GAO Report: Litigation by Patent Trolls Is on the Rise, Often Using Low-quality Software Patents

WASHINGTON, D.C. – The Internet Association today commented on an important new report from the Government Accountability Office that confirmed the rapid rise in patent litigation and noted the increase in litigation by “patent monetization entities” (patent trolls) and the assertion of low-quality patents.

Statement of Michael Beckerman, President and CEO, The Internet Association
“The GAO report demonstrates that abusive patent litigation is out of control, and that patent trolls and low quality patents are to blame. Abusive patent litigation is a hidden tax on our economic recovery that is hurting both consumers and entrepreneurs. And this report only scratches the surface, acknowledging that much of the impact goes undetected. For every lawsuit filed, a company faces many more demand letters, and small companies tend to settle quickly to avoid high litigation costs. Congress must take action to put patent trolls out of business for good.”

Key Findings of the GAO Report

• Patent infringement lawsuits increased by 31 percent between 2010 and 2011 alone, while litigation involving software-related patents accounted for 89 percent of the increase in defendants between 2007 and 2011.
• Patent trolls, or “patent monetization entities” (PMEs), which exist solely to assert and litigate patents, sued close to one-third of all defendants in patent infringement suits and accounted for about one half of the overall increase in defendants in recent years. The number of defendants sued by patent trolls tripled in just four years.
• One patent troll admitted that it preferred to sue end users rather than technology vendors because it could extract larger settlements.
• The report acknowledges, “in addition to lawsuits, patent assertion occurs without firms ever filing lawsuits.” “[F]or every patent infringement lawsuit filed against [a company], they might receive many times more [demand] letters notifying them of potential infringement and offering licenses.
• The GAO report also identified low quality patents as a key factor in the increase in litigation. Stakeholders noted that “claims in software-related patents are often overly broad, unclear or both.” Software-related patents were used to sue 93 percent of all defendants in cases brought by patent trolls between 2007 and 2011.
• Patent litigation can cost a defendant anywhere between $650,000 to $5 million, even when there is no damage award. Discovery costs alone can range from around $350,000 to $3 million. PMEs do not face the same litigation burdens and, the GAO observed, often attract outside investors to fund lawsuits.
• PMEs exploit these huge potential legal bills to force companies to settle before going to trial. “Of [cases already concluded]…about 86 percent either ended or likely ended in a settlement.
• Companies tend to “…settle quickly to avoid high litigation costs…even if [the company accused of infringement] know[s] the case against them is weak.”

The Internet Association is the unified voice of the Internet representing the interests of leading Internet companies including: Airbnb, Amazon.com, AOL, eBay, Expedia, Facebook, Gilt, Google, IAC, LinkedIn, Monster Worldwide, Path, Practice Fusion, Rackspace, reddit,Salesforce.com, SurveyMonkey, TripAdvisor, Yahoo!, and Zynga.

###