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Study: Nuisance Patent Litigation Costs Consumers Billions

Group applauds U.S. Trade Rep.’s decision to overturn ITC import ban resulting from Apple, Samsung suit

For the first time in 25 years, an American president, represented by U.S. Trade Representative Michael Froman, vetoed an earlier decision by the International Trade Commission that would have prevented some models of older Apple iPads and iPhones from entering the U.S. The models in question may now be imported. The case is at the heart of patent litigation between Apple and Samsung.

The ITC ruled in June that Apple had infringed on a Samsung patent covering wireless technology.

An attorney at Trial Lawyers Inc. today was heralding the president’s decision as an example of reigning in the ITC on patent litigation. Trial Lawyers Inc. is a project of the Manhattan Institute’s Center for Legal Policy. The Manhattan Institute is a nonprofit policy analysis organization.

The issue relates to radio as we recently reported DigiMedia has asked the judge in its patent infringement case against several radio groups to revive the case.

In discussing a Manhattan Institute report on patent trolls issued by TLI today, Director of Center for Legal Policy at the Manhattan Institute James Copland said the weekend case speaks to the administration’s goal of revamping patent rules to crack down on so-called patent trolls. Using the example of the Apple-Samsung case, Copland said with complicated products like cars or cellphones, a single patent infringement case that can keep a product from coming into the U.S. “is an enormous weapon.”

TLI says patent litigation in the software industry has emerged as an impediment to technology innovation. “Patent litigation abuse turns the goal of intellectual-property law on its head, inhibiting research and innovation by manipulating legal rules to extract income from those legitimately applying patented ideas to their products and services,” according to the report’s authors.

Software patents are 12% of all patents issued, but 74% of the most litigated patents, says TLI. Big companies like Apple and Google spent more money on patents than on R&D in 2011, according to Copland.

The number of patent lawsuits filed by patent trolls grew from 466 in 2006 to 2,914 in 2012, an increase of 526% in just six years.

The cost to consumers is significant. TLI cites a study by Boston University law professors Mike Meurer and Jim Bessen, which asserts the “patent tax” adds 20% to software and electronic research and development costs, with the direct costs of litigation by patent trolls in 2011totaling $29 billion — up from only $7 billion in 2005. Factoring in indirect costs, the Boston authors estimated an annual cost of $80 billion.

We’ve reported the Obama administration has introduced a slate of bills to reign in patent trolls, like “loser pays” legislation and bills to make who is suing a company more transparent. Copland says the proposed bills will plug loopholes in U.S. patent law. The absence of “loser pays” litigation in the U.S. makes nuisance litigation by patent trolls profitable, he said, adding that other developed countries already have such laws on the books.