll: An Alternative View of the Function of Patent Dealers in an Idea Economy, 56 Emory LJ. 189, 190 (2006) ("Patent trolls provide liquidity, market clearing, and increased efficiency to the patent markets - the same benefits securities dealers supply capital markets.");
18. Marc Morgan, Stop Looking Under the Bridge for Imaginary Creatures: A Comment Examining Who Really Deserves the Title Patent Troll, 17 Fed. Cir. B.J. 165, 165 (2008) ("Many legitimate businesses play a positive role by encouraging innovation, increasing liquidity, and providing market clearing.").
19. See eBay Inc. v. MercExchange, L.L.C, 547 U.S. 388 (2006);
20. see also Steve Seidenberg, Troll Control: The Supreme Court's eBay Decision Sets Back Pesky 'Patent Trolls' or American Innovation, Depending Upon Which Side You're On, A.B.A. J., Sept. 2006, at 51, 52 (discussing ramifications of the eBay case).
21. See Patent Reform Act of 2006, S. 3818, 109th Cong. (2006);
22. Patents Depend on Quality Act of 2006, H.R. 5096, 109th Cong. (2006);
23. Patent Reform Act of 2005, H.R. 2795, 109th Cong. (2005);
24. see also infra Part I.C (discussing proposed legislative reform of U.S. patent system).
25. See McDonough, supra note 9, at 195 (describing Patent Reform Act of 2005 as "the most substantial legislative reform to the patent system since 1952").
26. See, e.g., Mark A. Lemley &: Carl Shapiro, Patent Holdup and Royalty Stacking, 85 Tex. L. Rev. 1991, 1993 (2007) [hereinafter Lemley &: Shapiro, Patent Holdup] (describing burden of holdup and royalty stacking problems that NPEs impose on manufacturers);
27. Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting, in 1 Innovation Policy and the Economy 119, 125 (Adam B. Jaffe et al. eds., 2001) [hereinafter Shapiro, Patent Thicket] (noting burden on manufacturers from improperly granted patents).
28. But see Vincenzo Denicolò et al., Revisiting Injunctive Relief: Interpreting eBay in High-Tech Industries with Non-Practicing Patent Holders, 4 J. Competition L. &: Econ. 571, 575 (2008) ("[T]he post-eBay case law seems to be leaning towards a one-sided approach that favors a manufacturing licensee's point of view with little consideration given to the impact on firms with other kinds of legitimate business models, such as innovators with limited or no presence in downstream markets . . . .");
29. John M. Golden, "Patent Trolls" and Patent Remedies, 85 Tex. L. Rev. 2111, 2116 (2007) (questioning conclusion of Lemley &: Shapiro, supra, that NPEs impose excessive burdens on downstream manufacturers). For further discussion on the pros and cons of NPEs, see articles cited in supra notes 8 and 9.
30. See, e.g., the scholarly articles cited in supra notes 8 and 9. Professors Lemley and Shapiro have presented some empirical evidence to support their theory of holdup and royalty stacking.
31. See Lemley &: Shapiro, Patent Holdup, supra note 13, at 2025-2035 (discussing selected case studies of royalty stacking in different industries and studying reported court decisions awarding reasonable royalties as damages for patent infringement).
32. For example, Justice Kennedy relied heavily on the FTC, Innovation Report, supra note 7, in his concurrence in eBay. eBay, 547 U.S. at 396 (Kennedy, J., concurring).
33. For details on how these firms were selected,
34. see Appendix B. This Note focuses on commercial firms that rarely or never practice any patents because they are the most controversial and have borne the brunt of the criticism of troll-like behavior. The analysis in this Note ignores independent inventors and universities, even though these two groups also frequently do not practice their patents, because they have largely been in the periphery of the "troll" debate.
35. See, e.g., Ashley Chuang, Note, Fixing the Failures of Software Patent Protection: Deterring Patent Trolling by Applying Industry-Specific Patentability Standards, 16 S. Cal. Interdisc LJ. 215, 218-19 (2006) ("[Universities and other research institutions should not be considered patent trolls simply because they license their technology.").
36. But see Mark A. Lemley, Are Universities Patent Trolls?, 18 Fordham Intell. Prop. Media &: Ent. LJ. 611, 615-19 (2008) (discussing perception of universities as patent trolls).
37. See infra Part II.A.2.
38. See infra Part II.A.2.
39. See infra Part II.B.
40. See infra Part III.B.
41. See infra part III.B.
42. See infra Part III.C
43. -547 U.S. 388 (2006).
44. See Chuang, supra note 16, at 232 ("Because of a patent troll's approach to generating revenue, a troll's charges of infringement and litigation can often be baseless and thus clog the legal system." (citation omitted));
45. see also Hosie, supra note 9, at 78 ("Perhaps the most common refrain in the patent debate is that plaintiffs will bring frivolous cases to extort unjustified settlements.");
46. Kirby, supra note 8 ("Critics argue that patent trolls, or patent holders who threaten companies with costly court battles unless they're offered licensing fees, are a serious threat to legitimate businesses.");
47. Beyers, supra note 8 ("[Patent trolls] seek to quietly acquire significant patent portfolios with the intent of threatening lengthy and costly patent infringement lawsuits against operating companies.").
48. Chuang, supra note 16, at 234 ("For many companies, dealing with patent trolls is simply a business expense that drives up costs by diverting time and resources away from business development." (citation omitted)).
49. Id. at 235 (arguing NPE lawsuits result in a "hidden tax" on software products);
50. Davis, supra note 8, at 438 (noting patent trolls "drive up the price of new consumer technology because manufacturing corporations . . . often pass the costs of royalty payments and patent litigation along to consumers").
51. See, e.g., Elizabeth D. Ferrill, Patent Investment Trusts: Let's Build a PIT to Catch the Patent Trolls, 6 N.C. J.L. & Tech. 367, 377 (2005) ("For eBay, dealing with the patent troll incidents . . . has driven up its costs . . . .").
52. Shiels, supra note 8.
53. John R. Allison, Mark A. Lemley, Kimberly A. Moore, &: R. Derek Trunkey, Valuable Patents, 92 Geo. L.J. 435, 441 (2004) ("Total direct litigation costs for the median patent case with between S1 million and $25 million at stake were $2 million per side in 2003.").
54. See Hosie, supra note 9, at 80 ("No sane plaintiffs lawyer would spend this kind of money on a frivolous case .... Frivolous cases simply do not pay." (emphasis omitted) ). Of course, the NPE might bet that the defendant will choose to settle quickly even if it doubts the merits of the infringement claim to avoid the cost of drawn out litigation. On the other hand, an NPE seeking to sell licenses to an extensive portfolio of patents will probably not be able to play the "sue and see" game because manufacturers are unlikely to repeatedly pay money to make the claims go away. Moreover, defendants may take an aggressive approach to defending against all the claims so as to discourage meritless claims in the future. See text accompanying supra note 28 (stating intention of defendant to vigorously defend against claims).
55. See infra Part III.C, Table 3 (showing number of NPE lawsuits as percent of total infringement lawsuits by year).
56. See Nathan Myhrvold, Inventors Have Rights, Too!, Wall St. J., Mar. 30, 2006, at A14 ("Court records show that only 2% of all patent lawsuits are due to plaintiffs that have no ongoing product business. Of that 2%, the vast majority are perfectly legitimate companies or universities. A tiny minority of patent suits are due to bad actors, but it's hardly a crisis.");
57. Gwendolyn G. Ball &: Jay P. Kesan, Transaction Costs and Trolls: Individual Inventors, Small Firms and Entrepreneurs in Patent Litigation 24 (2008) (I11. Pub. Law Working Paper, No. 08-21, 2008), available at http://papers.ssrn.com/sol3/papers.cfm?abstract-id=1337166 (on file with the Columbia Law Review) (reporting NPEs initiated about two percent - forty-nine cases out of a total of 2,486 - of all infringement suits between 2000 and 2002);
58. Patent Freedom, Current Research: Litigations Over Time, at https://www.patentfreedom.com/research-lot.html (last visited Sept. 30, 2009) (on file with the Columbia Law Review) (reporting NPEs initiated about twelve percent of all infringement suits in 2008).
59. Colleen V. Chien, Of Trolls, Davids, Goliaths, and Kings: Narratives and Evidence in the Litigation of High-Tech Patents, 87 N.C. L. Rev. 1571, 1572, 1600 (2009).
60. Id. at 1600.
61. See infra Part III.C, Table 5 (comparing success rate of NPEs and plaintiffs from random sample).
62. See, e.g., FTC, Innovation Report, supra note 7, ch. 3, at 40 ("Commentators have also observed that companies seeking to hold up rivals can set the licensing fees below the cost of litigation, including the managerial distraction, so as to make the taking of a license the only economically sensible alternative, regardless of the strength of the patent.");
63. Davis, supra note 8, at 438 ("[Patent trolls'] licensing practices drive up the price of new consumer technology because manufacturing corporations forced to take licenses on a troll's patents often pass the costs of royalty payments and patent litigation along to consumers.").
64. See, e.g., Lemley &: Shapiro, Patent Holdup, supra note 13, at 1993 ("[T]he threat of an injunction can enable a patent holder to negotiate royalties far in excess of the patent holder's true economic contribution. Such royalty overcharges act as a tax on new products incorporating the patented technology, thereby impeding rather than promoting innovation.");
65. Chuang, supra note 16, at 235 ("[E]nd users of software products are subjected to a hidden tax on software technology of companies that have been targeted by patent trolls.").
66. U.S. Const, art. I, §8, cl. 8 (granting Congress power to "promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries").
67. See Kenneth W. Dam, The Economic Underpinnings of Patent Law, 23 J. Legal Stud. 247, 248 (1994) ("[S]ince patent law gives the patentee the power to exclude others from practicing the invention, a monopoly may be created, leading to restriction of production, a supracompetitive price, and what economists call an efficiency or deadweight loss.").
68. See id. at 250 (discussing "economic rents" received by patentee when it creates product based on its patent).
69. See Lemley &: Shapiro, Patent Holdup, supra note 13, at 2009 (noting potential revenue from patent infringement litigation has "enticed a number of firms into the business, not of innovating, but of buying patents and suing to enforce them");
70. Shapiro, Patent Thicket, supra note 13, at 125 (discussing danger of infringement litigation in context of the "holdup" problem).
71. See Lemley & Shapiro, Patent Holdup, supra note 13, at 1993 ("[R]oyalty overcharges act as a tax on new products incorporating the patented technology, thereby impeding rather than promoting innovation."). The authors cite the BlackBerry case as an example of this effect. Id. at 2009. It is important to note, however, that royalty payments to NPEs will not always raise the prices of the affected products. For example, in a competitive product market, the manufacturer may be hesitant to raise prices for fear of losing market share. In this case, there would simply be a shift of surplus from the manufacturer to the NPE and consumers would be unaffected.
72. See Daniel J. McFeely, An Argument for Restricting the Patent Rights of Those Who Misuse the U.S. Patent System to Earn Money Through Litigation, 40 Ariz. St. L.J. 289, 297 (2008) ("In many cases, patent trolls operate as intellectual property or patent holding companies, purposefully acquiring patents for which they then seek to find infringers.").
73. The problem of the stranded manufacturer can occur even without a deliberate "wait and see" approach to patent licensing by the NPE. It might be that the NPE noticed the infringement only after the manufacturer introduced a product in the market.
74. For discussion of "mutually assured destruction," see infra notes 56-57 and accompanying text
75. See Miranda Jones, Permanent Injunction, A Remedy by Any Other Name Is Patently Not the Same: How eBay v. MercExchange Affects the Patent Right of NonPracticing Entities, 14 Geo. Mason L. Rev. 1035, 1052 (2007) ("[O] ne of the most accessible strategies to protect against infringing on a patent is a meticulous patent clearance."). Jones proposes that companies perform a "patent clearance" process similar to the title clearance process used in real estate transactions. Id.
76. Lemley &: Shapiro, Patent Holdup, supra note 13, at 1992.
77. See, e.g., Eric E. Bensen &: Danielle M. White, Using Apportionment to Rein in the Georgia-Pacific Factors, 9 Colum. Sci. &: Tech. L. Rev. 1, 1-3 (2008) (noting reasonable royalties should reflect "value contributed by the patent"); Carl Shapiro, Injunctions, HoIdUp, and Patent Royalties 9 (Aug. 2006) (unpublished manuscript, on file with the Columbia Law Review), available at http://faculty.haas.berkeley.edu/shapiro/royalties.pdf [hereinafter Shapiro, Injunctions] (using value of patented technology along with patent strength and bargaining power of patentee to calculate benchmark royalty rate that "represents a reasonable reward to the patent holder for its patented technology").
78. See Anne Layne-Farrar et al., Pricing Patents for Licensing in Standard Setting Organisations: Making Sense of FRAND Commitments 3 (CEPR Discussion Paper No. 6025, 2007), available at http://ssrn.com/abstract-996700 (on file with the Columbia Law Review). The authors use two economic models to build a benchmark for calculating royalty payments in standard setting organizations (SSOs).
79. See id. at 4 (using Efficient Component-Pricing Rule (ECPR) and Shapley value as benchmarks for calculating fair, reasonable, and non-discriminatory royalties). They conclude that patents covering "essential" technologies that do not have close substitutes should receive higher royalty payments relative to other patents within a given standard.
80. Id. at 31-32. Although the authors focus on royalties within SSOs, the implications of their research are also valid in determining royalty rates outside of an SSO setting.
81. To be sure, this is a simplified example that ignores complexities such as the relative bargaining power of the parties and the state of the telecommunications industry over time. Nevertheless, it helps illustrate the point that royalty payments depend on the value of the underlying invention, a notion that is well established in U.S. patent law.
82. See Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S. 641, 648 (1915) (noting "the nature of the invention, its utility and advantages, and the extent of the use" should be considered when calculating reasonable royalties).
83. See Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970) (listing "[t]he portion of the realizable profit that should be credited to the invention" as one of the factors to consider while calculating reasonable royalties for a given patent).
84. Shapiro, Patent Thicket, supra note 13, at 120.
85. FTC, Innovation Report, supra note 7, ch. 2, at 32.
86. Since a widget manufacturer requires rights to all ten patents in order to make the widget, the ten patents are perfect complements of each other.
87. See Damien Geradin et al., The Complements Problem Within Standard Setting: Assessing the Evidence on Royalty Stacking, 14 B.U. J. Sci. &: Tech. L. 144, 146 (2008) (discussing situation in which patents are perfect or "strict" complements).
88. FTC, Innovation Report, supra note 7, ch. 2, at 32 ("[I]f a single firm controlled the production of all complementary inputs, it would extract a single monopoly rent, and the price would be lower than the aggregate of individual monopoly prices."). The royalty stacking problem is a version of the famous complements problem first identified by Augustin Cournot.
89. See Augustin Cournot, Researches into the Mathematical Principles of the Theory of Wealth 99-116 (Nathaniel Bacon trans., Macmillan 1929) (1838) (exploring influence of "mutual relations" between producers on costs and profits).
90. FTC, Innovation Report, supra note 7, ch. 2, at 32.
91. Id. at 30-31 & n.222.
92. Id. at 31.
93. See supra text accompanying notes 53-56.
94. See FTC, Innovation Report, supra note 7, ch. 3, at 34-35 (discussing large numbers of patents and attributing thicket problem to "ease of obtaining patents at the PTO");
95. Shapiro, Patent Thicket, supra note 13, at 125 ("[Manufacturers can potentially infringe on hundreds of patents with a single product.").
96. See FTC, Innovation Report, supra note 7, ch. 3, at 36 ("[T]he standard for obviousness should be increased so as to prevent 'very trivial inventions' being patented by the PTO." (citation omitted)).
97. See McDonough, supra note 9, at 202 (" [A]nyone wielding a bad patent can abuse the patent system . . . .").
98. Bronwyn H. Hall &: Rosemarie Ham Ziedonis, The Patent Paradox Revisited: An Empirical Study of Patenting in the U.S. Semiconductor Industry, 1979-1995, 32 RANDJ. Econ. 101, 108-09 (2001);
99. see also Gideon Parchomovsky & R. Polk Wagner, Patent Portfolios, 154 U. Pa. L. Rev. 1, 26-28 (2005) (describing how firms amass portfolios of patents to improve their defensive position).
100. See FTC, Innovation Report, supra note 7, ch. 2, at 25-26 (explaining how "defensive patenting strategies can drive firms to patent even more").
101. See Hall &: Ziedonis, supra note 63, at 109-110 ("[A] firm lacking a strong patent portfolio of its own with which to negotiate licensing or cross-licensing agreements could face a more rapid erosion of profits . . . .").
102. Id.
103. A comprehensive study of independent inventors found that "the probability of commercialization for inventions developed by independent inventors is only between 1/8 to 1/4 of that which is expected for inventions developed in established firms." Thomas Astebro, Basic Statistics on the Success Rate and Profits for Individual Inventors, 23 Entrepreneurship Theory &: Prac 41, 43 (1998);
104. see also McDonough, supra note 9, at 208 (contrasting individual patent grantees' lingering need to monetize patent with firm's profit maximizing and cost minimizing strategies in patent acquisition); Kirby, supra note 8 (describing unsuccessful efforts of Paul Ware, an independent inventor of high-tech identification cards, to license his patent on his own).
105. See McDonough, supra note 9, at 212 ("Unlike the individual inventor who poses no real litigation threat, the patent dealer has ample funds with which to litigate.");
106. Morgan, supra note 9, at 173-74 ("Inventors maximize efficiency by focusing on inventing and allowing other parties to deal with enforcement or licensing of patents. Indeed, many inventors find enforcement or licensing of patents to be distracting, time consuming, and costly."). See generally Jeff A. Ronspies, Comment, Does David Need a New Sling? Small Entities Face a Costly Barrier to Patent Protection, 4 J. Marshall Rev. Intell. Prop. L. 184, 195-196 (2004) (discussing disadvantages faced by independent inventors and small businesses under current patent law). Of course, some independent inventors do enforce their patents on their own. See Chien, supra note 33, at 1600 (reporting five percent of patent infringement lawsuits between 2000 and 2008 were filed by independent inventors).
107. An average infringement lawsuit is estimated to cost about $2 million for each side. See Allison et al., supra note 29, at 441.
108. See, e.g., McDonough, supra note 9, at 212 (describing how an NPE may be able to extract higher licensing fees than an independent inventor);
109. Kirby, supra note 8 (quoting Paul Ware, an independent inventor, as saying "Acacia [an NPE] has been my saviour .... Many patents have referenced my patent, but I couldn't afford to litigate. Without [Acacia], it would have been infringed on by all these big companies"). In a study of patenting in the software industry, Allison, Dunn, and Mann outline the various obstacles faced by independent inventors in commercializing their inventions.
110. John R. Allison, Abe Dunn &: Ronald J. Mann, Software Patents, Incumbents, and Entry, 85 Tex. L. Rev. 1579, 1614-1616 (2007). The software industry is characterized by network effects that make it difficult for an inventor to launch a successful product, for example, a web browser, on her own. Thus, an independent inventor often has to license her technology to incumbent software companies.
111. Id. at 1614. The independent inventor also is unlikely to have the financial and legal knowledge to successfully negotiate with the incumbent company.
112. Id. at 1615. Moreover, independent inventors will likely lack the long standing relationships with incumbent firms that venture-backed software firms enjoy. Id. The authors argue that this scenario creates the perfect setting for litigation intermediaries, such as the firms discussed in this Note, to emerge to provide the capital and legal and financial competencies required to negotiate licensing arrangements or to litigate infringement claims.
113. Id. at 1617.
114. Naomi R. Lamoreaux &: Kenneth L. Sokol off, Long-Term Change in the Organization of Inventive Activity, 93 Proc. Nat'l Acad. Sci. 12,686, 12,689 (1996).
115. Id.
116. Id. at 12,686.
117. Kristina Dahlin et al., Today's Edisons or Weekend Hobbyists: Technical Merit and Success of Inventions by Independent Inventors, 33 Res. Pol'y 1167, 1175-1177 (2004).
118. See McDonough, supra note 9, at 214 (noting patent dealers can reduce information asymmetry by investing "time, money, and effort [to learn] what is available where for how much" (internal quotation marks omitted) (quoting John McMillan, Reinventing the Bazaar: A Natural History of Markets 44 (2002))).
119. This is a version of the "lemons" problem discussed in George A. Akerloff, The Market for "Lemons": Quality Uncertainty and the Market Mechanism, 84 QJ. Econ. 488 (1970). This seminal article outlined how information asymmetries in the used car market can drive away sellers of high quality used cars and leave behind a marketplace populated by lemons. Such information asymmetries can lead to a similar problem in the patent licensing market.
120. See McFeely, supra note 43, at 294 (recounting how TechSearch, an NPE, purchased patent for $50,000 at bankruptcy sale and filed $500 million patent infringement suit against Intel for infringing patent). The problem of opportunistic behavior by NPEs, however, can often be solved contractually. For example, the independent inventor could ask for a percentage of any royalties earned by the NPE from her patent.
121. See James R. Farrand, Territoriality and Incentives Under the Patent Laws: Overreaching Harms U.S. Economic and Technological Interests, 21 Berkeley Tech. LJ. 1215, 1286-1290 (2006) (discussing harm resulting from enforcement of "unused or 'quiescent' patents" by "patent trolls").
122. As noted supra note 42, however, royalty payments to NPEs will not always lead to an increase in the price of the underlying product.
123. See Farrand, supra note 78, at 1286-1290 (discussing tendency of "trolls [to] exploit the weaknesses of the U.S. patent system against entities that are performing the hard work of innovation").
124. See McDonough, supra note 9, at 222-24 (discussing ways in which NPEs "promote the Progress of . . . useful Arts"). In addition to providing incentives to independent inventors that they fund directly by buying patents, NPEs may also encourage other independent inventors to innovate and obtain patents in the hope of eventually selling them to NPEs.
125. See Dam, supra note 39, at 252 ("The expansion of output and the reduction in price achieved through technological progress resulting from research and development may be quite remarkable, far beyond any possible social loss from rent seeking.").
126. See, e.g., McDonough, supra note 9, at 213-218
127. Id. at 213; Morgan, supra note 9, at 174;
128. see also Mike Langberg, Lots of Patents for Sale, But Few Bids, San Jose Mercury News, Apr. 7, 2006, at ID (describing current system of buying and selling patents through loose network of brokers and lawyers as "inefficient and expensive").
129. The market intermediary analogy is not completely apposite, however, because NPEs do more than just perform due diligence - they risk their own capital and buy patents, not with the view of selling them in a secondary market, but to earn licensing revenues. NPEs, therefore, also function in many ways like shareholders who buy stocks at an exchange to earn dividends.
130. McDonough, supra note 9, at 214-215
131. Id.
132. See id. at 215-216 (describing NPEs as better able to clear market by reducing information asymmetries and noting improved efficiency resulting from market clearing and increased liquidity).
133. See, e.g., Davis, supra note 8, at 438 ("Patent trolls drive down the fair market value of intellectual property when they buy patents of specious value sight-unseen.").
134. See McDonough, supra note 9, at 218-219 (noting "the emergence of patent dealers evinces a natural progression of the patent market" towards the efficient securities and exchange market model).
135. Id. at 189 (describing criticism of NPEs by mainstream media);
136. see also Chien, supra note 33, at 1574 ("Since the term was coined in 1991, trolls, or NPEs, have become perhaps the most controversial and least popular group of patent plaintiffs." (citation omitted));
137. Hosie, supra note 9, at 76 ("[T]he existence and attributes of patent trolls have become articles of faith, the enduring stuff of urban legend.");
138. Ronald S. Katz, Shawn G. Hansen &: Omair Farooqui, Patent Trolls: A Selective Etymology, IP Law 360, at 1, Mar. 20, 2008, available at http://www.manatt.com/uploadedFiles/News-and-Events/Articles-By-Us/patentroll. pdf (on file with the Columbia Law Review) ("[T]he epithet [patent troll] is now commonly bandied about in courts and the halls of Congress.").
139. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).
140. eBay Inc. v. MercExchange, L.L.C., 546 U.S. 1029 (2005).
141. First Amended Complaint at 12-14, MercExchange, L.L.C. v. eBay, Inc. (MercExchange I), 275 F. Supp. 2d 695, 696 (E.D. Va. 2003) (No.261-CV-736).
142. eBay Settles Patent Dispute Over 'Buy It Now' Feature, N.Y. Times, Feb. 29, 2008, at C3.
143. MercExchange I, 275 F. Supp. 2d at 712.
144. MercExchange, L.L.C. v. eBay, Inc. (MercExchange II), 401 F.3d 1323, 1338 (Fed. Cir. 2005) (quoting Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1246-1247 (Fed. Cir. 1989)).
145. eBay Inc. v. MercExchange, L.L.C, 547 U.S. 388, 394 (2006).
146. Id. at 393-394 ("Just as the District Court erred in its categorical denial of injunctive relief, the Court of Appeals erred in its categorical grant of such relief.").
147. Id. at 391.
148. Id. at 394-95 (Roberts, C.J., concurring) ("From at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases. This 'long tradition of equity practice' is not surprising, given the difficulty of protecting a right to exclude through monetary remedies that allow an infringer to use an invention against the patentee's wishes - a difficulty that often implicates the first two factors of the traditional four-factor test.").
149. Id. at 395-397 (Kennedy, J., concurring).
150. Id. at 396-397
151. Id. at 396 (internal citation omitted).
152. See supra text accompanying notes 53-58.
153. See FTC, Innovation Report, supra note 7, ch. 2, at 28-29 (discussing ways holdup by patent owner can harm innovation and competition);
154. Denicolò et al., supra note 13, at 584 ("[A]bolishing injunctive relief altogether would be justified only if... patent holders are systematically over-rewarded.");
155. Lemley & Shapiro, Patent Holdup, supra note 13, at 2009 ("[Information technology] companies are paying holdup money to avoid the threat of infringement. That is not a legitimate part of the value of a patent;
156. it is a windfall to the patent owner that comes at the expense not of unscrupulous copyists but of legitimate companies doing their own R&D.").
157. See Denicolò et al., supra note 13, at 583, 588 ("Categorically denying injunctions to non-manufacturing patent holders... casts far too wide a net, increasing the likelihood of false positives [i.e., the risk of denying an injunction to a patent holder in the absence of a significant holdup problem].");
158. Jones, supra note 46, at 1070 ("To erode the patent rights of NPEs in this way will also erode the patent rights of all who choose to sell their patents to NPEs, including individual inventors, universities, and corporations. The only value a patent has to any entity is that derived from enforcement.").
159. Patent Trolls: Fact or Fiction?, Hearing Before The Subcomm. on Courts, the Internet, & Intellectual Prop. of the H. Comm. on the Judiciary, 109th Cong. 12-13 (2006) [hereinafter Patent Trolls Hearing] (testimony of Dean Kamen, President, Deka Research & Development Corporation) ("[W]hen I walk into that big company they've got marketing, they've got distribution, they've got everything.... [T] he only thing that I have on my side of the table is that patent [and the ability to say that]... you exclusively will have the right for some period of time.").
160. William R. Everding, "Heads-I-Win, Tails-You-Lose": The Predicament Legitimate Small Entities Face Post eBay and the Essential Role of Willful Infringement in the Four-Factor Permanent Injunction Analysis, 41 J. Marshall L. Rev. 189, 210 (2007) (arguing that after eBay, " [1] egitimate small entities will be forced to either cut their losses by surrendering their patented technology or risk having infringers drown them in high litigation costs").
161. See Golden, supra note 13, at 2150-51 ("[B]oth courts and commentators have remarked that the determination of a reasonable royalty 'seem[s] often to involve more the talents of a conjurer than those of a judge.' Expert witnesses from opposing sides of a patent case frequently differ hugely in their estimates of reasonable royalties." (citation omitted)). Professor Golden further argues:
162. The difficulty of assessing a reasonable royalty has in fact been one of the principal rationales for granting permanent injunctions. Commentators as well as courts have tended to conclude that property rules enforced by permanent injunctions generally make sense where a unique set of rights that are difficult to value is threatened with continued infringement. Because the courts are unlikely to do a goodjob at determining damages in such a context, conventional analysis has suggested that absent special circumstances, private parties should be left to assign the value of such rights through contract.
163. Id. at 2152 (footnote omitted).
164. See Denicolò et al., supra note 13, at 577-79 (demonstrating how court-ordered royalties can undercompensate patent owners). Inadequate court royalties not only undercompensate the patent owner with regard to the particular infringement, but will also adversely affect the patent owner's future licensing negotiations. Id. at 603 ("[I]f a court sets a rate too low, it will not only cost the patent holder in that one transaction but will hinder the firm's future negotiations with other potential licensees, as no other party will pay more than the publicly noted court rate.").
165. See John L. Dauer, Jr. & Sarah Elizabeth Cleffi, Trends in Injunctive Relief in Patent Cases Post-eBay, Metropolitan Corp. Couns., Feb. 2007, at 16 ("To date, district courts appear to have thus far heeded Justice Kennedy's in his eBay concurrence and not issued injunctions to [NPEs].");
166. Joseph Scott Miller, Injunction, Fire of Genius, at http://www. thefireofgenius.com/injunctions/ (last updated December 31, 2007) (on file with the Columbia Law Review) (tracking, in wake of eBay, instances when district courts denied or granted injunctions in patent infringement cases).
167. z4 Techs., Inc., v. Microsoft Corp., 434 F. Supp. 2d 437 (E.D. Tex. 2006).
168. Id. at 440.
169. Id. ("There is no logical reason that a potential consumer or licensee of z4's technology would have been dissuaded from purchasing or licensing z4's product activation technology for use in its own software due to Microsoft's infringement.").
170. Id.
171. See, e.g., Paice L.L.C. v. Toyota Motor Corp., No.2:04-CV-211-DF, 2006 WL 2385139, at *4 (E.D. Tex. Aug. 16, 2006) (denying NPE's request for permanent injunction due to lack of proof of irreparable harm), aff d, 504 F.3d 1293 (Fed. Cir. 2007);
172. see also Benjamin H. Diessel, Note, Trolling for Trolls: The Pitfalls of the Emerging Market Competition Requirement for Permanent Injunctions in Patent Cases Post-eBay, 106 Mich. L. Rev. 305, 311, 321 (2007) ("The requirement of market competition to obtain an injunction has been remarkably consistent [in the first twenty-five patent cases applying the four factor test].").
173. See Coal, for Patent Fairness, Why Change Is Needed, at http://www.patent.fairness.org/learn/why/ (last visited Sept. 22, 2009) (on file with the Columbia Law Review) ("New federal legislation is urgently needed to strengthen and to reform patent law in order to improve patent quality and to deter abuse of the system.").
174. See Patent Reform Act of 2007, S. 1145, 110th Cong. (2007);
175. Patent Reform Act of 2006, S. 3818, 109th Cong. (2006);
176. Patents Depend on Quality Act of 2006, H.R. 5096, 109th Cong. (2006);
177. Patent Reform Act of 2005, H.R. 2795, 109th Cong. (2005).
178. Sen. Patrick Leahy, Statement on Introduction of the Patent Reform Act of 2007 (Apr. 18, 2007), available at http://leahy.senate.gov/press/200704/ 041807a.html (on file with the Columbia Law Review).
179. S. 1145 § 2.
180. Id. § 4(c).
181. Id. § 4(e)(2).
182. Id. § 5.
183. Id. § 7.
184. Leahy, supra note 120.
185. S. 1145 § 4.
186. See Bensen & White, supra note 48, at 15-17 (discussing damage calculations for patents covering components).
187. S. 1145 § 5.
188. Id. § 7.
189. Section 5 of the Patent Reform Act of 2007 states that the PTO has to issue a final decision on patent validity within one year of the start of the proceedings. In contrast, according to the IPLC, it took on average 905 days, almost three years, for a patent infringement lawsuit to reach trial in the U.S. District Court for the Central District of California, the jurisdiction with the highest number of patent case filings between 2000 and 2008. Stanford IP Litigation Clearinghouse, Courts, at http://lexmachina.stanford.edu/courts? filter=patent (last visited Aug. 17, 2009) (on file with the Columbia Law Review);
190. Stanford IP Litigation Clearinghouse, Estimated Time to Trial, at http://lexmachina.stanford.edu/courts/cacd/Patent (last visited Aug. 17, 2009) (on file with the Columbia Law Review).
191. FTC, Innovation Report, supra note 7, at 7 (recommending legislation creating new administrative procedure to allow post-grant review of and opposition to patents in order to address problem of "questionable patents");
192. see also supra notes 60-61 and accompanying text.
193. See David Popp et al., Time in Purgatory: Examining the Grant Lag for U.S. Patent Applications, 4 Topics Econ. Analysis & Pol'y, 1, 21 (2004) (finding mean grant lag of twenty-five months for U.S. patent applications and mean lag of more than forty-four months for biotech patent applications);
194. Edward Walsh, Patent Office Seeks to Speed Applications, Wash. Post, June 4, 2002, at A15 (outlining series of changes intended to reduce time obtaining patents or trademarks).
195. -35 U.S.C. § 154(a)(2) (2006). The shorter patent life could benefit society as a whole by limiting the deadweight loss associated with the monopoly. It could also, however, harm inventors who may be unable to recoup the costs of their research and development efforts.
196. See Popp et al., supra note 133, at 2-3 (noting fear that long grant lag will provide greater opportunity for competitors to invent around patents).
197. See Patent Reform: The Future of American Innovation, Hearing before the S. Comm. on the Judiciary, 110th Cong. 16 (2007) (statement of Bruce G. Bernstein, Chief Intellectual Property and Licensing Officer, InterDigital Communications Corporation) ("[W]e have every reason to believe that large users of our technologies... would exploit the proposed post-grant opposition and expanded reexamination procedures to essentially tie up our patents through endless administrative and judicial challenges.");
198. Matthew Sag & Kurt Rohde, Patent Reform and Differential Impact, 8 Minn. J.L. Sci. & Tech. 1, 77 (2007) ("[A] badly structured system of post-grant review may also allow potential infringers to harass patent owners whose patents are not so suspect.").
199. Patent Reform Act of 2007, S. 1145, 110th Cong. § 5(c)(1) (2007).
200. See, e.g., The Importance of Patent Reform on Small Business: Hearing Before the H. Comm. on Small Business, 110th Cong. 26 (2007) (statement of John Neis, Managing Director, Venture Investors) ("The post-grant review clearly favors large companies with deep pockets, who could use these proceedings to delay patent issuances to a venture-backed company.");
201. Christopher L. Logan, Patent Reform 2005: H.R. 2795 and the Road to Post-Grant Oppositions, 74 UMKC L. Rev. 975, 994 (2006) ("[T]he lower cost of opposition proceedings compared to litigation, combined with fewer protections against harassment than reexaminations, is sure to increase validity challenges. Unfortunately, small firms are likely to receive the brunt of such challenges.");
202. Erica Werner, Small-Time Inventors Take on Congress, Associated Press, Oct. 21, 2005, available at LexisNexis, AP File (describing strenuous opposition of small inventors to Patent Reform Act).
203. See Logan, supra note 138, at 997 ("The proposed post-grant opposition system, while possibly improving patent quality, would have a decided adverse impact on innovation [by independent inventors]."). Society will be deprived of disclosure of valuable technical knowledge if independent inventors and small firms practice their inventions as trade secrets rather than obtaining a patent.
204. See Tom Abate, Tech Titans, Biotech Firms Wrangle Over Patent Reform, S.F. Chron., Feb. 5, 2008, at Cl ("Biotech industry leaders feel particularly threatened by proposed changes [contained in the Patent Reform Act].");
205. Steven Pearlstein, What Smartphone Makers Can Teach Legislators, Wash. Post, June 11, 2008, at D1 (noting biotech and pharmaceutical companies have used "their considerable political influence to block the Senate . . . from even considering patent reform");
206. Press Release, Biotechnology Indus. Org., The Patent Reform Act of 2007 Will Weaken Patents and Jeopardize Continued Biotechnology Innovation (June 6, 2007), at http://www.bio.org/news/pressreleases/newsitem.asp?id=2007-0606-02 (on file with the Columbia Law Review) (outlining reasons for biotechnology industry's opposition to reform efforts).
207. See Patent Quality Hearings, supra note 6, at 21 (statement of David M. Simon, Chief Patent Counsel, Intel Corp.) ("These patent system bottom feeders have now become so common that Intel has coined a term to describe them: 'patent trolls.'").
208. See Chuang, supra note 16, at 242 (pointing out that proposed reforms do not eliminate potential for patent abuses).
209. See supra Part LB (discussing judicial reaction to NPE debate);
210. supra Part LC (discussing proposed patent reform bills).
211. See infra Appendix B for details on the compilation of the database and the companies in it.
212. See Patents in the Knowledge Based Economy 8 (Wesley M. Cohen & Stephen A. Merrill eds., 2003) ("[V] alue distribution of patents is highly skewed[.]");
213. Jean O. Lanjouw et al., How to Count Patents and Value Intellectual Property: The Uses of Patent Renewal and Application Data, 46 J. Indus. Econ. 405, 406 (1998) ("[T]he importance of the innovations protected by individual patents varies widely.");
214. F.M. Scherer & Dietmar Harhoff, Technology Policy for a World of Skew-Distributed Outcomes, 29 Res. Pol'y 559, 565 (2000) ("Our empirical research reveals at a high level of confidence that the size distribution of private value returns from individual technological innovations is quite skew....").
215. Kirby, supra note 8 (internal quotation marks omitted) (quoting Philip Swain, attorney for Boston Communications).
216. See supra notes 41-42 and accompanying text (discussing strategic pursuit of injunctions by NPEs after manufacturers have invested in development and marketing of allegedly infringing product).
217. See supra notes 48-51 and accompanying text (emphasizing importance of examining value of underlying patent before concluding NPE's licensing fees are excessive).
218. See supra notes 67-68 and accompanying text (discussing ways in which NPEs aid independent inventors).
219. Anne Layne-Farrar & Josh Lerner, To Join or Not to Join: Examining Patent Pool Participation and Rent Sharing Rules 19 (Jan. 7, 2008) (unpublished manuscript, on file with the Columbia Law Review), available at
220. Adam B. Jaffe & Manuel Trajtenberg, Patents, Citations, and Innovations: A Window on the Knowledge Economy 52 (2002) [hereinafter Jaffe & Trajtenberg, Innovations] ("[W]e find that measures of the overall importance of innovations, of generality of research outcomes, and of reliance on scientific sources discriminate well between more and less basic innovations.");
221. Manuel Trajtenberg, A Penny for Your Quotes: Patent Citations and the Value of Innovations, 21 RAND J. Econ. 172, 184 (1990) [hereinafter Trajtenberg, Quotes] ("[P]atent citations may be indicative of the value of innovations.");
222. Bronwyn H. Hall et al., The NBER Patent Citations Data File: Lessons, Insights and Methodological Tools 25-26 (Nat'l Bureau of Econ. Research, Working Paper No. 8498, 2001), available at http://www.nber.org/papers/w8498 (on file with the Columbia Law Review) [hereinafter Hall et al., Data File] (discussing use of number of citations as relative measure of patent value).
223. See Trajtenberg, Quotes, supra note 151, at 180 (reporting medical diagnostic imaging patents of greater value were more frequently cited);
224. Bronwyn H. Hall et al., Market Values and Patent Citations: A First Look 20 (Nat'l Bureau of Econ. Research,
225. Working Paper No. 7741, 2000), available at http://www.nber.org/papers/ w7741 (on file with the Columbia Law Review) (finding, ceteris paribus, companies with more frequently cited patents have higher stock market values).
226. See Hall et al., Data File, supra note 151, at 19 ("[P]resumably citations to patents that belong to the same assignee represent transfers of knowledge that are mostly internalized, whereas citations to patents of Others' are closer to the pure notion of (diffused) spillovers.").
227. This Note uses the PTO's technological classification system. The list of patent classes and their titles can be downloaded at U.S. Patent and Trademark Office, U.S. Classes by Number with Title, at http://www.uspto.gov/go/ classification/selectnumwithtitle.htm (last visited Sept. 23, 2009) (on file with the Columbia Law Review).
228. Hall et al., Data File, supra note 151, at 21; see also Jaffe & Trajtenberg, Innovations, supra note 151, at 60 ("[Innovations... with many descendants, or with descendants that span a wide range of technical fields, are likely to have high social returns.").
229. Jaffe & Trajtenberg, Innovations, supra note 151, at 81. While economists compute generality and originality as a Herfindahl-Hirschman Index of concentration based on the number of technology classes, see id. at 428-58 (describing construction of measures for generality and originality), this Note computes these measures based on simple counts, which reflect the same idea but are simpler and more intuitive. In addition, although measures such as originality and generality are commonly used to gauge patent quality, they are not as powerfully predictive of patent value as forward citations. See Allison et al., supra note 29, at 460 (noting that while "claims, prior art references, and citations received are good measures of patent value, generality, originality and number of patent classifications are not").
230. Layne-Farrar & Lerner, To Join or Not to Join, supra note 150, at 20.
231. See Kimberly A. Moore, Xenophobia in American Courts, 97 Nw. U. L. Rev. 1497, 1544-1545 (2003) (discussing number of patent claims as proxy for patent value).
232. Id.
233. The list of fifty-one firms was compiled by running a variety of keyword searches in news databases. See infra Appendix A for details on the compilation of the list of NPEs.
234. See, e.g., Allison et al., supra note 29, at 438 (finding in general, litigated patents are more frequently cited by subsequent patents and contain more claims). This is not surprising because a patentee is unlikely to sue for infringement if the patent in question is not valuable. Therefore, to the extent that forward citations measure the value of the patents, one would expect the litigated patents to be more highly cited.
235. See id. at 437-438 (explaining characteristics of litigated patents which make them more valuable).
236. The random sample of 500 lawsuits was drawn from the Stanford IP Litigation Clearinghouse, at http://lexmachina.stanford.edu/ (last visited Aug. 17, 2009) (on file with the Columbia Law Review).
237. See text accompanying supra notes 41-51 (discussing charges that NPEs blackmail manufacturers with licensing fees).
238. See, e.g., Victoria E. Luxardo, Towards a Solution to the Problem of Illegitimate Patent Enforcement Practices in the United States: An Equitable Affirmative Defense of "Fair Use" in Patent, 20 Emory Int'l L. Rev. 791, 818 (2006) (stating Eastern District of Texas is "a jurisdiction known for its pro-(patent) plaintiff judges and juries");
239. Yan Leychkis, Note, Of Fire Ants and Claim Construction: An Empirical Study of the Meteoric Rise of the Eastern District of Texas as a Preeminent Forum for Patent Litigation, 9 Yale J.L. & Tech. 193, 195 (2007) (noting Eastern District of Texas has been called "haven for patent pirates" and "hotbed for patent trolls").
240. The actual number of NPE patents involved in litigation was 298. But since PTO citation and bibliographic data was available only for patents issued prior to 2006, eleven patents issued after 2005 were discarded from the final dataset. The author would like to thank Dr. Anne Layne-Farrar and LECG for use of the PTO data.
241. See supra note 163 (designating randomly selected sample of infringement suits).
242. See Frederick Hartwig & Brian E. Dearing, Exploratory Data Analysis 23 (1979) (discussing visual representations of distributions as superior to numerical summaries).
243. All three patent groups had extreme outliers, and so the box plot graphs presented in Figures 3-7 were "clipped" by a factor of two to make the box plot more readable. The clip factor (2) is employed in the following manner: y(max) = (Q1 + (Q3 - Q1)) X 2 and y(min) = (Ql - (Q3 - Q1)) × 2, where Ql and Q3 are the first and third quartile values, computed across all three groups, respectively. Any outlier greater than y(max) or less than y(min) is ignored during vertical axis scaling. SAS Inst., SAS/STAT 9.2 User's Guide 808 (2008), available at http://support.sas.com/documentation/cdl/en/ statugboxplot/61772/PDF/default/statugboxplot.pdf (on file with the Columbia Law Review).
244. For other estimates of the relative size of NPE-driven infringement litigation, see supra notes 32-33 and accompanying text.
245. See Jean O. Lanjouw & Mark Schankerman, Protecting Intellectual Property Rights: Are Small Firms Handicapped?, 47 J.L. & Econ. 45, 56 tbl.2 (2004) (reporting about ninety-five percent of lawsuits initiated by independent inventors between 1978-1999 were settled). Of course, a direct comparison with the Lanjouw & Schankerman study is inapposite because it analyzed lawsuits over a longer period of time and also used a much bigger sample. Nevertheless, one possible explanation for the lower settlement rates in NPE-initiated litigation may be that NPEs have more resources than the typical infringement plaintiffs and are therefore better able to afford drawn out litigation. See supra note 28 and accompanying text. On the other hand, the lower settlement rates may also imply that defendants think the NPE suits are frivolous and therefore are willing to go to trial. Yet another explanation is that, while the patents may be valid and the suits not frivolous, NPE plaintiffs are more likely to hold out for unreasonably high royalties.
246. See infra Table 5.
247. Jerome Lemelson is said to have collected almost $1.5 billion in licensing fees from auto, computer, retail, and electronics companies for patents on barcode technology before the patents were held unenforceable. Greg Griffin, Trolling For Patents, Denver Post, Mar. 12, 2006, at K01.
248. See Symbol Techs., Inc. v. Lemelson Med., Educ. & Research Found., LP, 422 F.3d 1378, 1385 (Fed. Cir. 2005) ("[P]rosecution laches may render a patent unenforceable when it has issued only after an unreasonable and unexplained delay in prosecution."), amended in part by 429 F.3d 1051, 1052 (Fed. Cir. 2005) (holding laches applied to all remaining patent claims because "all of the subject matter in the patents in suit was pending for an unreasonably long period of time").
249. See infra Table 5.
250. Both the NPE litigation success rate and the plaintiff success rate in the random sample, however, appear to be lower than the forty-five percent win rate of plaintiffs in infringement suits reported in a 2003 study. See Edward F. Sherry & David J. Teece, Royalties, Evolving Patent Rights, and the Value of Innovation, 33 Res. Pol'y 179, 187 (2004) (finding forty-five percent win rate in normal patent infringement cases "brought in a US Federal District Court . . . taken through to disposition either by summary judgment or by a trial court verdict"). This difference could well be driven by this Note's shorter time period of study and smaller datasets.
251. See supra note 165.
252. See supra notes 48-51 and accompanying text (discussing relationship between patent value and licensing fees).
253. See text accompanying supra note 171.
254. See supra Table 6.
255. Patent Trolls Hearing, supra note 108, at 6 (2006) (testimony of Edward R. Reines, Esq., Weil, Gotshal & Manges, LLP) ("It is an emotional hot-button to categorize or label someone as a troll, and I would be concerned that too much focus on that would detract from the important mission of patent reform.").