Jessica M. Karmasek Sep. 29, 2014, 1:15pm

DALLAS (Legal Newsline) - A recent study has found that companies that sue other companies that make goods or products, but don’t manufacture anything themselves, are a threat to innovation and the economy in the United States.

The paper, “Patent Trolls: Evidence from Targeted Firms,” was authored by Umit G. Gurun, an accounting professor at The University of Texas at Dallas’s Naveen Jindal School of Management; Lauren H. Cohen, a finance professor at Harvard Business School and a faculty research fellow at the National Bureau of Economic Research; and Scott Duke Kominers, a junior fellow at the Harvard Society of Fellows, research scientist at the Harvard Program for Evolutionary Dynamics and an associate of the Harvard Center for Research on Computation and Society.

The study, first published last month, adds to the ongoing debate of whether so-called “patent trolls” hurt or help innovation.

Generally speaking, a non-practicing entity, patent assertion entity or patent monetization entity purchases groups of patents without an intent to market or develop a product.

In some cases, but not all, the entity then targets other businesses with lawsuits alleging infringement of the patents it bought. Often, these are referred to as “patent trolls.”

Some argue that NPEs help protect inventors or entrepreneurs from large corporations that try to steal their ideas -- and often can’t afford to fight their own legal battles.

Others contend “trolls” simply coerce inventors or businesses into paying out.

“These are companies whose main way of making money is to sue -- or threaten to sue -- those who allegedly infringe on their patents,” Gurun said, adding that the most aggressive send out thousands of letters demanding money or threatening litigation.

The study found that NPEs go after the most susceptible, cash-rich targets.

“Our model illustrates our main empirical predictions that NPEs’ lawsuit-targeting decisions depend directly on the expected profitability of the suit rather than the similarity of targets’ inventions to those of the NPEs,” Gurun said.

In doing their research, Gurun, Cohen and Kominers used a database of more than 700 NPEs and more than 2,000 of their subsidiaries.

They found that the number of intellectual property lawsuits from NPEs has increased nearly 30 times from 2001 to 2011. They noted that the number of suits from practicing entities has stayed “relatively stable.”

The trio of researchers also found that after an NPE lawsuit, a firm or company produced fewer future patents and invested less in research and development.

Gurun said he hopes the study will encourage policy change, limiting the ability of trolls to bring frivolous lawsuits.

To download a copy of the paper, click here.

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