Our Patent System Is Horrible and Getting Worse Every Year—in 3 Charts

If we lived in a more sane world, patent lawsuits would not be a growth industry. But we don't, and they are. In fact, they're an extremely high growth industry, as illustrated in a new report from PricewaterhouseCooper.

As shown in the graph below, lawyers filed an all-time high 4,015 patent cases in 2011, up 22 percent from the year before (that's the maroon-colored line). Since 1991, they've grown at an average annual rate of 6.4 percent. At the moment, they're in overdrive. If you want a clear illustration of how broken our patent system is, this is it.*


This isn't just a matter of tech firms like Apple and Samsung trying to tear out each other's stuffing in front of a jury. As PwC notes, the suits are spread across many different parts of the economy. Consumer products makers are heading to court to defend their IP. So are big industrial companies. Pharmaceutical and medical device makers too! It's like patent law has become a big, litigious block party for corporate America, with taxpayers footing part of the bill (after all, we pay for the courts).


Much has been made of the role that so-called "patent trolls" have played in this trend. These are people and companies that buy up patents in order to file lawsuits without any intention of, you know, actually selling a product. In legal speak, they're politely referred to a "non-practicing entities," or NPEs. But while PWC says these bad actors are responsible for a growing portion of these suits, they're still just a part of the picture. PWC finds that there have only been about 361 court decisions involving NPEs since 1995, or about 21 percent of the total.* Convenient as it is to blame the trolls, this current burst of litigation is also the fault of actual companies trying to kneecap their competition.


How many of these cases actually have merit? It's not clear. In the last five year period, fewer than four in ten of the suits filed by non-trolls led to a successful result in court. But that doesn't tell us how often companies have simply paid settlements to make litigation disappear. Even that number would be of limited use, since companies often pay up front rather than spend money on a costly -- if possibly meritorious -- legal defense.

Of course, some patent cases really are necessary. There are small-time inventors that have their ingenious idea co-opted by giant companies. Sometimes one company goes out and copies another's best-selling product top-to-bottom. But today, law firms market these suits as a business strategy unto themselves. A company can make good money forcing competitors to take out a license on its IP. It's a way that corporations that are losing in the marketplace can extract money from those who are winning in it.

The growth of those kinds of suits is a suck on the economy. Litigation mostly reshuffles dollars between companies and from clients to their lawyers. A great, brilliantly argued lawsuit doesn't improve our broader quality of life or make anything more efficient. The more time and money spent on them, the less we have for truly productive parts of the economy. What's happening right now to our parent system represents a loss for all of us.


*Correction: An earlier version of this story stated that PWC only identified 361 cases filed by non-practicing entities.

(Disclosure: I previously worked in a non-attorney role at the law firm Dickstein Shapiro, which according to PWC, is responsible for winning two of the top ten patent jury verdicts in U.S. history.)