Seventy percent of venture capitalists and one in three startup companies have received patent assertions, or claims from patent trolls, according to a new survey from the National Venture Capital Association and the Institute for Innovation Law at University of California Hastings. Eighty percent of survey respondents indicated that the number of patent demands they have received increased over the past five years, the report found.
NEW STUDY CONFIRMS PATENT ASSERTION IS A GROWING AND COSTLY BURDEN ON INNOVATION ECOSYSTEM
UC Hastings and the National Venture Capital Association Report Shows an 80% Increase in Patent Demands Over the Last Five Years
October 29, 2013, Washington D.C. — The National Venture Capital Association (NVCA) and Robin Feldman, Professor of Law and Director of the Institute for Innovation Law at University of California Hastings, today released the findings of the survey “Patent Demands & Startup Companies: The View from the Venture Capital Community.” Among its objectives, the study sought quantitative data on the frequency of patent demands (sometimes known as patent assertions); whether those demands are made by entities whose core business involves the licensing or litigation of patents; and, the dollars spent in response to demands. The survey was distributed to members of the NVCA and the CEOs of member firms’ portfolio companies.
Patent Demands & Startup Companies finds that of the respondents, 70 percent of venture capitalists and one in three startup companies report having received patent assertions. Eighty percent of survey respondents indicated that the number of patent demands they have received has increased over the last five years, prompting growing concern for the innovation ecosystem.
“The economic and human toll of patent demands on startup companies is substantial. When startup companies must spend time and money thinking about patent demands, they are not inventing and they are not expanding,” said Robin Feldman, Professor of Law & Director of the Institute for Innovation Law at the University of California Hastings.
Other study findings include:
- • Patent assertions impact various industry sectors unevenly. Seventy percent of VCs identified IT as the industry sector most impacted by patent demands, followed by life sciences (30 percent) and clean tech (10 percent). Additionally, 60 percent of VC respondents reported that patent demands came from entities whose core activity is licensing or litigating patents.
- • Defending against patent assertions is costly. Sixty percent of VC respondents estimate that the average cost per company to prepare for and defend against patent demands exceeds $100,000, with some reporting costs in the millions of dollars. This represents a significant expense for young startup companies. Only 20 percent of respondents estimated the total cost per company at between $50,000 and $100,000.
- • Patent demands often impact business operations significantly. Seventy-five percent of VC respondents and 60 percent of CEOs reported that patent demands had either a highly or moderately significant impact on the companies that received them, including distracting management, expending resources, or altering business plans.
- • Most VC survey respondents do not perceive patent assertion as a positive influence in the startup community. Seventy percent of VCs said they do not believe patent assertions are positive for the startup community. Further, every VC respondent indicated that an existing patent demand against a prospective portfolio company could factor into his or her decision to invest in that company, while 50 percent said it would be a major deterrent.
“This study confirms what we’ve been hearing anecdotally from our members: The current patent system is working well for some portfolio companies, but not for others. The trend line, however, is not heading in the right direction. As more startups are targeted, more resources are devoted to litigation rather than to innovation. Balancing the need for reform with the need to maintain strong protection for patent-dependent startups will be a critical challenge,” said Jennifer Connell Dowling, Senior Vice President of Federal Policy and Political Advocacy, NVCA.
Please click here to view the full report.
About the National Venture Capital Association
Venture capitalists are committed to funding America’s most innovative entrepreneurs, working closely with them to transform breakthrough ideas into emerging growth companies that drive U.S. job creation and economic growth. As the voice of the U.S. venture capital community, the National Venture Capital Association (NVCA) empowers its members and the entrepreneurs they fund by advocating for policies that encourage innovation and reward long-term investment. As the venture community’s preeminent trade association, NVCA serves as the definitive resource for venture capital data and unites its nearly 400 members through a full range of professional services. For more information about the NVCA, please visit www.nvca.org.