The True Cost of Patent Litigation

Patent litigation is expensive! There is no way around it. This is true whether a case settles after 2 months, 2 years, or goes all the way through trial. There are ways to more efficiently litigate a patent infringement case, but that is for another post.

Generally when companies discuss the cost of patent litigation they only focus on the legal costs (i.e. what the law firm representing them has charged). Those of you that have been involved in a protracted infringement case know that the cost associated with the burden placed on a company’s key people may far outweigh the legal costs.

Recently two professors analyzed the “total cost” of patent litigation to an alleged infringer and summarized their findings in an excellent paper titled “The Private Costs of Patent Litigation.”

The following are some noteworthy points from the paper:

a. “But legal costs are not the only costs of litigation that affect innovating firms. Business costs of litigation can be much larger and can take many forms. Businesses can be disrupted as managers and researchers spend their time producing documents, testifying in depositions, strategizing with lawyers, and appearing in court.”

b. “We find that firms lose about half a percentage point of their stock market value upon being sued for patent infringement. This corresponds to a mean cost of $28.7 million in 1992 dollars (median of $2.9 million), much larger than the mean legal fees of about half a million.”

c. “In aggregate, infringement risk rose sharply during the late 1990’s, reaching 19% of R&D spending.”

d. In 1992 dollars… “Mean fees for cases that went through trial were $1.04 million for patentee litigants and $2.46 million for alleged infringers. For cases that were decided prior to trial, the mean fees were $950k for patentee litigants and $570k for alleged infringers.”

e. “…, we obtain a mean loss of wealth in 1992 dollars of $52.4 million and a median loss of $4.5 million.”

f. “We find that, contrary to what is sometimes assumed, the business costs of litigation far exceed the direct legal costs.”

I encourage everyone to read it fully to get a better understanding of the risk to your company associated with patent infringement.

David Dawsey – Keeping an Eye on Patent Litigation in the Golf Industry