Strong patent processing deters innovation by exposing investors to lawsuits from bad faith actors

C. Results The results provide fresh insights into how patent laws influence where firms innovate, and it spells trouble for the U.S. Patent Act. According to the random effects and OLS analyses, firms strongly consider the nature of a country’s patent enforcement system when deciding where to innovate. For example, the random effects analysis in Model 1 indicates that firms are more likely to place their R&D operations in countries where the costs of losing an infringement lawsuit are minimized, as measured by the negative and statistically significant variable of Average Damages. 194 This result was expected by our research, as those innovating a patentable good are more likely to be sued by those owning pre-existing patented technology than to sue them. As such, we find that inventors prefer jurisdictions where the prospective damages a court may issue are lessened. [table omitted] A similar conclusion is that the actual cost of litigating the lawsuit— ignoring the size of the judgment and damages rendered—helps to determine where firms innovate. Model 2 illustrates the negative and statistically significant relationship that average cost of patent litigation has on R&D Spending. This finding indicates that the actual cost of defending a lawsuit deters innovation—or, more articulately, causes inventors to place their R&D in jurisdictions where patent litigation is less costly. The OLS regressions produced similar results as the Random effects models. In Models 3 and 4, average damages was statistically significant and negative, as was average cost to defend a lawsuit, meaning that firms are likely to resist spending on R&D in countries that impose high costs on innovation in terms of both litigation and damages. These results have powerful implications for the U.S. patent system. Not only is the typical infringement lawsuit in the United States costly and drawn out, but bad faith litigants have devised ways to exploit these extraordinary costs, namely, by waging patent litigation as a means to extract settlements and impede competition.196 In comparison, the cost of litigating a patent infringement lawsuit in other countries can be less than $50,000, which is only 2% of the cost in the United States. This explains why, as we have found, inventors place their R&D programs in countries with less costly patent enforcement regimes than the United States. If the United States would like to better incentivize and retain innovation, then reforms must be made to the litigious and expensive nature of patent enforcement.