Patent trolls cost inventors half a trillion dollars

By: David Goldman

NEW YORK (CNNMoney) -- Patent trolls -- companies that license patents but do not actually sell anything -- have long been looked on with fiery scorn in Silicon Valley. This week, a Boston University study offered fresh fuel for those flames.

Lawsuits from non-practicing entities, or NPEs -- better known as patent trolls -- have cost innovators $500 billion in lost wealth from 1990 through 2010, the BU study found. The study arrived at that figure by observing patent defendants' stock prices following a lawsuit, excluding general market trends and random stock movements.

The average patent lawsuit results in $122 million in lost wealth for the defendant, with a median loss of $20.4 million.

But almost all of that money dissipates into the ether. Very little of it transfers from big firms to small ones.

A common talking point among NPEs is that they provide a way for small inventors to make money on their patents: If big, bad IBM (IBM, Fortune 500), for example, were to infringe on one of their patents, small inventors likely wouldn't be able to afford to defend their patent in court. But if that small inventor sells the patent to a patent troll, the NPE can then sue IBM, and deliver a portion of those payments back to the inventor.

The BU study called bull on that that notion: Just 2% of companies' net losses went to small investors. NPEs are getting a better deal, but even they still took home just 9% of those losses.

Patent trolls also like to say that they themselves foster innovation. It's true that many NPEs have their own research and development laboratories that are used to invent technologies that can be patented. But those R&D expenses are also quite small -- they represent 2% of the lost $500 billion.

So if big technology companies, small technology companies and even investors in NPEs aren't gaining much from patent litigation, who is?

"The only real beneficiaries are the lawyers and perhaps the principals of the NPE firms," said James Bessen, professor at BU's law school and author of the study. "There are a lot of big losers from NPE litigation, while hardly anyone benefits much."