Imposed costs are tiny—studies prove

How large are the transfers to the RPX-identified public PAEs relative to the size of the market in which they operate? 27 The firms identify the markets in which they operate in their SEC 10K filings. Though some of the firms have some patent assets in sectors such as medical devices, for the most part they tend to operate in high technology markets.28 We confirm this by consulting RPX reports on litigation activity. As Table 6 shows, those reports indicate the NPErelated lawsuits occurred in high technology manufacturing, software, and related service industries. We also consulted the FTC (2016: 57), which states that “… the vast majority of patents held by Study PAEs were Information and Communications Technology (ICT) patents: 88% were in the Computers & Communications or Other Electrical & Electronic technology categories, and more than 75% of the Study PAEs’ overall holdings were categorized as software-related patents.”

TABLE 6 AROUND HERE

We therefore measure the size of the relevant market based on the sales revenues of the 153 large high technology operating companies identified in PwC (2017).29 We present the revenues of these 153 high tech firms, the revenues of the RPX-identified public PAEs, our estimate of the litigation costs those 26 firms might impose, and the estimated transfer from high technology companies to those 26 firms, both in absolute amounts and in percentages, in Table 7.30

TABLE 7 AROUND HERE

Relative to the size of the relevant market, how large are the transfers to the RPX-identified public PAEs? The answer is: exceedingly small. The RPX-identified public PAEs are minnows compared to the sea in which they swim. Over the six-year period 2011-16 the total revenues of the RPX-identified public PAEs came to only $12.1 billion, compared to high technology revenues of $6.4 trillion. If we factor into our estimate the litigation costs imposed by the RPXidentified public PAEs, then the total transfer from the high technology sector over the six-year period 2011-16 would have been on the order of $18.1 billion, which is to say that it would have accounted for only 0.28 percent of total high tech revenues over that same period. If we assume standard elasticities of supply and demand of 1, then the deadweight loss would be roughly 1/100th of the transfer, which is to say that it would be on the order of 0.003 percent of high technology revenues.

4.5 DISCUSSION

Taking all the evidence together, we find that the data are not consistent with the testable implications of the patent troll hypothesis. As a group, the RPX-identified public PAEs are simply too small to impose a large deadweight loss. Even if the business model of the RPX-identified public PAEs is to extract settlements for low quality IP on the basis of nuisance lawsuits— a claim that we assessed in Section Two and found to be inconsistent with the evidence—a more apt moniker for them might be patent lawn gnomes, rather than patent trolls.

The small size of the RPX-identified public PAEs, relative to the market in which they operate, fits with one of the main findings in Section Two: over the period 2000-16, the RPX-identified public PAEs lost $3.1 billion. Even if we focus only on the period after the Great Recession (2011-16), as a group the RPX-identified public PAEs lost $469 million (See Table 3). Most also lost money for their shareholders (see Table 4), and the few that did make money appear to have done so by taking on considerable risk (Table 5). It is therefore not a mystery why, as a group,

these firms are so small: one would not expect a business model in which there is a high probability of net losses to grow very large.