Two patent professors, James Bessen and Michael Muerer, have published portions of their upcoming book, Innovation at Risk, online. The book promises an empirical study showing that the current patent system discourages innovation and suggesting ways to fix the system, presumably to encourage innovation. The suggested fixes are not fully described online yet, but some of the empirical basis for the problem is and it is generating a fair amount of conversation — see the New York Times, Wired, Patently-O and Wired GC, for example. The authors say they have analyzed emperical patent litigation data from 1974 until 1999 (the last for which information was fully available). Their numbers show that profits/damages from pharmaceutical and chemical patent litigation have generally increased as patent litigation costs have increased and maintained a substantial profit margin — in 1999, patent litiation resulted in worldwide profits of over $12B (in 1992 USD) with US litigation costs of just over $4B (in 1992 USD). For all other technology areas, however, patent litigation profits/damages have remained relatively flat while patent litigation costs have increased substantially — profits have hovered around $2-3B per year (in 1992 USD) while costs have gone from a little more than $2B in 1994 to almost $12B in 1999.
These numbers could be terrifying to a casual reader, and they fit nicely with the current Patent Reform Act efforts in Congress. But I suspect that much of the increased patent litigation costs come from companies that are bringing questionable cases based upon inflated damages theories or refusing to settle infringement cases against them despite the fact that the facts do not support their case. One of the most important skills in patent litigation is self-reflection. You have to be able to take a step back and review your case with a disinterested eye to truly determine your strengths and weaknesses. An outside counsel who has the ability and the courage to do that for a company is an invaluable asset, who will likely save you far more than he or she will ever cost the company in legal fees.