Suing companies for patent infringements has become its own industry.
In some cases, the lawsuits are legitimate efforts for a patent holder to get paid for its innovation. In many, however, the company bringing the lawsuit is simply looking to get paid. This practice, popularly called "patent trolling," has become an increasing problem for technology companies.
Trolling is not about righting actual wrongs. It's simply a holdup, a dirty tactic whereby the suing company wants to force a wealthier entity to pay up to avoid the expense of fighting the claim. It's in some ways no different from a retail store that pays protection money to the mob so that someone doesn't show up saying it would be a shame if "all this nice stuff got broken somehow."
The problem is that it's easy to define a protection-money scam, while patent trolling is much less clear. There are plenty of legitimate patent-infringement cases in which the company holding the patent has a legal right to be paid, or at least has a valid complaint worthy of being adjudicated.
Those cases, however, are tied up in courts next to many less-credible lawsuits. That has led to an explosion in patent lawsuits, which is causing no end of problems for a number of leading technology companies.
How big is the problem?
In 2015, the United States is on track to experience the highest number of patent disputes in its history, according to Statista. There were 3,499 patent litigation cases in 2011, according to the statistics firm. That number is expected to hit 6,100 this year.
That has especially dire consequences in the technology industry, which is involved in the majority of these cases. Apple (NASDAQ:AAPL) alone has already been targeted 35 times this year, while Samsung (NASDAQOTH:SSNLF) faced 33 separate cases in the first half of 2015.
Patent lawsuits can be costly for the companies fighting them. In 2014, Harvard Business Review presented research showing exactly how big the impact is.
The economic burden of today's patent lawsuits is, in fact, historically unprecedented. Research shows that patent trolls cost defendant firms $29 billion per year in direct out-of-pocket costs; in aggregate, patent litigation destroys over $60 billion in firm wealth each year. While mean damages in a patent lawsuit ran around $50,000 (in today's dollars) at the time the telegraph [sic], mean damages today run about $21 million. Even taking into account the much larger size of the economy today, the economic impact of patent litigation today is an order of magnitude larger than it was in the age of the telegraph.
These are big numbers, and the practice of suing over patents just to force a settlement has a real impact on the economy. Money spent fighting patent trolls is money not spent on innovation, employees, and otherwise moving a company forward.
Help may be coming
Congress has been slow to take action, but in July, the House Judiciary Committee approved the Innovation Act (H.R. 9) by a 24-8 vote, The Hill reported. The bipartisan bill "would curb abusive patent litigation by requiring plaintiffs to cite specific harms caused by the alleged infringement, shortening the discovery period, and making it easier for interested parties to join the litigation," according the news site.
It would also shift the cost of any litigation to the losing party "if the underlying claim were deemed questionable and require disclosure to the United States Patent and Trademark Office of individuals having an interest in the patent," The Hill wrote.
A similar bill passed the full House last year but was killed in the Senate after pressure from law firms. That pressure still exists, but there is bipartisan agreement in Congress that providing some relief to companies is important.
Whether that happens remains to be seen, so for now, companies like Apple and Samsung will face an increasing amount of patent litigation.
Daniel Kline owns shares of Apple. He is not tall enough to be a troll. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.