To many in the tech world, the idea that patent trolls are bad for business is a no-brainer. But just how bad? Two academics who have spent a large amount of time studying the damage patent trolls do, James Bessen and Michael Meuer, have released a new study arguing that trolls are costing the economy $29 billion a year in direct costs.

If you think you recently read a different number about the costs of patent trolling—a substantially higher one—you did. An earlier study by the same two academics measured indirect costs of patent troll lawsuits, using public companies' stock prices as a proxy for the damages. That study found those costs to be about $83 billion annually.

It's not surprising that the two numbers would be different or that the first one would be significantly higher, study author Michael Meurer explained in an interview. "Based on previous research, we thought the gap between the two might be even larger than it was," he said.

The $29 billion number comes from measuring the more straightforward costs associated with fighting off patent troll suits: those include legal fees going to lawyers, and the licensing fees paid in tribute to make the trolls go away (which nearly always get paid). The findings come from a relatively small sample of 83 companies, both small and large.

The study paints one of the clearest pictures yet of the impact patent trolls—more politely called non-practicing entities or "NPEs"—are having on the economy.

Even if the numbers are inflated, there's little doubt those costs are significant. The total spending of US businesses on research and development is $247 billion per year. So even if one only considers the direct costs of patent trolls, they may be sucking up more than 10 percent of the money that could be spent on R&D.

Bessen and Meurer are the authors of Patent Failure, a 2008 book criticizing the patent system that has become a bête noire in some quarters of the patent bar.

Hit by many small trolls and a few strong ones, costs add up

Out of 250 companies that were surveyed about the costs of patent litigation, the authors got responses back from 82. Those companies defended a total of 1,184 patent troll lawsuits between them.

Most of the costs of dealing with the patent troll threat come from paying the licensing fees that trolling companies demand to settle lawsuits. The mean amount spent by large companies to end an NPE lawsuit is $7.27 million, while small-to-medium sized companies spend $1.33 million.

That number doesn't tell the full story, though. The median amount spent to pay off a troll suit is just $230,000 for large companies and $180,000 for small- and medium-size defendants. The discrepancy means that the great majority of trolls go away after getting relatively small payouts, while a few very strong entities in the patent-trolling business are able to pull off giant multimillion-dollar settlements. (Of course, the fact that low six-figure settlements are seen as the "small" ones suggests how entrenched and lucrative the NPE business is.)

The second-largest cost is, unsurprisingly, fees paid to defense lawyers. Big companies spend a mean of $1.52 million per litigation, while small- and medium-sized companies spend $420,000. Again, those compare to much lower median figures ($230,000 for large companies and $70,000 for small/medium), showing that the companies have a large number of cheaply defended cases, while a few heavily litigated cases run up big fees.

The big companies reported they had to deal with a few lawsuits that had blockbuster legal costs—the most expensive 5 percent of their cases cost more than $22 million.

"There are really two different worlds of trolls out there," says Meurer. "There's a talent in finding good patents, finding good targets, and matching the two. Just like the very best financiers go to Wall Street and get paid tons of money, I think the 'big game hunter' trolls also have a rare talent."

Some NPEs are probably looking for good patents to go after a juicy product produced by a single firm or a few firms, Meurer said. "Others are probably more comparable to frivolous litigators in other settings. They make lots of demands for payments, and wear the other side down." Both strategies appear to be working quite effectively.

Other findings of the study include:

It isn't just big corporations who are plagued by trolls; small firms are getting hit hard by troll lawsuits as well. Bessen and Meurer found that small- and medium-sized companies defended 59 percent of the NPE lawsuits. Those companies have a median revenue of just $10.8 million, and dealing with NPEs costs them more, relative to their lower revenues."The defenders of NPEs say they monetize patents and funnel it to small inventors," says Meurer. "We've known they don't funnel very much money, and we also know they're imposing costs on small inventors. This data should take some wind out of the sail of Nathan Myhrvold."

Litigation only measures part of the problem, since many trolls simply threaten suit and collect money without ever going to court. The study also asked respondents how much it cost them to deal with those threats. While the legal costs were modest, the licensing payouts were even bigger than litigated cases. Large companies paid an average (mean) of $34.4 million per non-lawsuit patent attack, while small- and medium-sized companies paid $7.85 million. It's worth noting that those numbers were based on a small sample of 46 companies that reported costs for both litigated and non-litigated cases, and have a high standard error.

Defenders of NPE litigation suggest that such lawsuits are one way of offering value to inventors, for patents they couldn't otherwise license. Bessen and Meurer deal with that argument by looking at financial results from 12 publicly traded NPE firms, and found that the payments they make to inventors whose patents they acquire are far smaller than the costs they have on defendant companies. The NPE companies spent a total of $679 million on acquiring patents from small inventors, or about 7 percent of the estimated $10 billion in costs those same 12 NPEs imposed on defendant companies over a six-year period, from 2005 to 2011.They also cite a study by Michael Risch, who notes that only 29 percent of the patents being used by NPEs originated with individual inventors. That contrasts with 43 percent of NPE lawsuits using patents that were originally held by large companies.

Data handled by a secretive source

The data that made up Bessen and Meurer's study has an unusual source: RPX Corporation. It's a San Francisco-based wheeler-and-dealer in the patent world that helps its corporate members mitigate the costs associated with NPE lawsuits. RPX is relatively new to the patent ecosystem; it was founded in 2008 and went public in 2011.

The company's model is to buy up patents that are likely to be litigated by trolls—or are already being litigated—and then licenses the patents to its corporate members, who pay a flat annual fee. While RPX is in the business of buying up patents, it has promised to never assert any patents under its control.

One possible effect of having only RPX members respond to the survey is that those companies may be dealing with higher-than-normal litigation costs from NPEs—after all, the whole reason a company would join RPX is that it wants to reduce those costs. To double-check their cost figures, the authors compared them to other databases, such as a previous study based on companies that had won fee motions, and an annual survey by a patent lawyers' group. Those sources had roughly similar figures, says Meurer. (Cost comparisons are on p. 29 of the study.)

The companies who participated in the study were all RPX members or potential members, but their identities are known only to the RPX employees who handled the raw data, not to Bessen and Meurer. So everything about the study requires trust in RPX's handling of the data.

"The respondents didn't want us to know who they were—they're worried about privacy," says Meurer. "Licensing costs are very sensitive. All the survey responses were sent to a secure server, and we had limited access."