The actual number is under $7 billion. Where is the disconnect? Phillip Mann, of the Mann Law Group, blogged about a New York Times article on July 15, 2013. In that blog he arrived at his $20 billion fee estimate going to defense lawyers.
The NY Times article referenced by Mr. Mann is titled "Has Patent, Will Sue: An Alert to Corporate America." The article is about Erich Spangenberg of IPNav. IPNav is often referred to as a Non-Practicing Entity in patent litigation circles.
Mr. Mann, a Seattle IP lawyer, also appeared on a broadcast by LXBN TV. That broadcast is titled "Misconception of Patent Trolls: Where All This Litigation Money is Really Going." The LXBN TV broadcast later appeared on a JD Supra Law News article yesterday. The JD Supra article, that also includes Mr. Mann's video interview, is titled "Annoyed by the Cost of Patent Trolls? Look to the Defense Lawyers." The JD Supra article is here. Here's the video interview.
Back to the NY Times article. Mr. Mann found a multi-billion dollar "statistic from the article telling". In the NY Times article, a reference is made to a 2012 study estimating that United States companies spent $29 billion in 2011 on patent assertion cases. Mr. Mann provided a link to that 2012 study. The 2012 study (currently revised) is authored by James Bessen and Michael J. Meurer. The title of the 2012 patent litigation study is "The Direct Costs from NPE disputes."
The NY Times article also quoted the 2012 study author James Bessen. When breaking down the $29 billion spend amount -- Mr. Bessen suggest that $6 billion goes to inventors, and for the other $23 billion, most of it goes to legal expenses.
Mr. Mann then surmises the following:
Assuming a more-or-less standard 33% contingency fee, this means the inventors get $6 billion, their lawyers another $3 billion, meaning about $20 billion goes to defendant's counsel -- you know, those upstanding lawyers who complain about trolls, frivolous suits, abuse of the system, and threats to our American Way of Life, and only reluctantly -- reluctantly, I say -- put that $20 billion in their pockets.
A quick and fair review of relevant information reveals the following:
Page 19 of the 2012 Bessen & Meurer study states that the $29 billion 2011 spend represents
accrued costs, not necessarily the immediate out-of-pocket cost. That is, we accrue the projected cost of a lawsuit in the year in which the suit was filed, even though the lawsuit might not be resolved.
So the $29 billion estimated spend occurs over multiple years. And, of course, the legal defense fees would also accrue over multiple years. It gets more interesting. Page 4 of a 2013 Schwartz & Kesan essay, titled "Analyzing the Role of Non-Practicing Entities in the Patent System" had this to say about the 2012 Bessen & Meurer study
The study finds that the direct costs of NPE patent assertions are "substantial, totaling about $29 billion accrued cost in 2011." One quarter of these costs are litigation costs - primarily legal fees for accused infringers.
So what's the correct amount of legal fees that go to defense counsel? Is Mr. Mann correct that "about $20 billion goes to defendant's counsel"? Digging deeper, the Bessen & Meurer study actually estimates that "legal costs are 23% of the total and licensing costs are 77%." 2012 Bessen & Meurer Study at 13, fn. 13. So, if Mr. Mann had read the report he linked to, he would have learned that the legal costs totaled $6.67 billion, less than 1/3 of his $20 billion figure.
More interesting, the 2013 Schwartz & Kesan report authors actually reviewed the data from the 2012 Bessen & Meurer study. Mr. Mann has not made that claim in his blog post. Mr. Mann, you'll recall, relied on a reporter's account of an interview with James Bessen and then did a quick calculation. Schwartz & Kesan, however, point out potential flaws in the 2012 study. The potential flaws include: the estimate of costs is likely biased too high, an analysis of the costs of NPE litigation lacks an adequate baseline, the report relies upon a questionable definition of NPE, and the report ignores small businesses who are patentees. 2013 Schwartz & Kesan Study at 6-13.
We don't pretend to know Mr. Mann's rationale for his statement about defense counsel fees in the $20 billion range. We do note that the firm promotes itself as
MANN LAW GROUP - Contingency Fee, Patent Trial Lawyers