PAEs Impact on Innovation Economy: Insights & Myths

Impact on Innovation Economy

On Monday, October 29th, Stanford College’s Hoover Foundation Working Gathering on Protected innovation, Development, and Success (Hoover IP2) issued an overhauled working paper taking a gander at the impacts of patent declaration elements (PAEs) on the advancement economy in the Assembled States.

Understanding PAEs Beyond the Trolls Misconception

The paper, co-created by Noel Maurer of George Washington College and Stephen Haber of the Hoover Establishment, challenges the conventional view of PAEs as “patent trolls.” Contrary to popular belief, a group of public companies identified by patent risk management firm RPX Corporation as PAEs doesn’t conform to the typical characteristics of patent trolls. In fact, Maurer and Haber’s findings reveal that these companies contribute significantly to research and development, with expenditures twice that of U.S. cutting-edge firms.

Debunking the Patent Troll Hypothesis

The working paper initiates with a fundamental question: “Do firms that derive revenues from licensing patent portfolios, as opposed to producing physical products—often called patent assertion entities (PAEs)—frustrate or facilitate innovation?” To answer this, Maurer and Haber delve into 17 years of U.S. Securities and Exchange Commission (SEC) filings made by 26 publicly traded PAEs. The study dispels the notion that PAEs operate like patent trolls, showcasing their substantial investment in research and development.

Unveiling the Research and Development Commitment

Contrary to the stereotype of minimal spending on R&D, the identified PAEs outpace 153 large cutting-edge firms in R&D expenditures, as per PricewaterhouseCoopers’ 2017 Global Innovation 1000 analysis from 2011 to 2016. Seventeen out of the 26 PAEs even surpass the R&D spending of major tech giants like Apple or Hewlett-Packard, challenging the narrative of PAEs hindering innovation.

Profitability and Size: A Different Reality

The study further refutes the assumption that PAEs thrive by filing nuisance claims. Instead, the 26 identified firms collectively incurred losses of $3.1 billion between 2000 and 2016, with only six companies delivering positive returns. Their modest size, with revenues lower than a typical Safeway store, diminishes the perceived risk they pose to the innovation landscape.

Impact on the Innovative Sector: A Closer Look

In the second phase of the analysis, Maurer and Haber examine the potential “innovation tax” imposed by the PAEs. The findings reveal that the RPX-identified PAEs have minimal impact on the U.S. innovative sector, with revenues and litigation costs averaging 0.28 percent of sector revenues from 2011 to 2016.

Private PAEs: A Consistent Narrative

The study extends its analysis to three major private PAEs—Academic Ventures, Rockstar Consortium, and Familiar IP—finding that they align with the behavior of identified public PAEs. The inclusion of their revenues and litigation costs does not significantly alter the perceived innovation tax imposed by PAEs.

Conclusion: Challenging the Status Quo

While the authors acknowledge the existence of patent trolls, they contend that the RPX-identified PAEs may not be detrimental actors in the market. By operationalizing the characteristics of harmful PAEs and scrutinizing a dataset of identified PAEs, the study contradicts the testable predictions of the patent troll hypothesis, providing a valuable perspective for future research in this contentious domain. This research could potentially benefit from insights offered by Intellectual Property Lawyers, whose expertise in navigating legal nuances surrounding patents and intellectual property could offer additional depth to the analysis.

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