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Patent Rights: A Spark or Hindrance for the Economy?


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: November 5, 2012 @ 10:45 am
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Professor Richard Epstein (left) and Professor Adam Mossoff (right).

Innovation and entrepreneurship are integral to America’s economic strength, and the U.S. patent system has been critical to nurturing this innovation economy.  Yet, there are some who continually argue that patents are a hinderance to economic development and the march of innovation. It will come as no surprise to anyone that I don’t believe that to be true.  In fact, if you actually look at he hard, cold facts objective individuals would all agree that the a patent system fosters innovation.  Patents do not hinder innovation.

What may surprise many readers, however, is that there are actually several well regarded academics who actually agree that the patent system fosters innovation. Yes, that is nearly heretical. Legal academics frequently take positions that would lead to the whittling away of patent rights.  Those academics simply ignore the realities that exist in countries where there are no patent systems.  They also ignore the reality that innovators require a reasonable rate of return in order to pump money into research and development.  In some cases it is many millions, even hundreds of millions of dollars that need to be invested.  It is naive to believe that anyone would spend millions or hundreds of millions of dollars without any competitive advantage. If a free rider could just copy and sell for less the creator would lose everything. That is not a model for success.  It is a recipe for failure.

In any event, on October 24, 2012, Professor Adam Mossoff of George Mason University School of Law sat down for a conversation with Professor Richard Epstein of the New York University School of Law. The conversation was sponsored by the Federalist Society and is available as a podcast MP3 download for those who are interested.

The conversation between these Professors was set thusly:

Patent defenders have responded that with every spike in innovation comes a corresponding increase in the number of patent suits, and efforts to weaken patent rights will inevitably lead to less innovation. With the passage of the America Invents Act — the broadest overhaul of the patent system in 50 years America — many people believed that the dispute over patent rights would recede. However, with a string of high profile patent infringement suits in the smartphone industry – and a new effort to roll back patent rights at the International Trade Commission certain patents held by so-called “non-practicing entities” (NPEs) – the debate over intellectual property has grown more intense. Would reduced patent rights diminish U.S. competitiveness and depress innovation? In a diversified economy, should NPEs have fewer patent rights than those that manufacture their inventions? Will innovation continue apace even if patent protections are scaled back?

In his opening remarks Professor Epstein explained that he comes from the question of patents from a different perspective than some. “The basic system of property law that we have out there for land and for chattels has worked pretty well for countless generations and the issue is how is it that we best carry it over into an area of intellectual property law so as to keep all of its desirable features and to try to eliminate any peculiar undesirable features that arise by virtue of this transition,” Epstein explained.

Epstein would go on to define the debate between whether patents foster innovation or hinder its progress:

The usual battle with respect to patents comes from a very different source which is whether or not the blockade rights that are created by patents are sufficiently dangerous or that one has to soften the system and I think in many cases what you see are all sorts of people who come up with the argument that a patent is, in fact, the way to deter innovation so that the release of various kinds of technologies or information from the patent system is probably gonna be a good thing.  This argument started early on, about 15 years ago almost now, in connection with pharmaceutical products where it was held that certain kinds of key patents would create bottlenecks, would generate an anti-commons for all the people who have to get together in order to make some kind of an invention to work would be unable to do so that valuable technologies would languish because of patent disputes.

In the initial pharmaceutical context I think that claim was basically overwrought.  You’re trying to find particular instances of drugs which had founded because of those issues and you discovered that generally speaking the market worked fairly well and that you could not point to cases where anybody would say certain technologies were left on the cutting room floor because of the blockade.  In some cases a patentee will turn a blind eye to somebody who’s gonna develop a complementary technology which will increase the value of his patent so that’s fine, and in other cases there are various devices that patent pools and cross licenses which will, in fact, deal with the subject and then in other cases certain ways in which you tweak the remedial structure so as to delay automatic injunctive relief to give somebody a chance to invent around a patent would work as well.

In more recent years we’ve had exactly the same argument take place in connection with business method patents on the one hand and with respect to software patents, on the other, where it has been held that the intrusive nature of these patents is sufficiently broad, that one is better off doing without them.

Epstein then went on to recount a recent debate he has had with an anti-patent advocate who is not particularly fond of business method patents and software.  As the debate usually unfolds the anti-patent advocate will characterize patents as some form of parasite.  Epstein’s responded to this nay-sayer: “give me some of that parasite so that I can do the same thing.”

Epstein exposes the basic, fundamental fallacy of the position of those who argue that patents slow business and prevent innovation.  Their argument is counter factual.  If they would just open their eyes they would realize that what they say with such conviction is not what is observed in the industry.  The anti-patent advocates would realize they are wrong if they would just open their eyes and acknowledge the factual and historical truth that object observers see.

Epstein went on:

One just thinks of the fact that five years ago Blackberry was the industry standard, dominant forever, and now it is basically exposed to ridicule because virtually it’s dropped to third or fourth on the distribution list.  You look at the rate of technological progress between then and now, it just doesn’t seem in any way, shape or form to have been slowed down so it seems to me that in face of rapid technological advance to say that the current system is a disaster is a mistake.

And that is where the anti-patent argument falls apart. You cannot with any intellectual honesty argue that patents hinder innovation or get in the way of technological advance or prevent business opportunities. The technology sector is moving forward at almost unimaginable speed. What was revolutionary several years ago is passé today.  This is a truth that everyone has to recognize as objectively true.  If patents were a hinderance it would not be true.

Alas, the detractors of the patent system have once again had their arguments shattered by reality.

Of course, what is above is just a brief expose of the wonderful discussion between two law professors who really get it.  Their conversation was approximately 54 minutes and I highly recommend it for those interested in a strong patent system.

Those interested in this topic may also be interested in another podcast of the Federalist Society, which will take place on November 6, 2012, from 2pm to 3pm ET.  The topic: Software Patents: Boon or Bane for Technological Innovation? Professor Mossoff will participate in this discussion along with Professor David S. OlsonAttorney Robert Sachs, Professor Mark F. Schultz.

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Posted in: Anti-patent Nonsense, Gene Quinn, IP News, IPWatchdog.com Articles, Patents, Technology & Innovation, US Economy

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

26 comments
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  1. Refreshing.

    Er, um, what? This is outrageous. The thirsty throngs should be up in arms (but remember, being up in arms is thirsty work, and the new seasonal Academic Heresy Herbed Apple Kool-Aid is specially priced).

  2. Much of the anti-patent software crowd loves their trade secret and copyright protection for software. When they are ready to trash them along with patents, I’ll consider whether they have a valid argument.

  3. Patents hinder innovation?

    Well it depends on what is meant by ‘innovation’. I think to many, their view of innovation are based on what products are for sale.

    In this context it is clear that patents can and do impact the bringing to market of some ‘innovative’ products and their price. A recent example was drawn to my attention was through Mark Nowotarski’s comment on http://www.ipwatchdog.com/2012/09/27/broad-claims-to-signals-computer-program-products-in-epo/
    in the linked article is the statement “They were also able to cut costs thanks to some expensive patents expiring …”
    I also seem to remember there is a similar issue around toy helicopters, as these require licenses for the many of the same patents as used in full-sized helicopters, which naturally impacts the final ticket price.

    However, if we take innovation as what goes on in R&D facilities and universities then I would expect these organisations to effectively ignore third-party patents until such time as they decide something is ready for commercial exploitation.

  4. How exactly could we trash trade secrets? We could weaken the legal enforceability of NDAs and allow for greater reverse engineering, but trade secrets are often protected primarily with technical means, so we couldn’t completely be rid of them without being in an authoritarian society in which we force inventors to reveal their secrets.

  5. without being in an authoritarian society in which we force inventors to reveal their secrets.

    Shhhhh – don’t let the cat out of the bag.

  6. Billions are spent on patent litigation due to patent trolls each year. Those billions could go into R&D and hiring and therefore spur innovation. Patent trolls, no matter how pretty you try to dress them up, do nothing for innovation. The BS argument that they are necessary to create liquidity in the patent exchange marketplace is ridiculous in today’s networked society where it’s easier than ever before for independent inventors to connect with commercialization firms (see Quirky.com for one example). So to the extent that patent trolls are enabled by the free alienability of patents, they can certainly hinder innovation and the economy.

  7. Patents are vital to continued human advancement in all fields of endevor. Getting the patents in the right name is critical to maintaing the incentive to create. We have 40 methods of cheatng the inventor now and growing so the future liiks dim without largescale system change.

  8. I don’t have a problem with patents, at least not with high quality patents. I agree they are necessary to promote technological advancement in some fields (not all, sorry). My problem is with the “personal property” fiction of patents that allows them to be bought and sold like used Ikea furniture. This regime completely neglects that there are serious public policy considerations involved with assigning patents under circumstances that are completely divorced from the Constitution’s mandate that they “promote Science and the useful arts.” I would like to see conditions placed on assignees that require demonstrable plans to commercialize and subsequent progress. Or a tax on NPEs that reflects their harm on the economy.

  9. dmc-

    So then you are not in favor of calling a patent a property right.

    It also strikes me that your position would penalize inventors who are unable to afford to commercialize. Your policies would have crippled the likes of Thomas Edison, and would destroy the biotech industry as we know it. Those who research and develop with no intent to commercialize themselves would be left out, which would mean that innovation would crawl forward at best.

    I think that is the wrong path to follow.

    -Gene

  10. I am in favor of calling a patent a property right, but with some conditions placed on assignment. And I carefully considered independent inventors in my proposal by saying they can still assign their inventions, but only if the assignee plans to commercialize it. What other value should the patent have if it cannot or will not be used for something useful? Shakedowns? Those hurt innovation at large more than help no matter how you try to spin it. And if a small inventor really got screwed by a big firm, there are plenty of contingency-fee lawyers who will take his case, no need to rely on corporate NPEs for that. I will take the tax plan one step further and say the tax only applies to corporate NPEs, not independent inventors. The bottom line is that, TO THE EXTENT patents enable corporate NPEs to extract billions from companies that actively innovate, patents can and do hinder innovation.

  11. My problem is with the “personal property” fiction of patents that allows them to be bought and sold like used Ikea furniture.

    My problem with this statement is more fundamental. This”personal property” is not fiction. This is law.

  12. Further, dmc, you seem to be invoking a notion of “use” that is NOT law.

    Sorry, I just cannot find myself agreeing with you when you ignore what is actual law and invoke what is not law as law.

    There is fiction afoot alright. But that fiction is what you are selling, and I am not buying.

  13. Anon,

    Have you ever heard of the concept of a legal fiction? You are correct, the only reason patents are treated like personal property is because the patent statute says so, not because patents actually possess the characteristics of personal property as the term is perceived by the general public (i.e. like Ikea furniture). Therefore, my proposal would involve changing that language in patent statute. I know, fat chance. But I stand by my reasoning on why it would be good policy to tweak the property nature of patents such that corporate NPEs acquire weapons with which to threaten real innovators.

  14. Edit last sentence: “But I stand by my reasoning on why it would be good policy to tweak the property nature of patents such that corporate NPEs could not acquire weapons with which to threaten real innovators.”

  15. dmc-

    Interesting. You seem to be saying that those that infringe patents are “real innovators.” Actually, those that infringe a patent are copy-cats, not innovators at all.

    -Gene

  16. Gene,

    No, I am saying that an actively producing ACCUSED infringer (by a troll) is a real innovator (most of the time), especially when compared to the troll who exists for no other purpose than to sue, with often dubious claims. I believe the percentage of patent troll victories in cases that go through a full trial on the merits is in the neighborhood of 15%. I’ll look for the source, but I’ve seen it in presentations by seasoned patent litigators several times. Fortunately for the troll, the cost to innovators of proving non-infringement or invalidity is so damn high, they often settle out of necessity. Equating that with actual infringement is intellectually dishonest.

  17. dmc-

    Would love for you to back up your claims that the accused infringer is the real innovator most of the time. The facts actually suggest the exact opposite.

    You say that patent trolls that go through a full trial win 15% of the time. What about the 98% of patent cases that settle? Carving out all those favorable settlements for the patent owner and focusing on the trial loses is extraordinarily misleading.

    You can pretend that challenging a patent is expensive, but that is simply untrue. There are far cheaper mechanisms to challenge patents than litigation. The fact that people choose not to pursue them and instead pay patent owners really suggests overwhelmingly that I am correct and you are mistaken.

    -Gene

  18. You ask me if I have heard of a legal fiction. I have. You are using the term incorrectly. May I suggest you look up the meaning in Black’s Law Dictionary, and then that the setting of patents as personal property by law involves no assumption that something is true even though it may be untrue.

    Again, the only fiction here is the stuff you are writing in order to have a different reality.

  19. At #15, above, Gene asserts: “…those that infringe a patent are copy-cats, …”.

    But the world is not simple enough to designate every corporation as a white hat or a black hat. Today’s accused trespasser is tomorrow’s aggrieved patent owner, suffering trespass on the turf he asserts as his own.

    Whether they each copy the other or both copy a third party innovation, or nobody copies anybody, under patent law it’s all the same. It was ever thus. And ought also to be so today.

    In principle, why shouldn’t an impecunious patent owner procure investment from an NPE to tackle infringement of valid duly issued claims? But if so, to balance the rights of rights asserters against those of their targets, the system does need 1) a quick and just way to determine that the asserted claim is invalid and 2) a Polluter Pays principle in patent litigation.

  20. to balance the rights of rights asserters against those of their targets, the system does need 1) a quick and just way to determine that the asserted claim is invalid and 2) a Polluter Pays principle in patent litigation.

    MaxDrei,

    I think that there would be few who would openly disagree with you (outside of the patents/all IP is “evil” crowd).

    The problem I think must be traced to the source. In the US, people expect people to do their jobs. We expect the government agency in charge of the patent grant to have done their job in examination and that the patent, once granted can be relied upon to be valid – without having to resort to a costly/lengthy default-second evaluation by a court of law. I would posit that 1) should be de facto presumed to be so. This of course needs to be a rebuttable presumption because no one is ever 100% perfect, but that rebuttable presumption should be rarer then hen’s teeth – not the current view of flip a coin. When the possibility of overturning a patent is higher, the likelihood that someone will view the “efficient violation” of that patent as worth the risk goes up and we have more litigation. If litigation is viewed as a problem (which I am not entirely convinced that it is nearly as much as the popular press portrays), then a proper root cause analysis should be performed rather than a band-aid that really does nothing to solve the problem (I admit, the engineer in me comes out when I view the problem here that needs fixing).

    As to the second point, I agree in principle. I think however, that that concept will not alleviate the ability of the deep pockets out there from taking the gamble between infringement and litigation. One aspect of the current state is that 2) has been stepped away from (in a sense) with the eBay decision, which many have taken as using equity to allow polluters to pay less, rather than more.

  21. anon, we differ on the “Do your job” point. The job you expect them to do is not possible.

    Validity in chemical cases, for example, often hangs on whether the prior art is enabling, whether the specification of the asserted patent is sufficient, what the results actually are, and how surprising they are. In English inter partes proceedings each side does experiments, witnessed by the other side. That’s one way to resolve these issues. I don’t know a way the PTO can do that.

    You can’t have chemical patents without these issues, and you can’t resolve them fairly in ex parte proceedings.

    Duty of Candor, Rule 56, equitable conduct, and all the rest is chasing after a rainbow’s end that you can never reach. Supposing that if only PTO Examiners were competent all difficulties would go away is (I’m sure) just deluding yourself. Better to reform inter partes proceedings, i think, and make them fit for purpose.

  22. I agree with MaxDrei at #19 and at #21

    However, I would build in this, picking up a point that dmc stubbled over. The fundamental problem with patents is that they are a largely invisible property right, unlike physical property – such as turf and Ikea chair’s. Hence it is all too easy to trespass without deliberate intent and find oneself being accused of being a ‘copycat’.

    The issue is therefore as MaxDrei points out in both #19 and #21 one of ensuring the system is working. This means that the system needs to accept that patents will be incorrectly granted and hence have ways to remedy the situation that don’t involve costly and lengthy second evaluation by the courts (sorry Anon #20, whilst I agree we should be able to presume patents are valid, reality is showing us that we should always question this assumption). Likewise, ensuring that after the event redress is readily and fairly achievable, although I accept Gene’s observation in #17 that only a relatively small proportion of cases result in court proceedings and hence publicity, so the patent licensing system might be working just fine for the vast majority (and that may mean that there are a lot of ‘copycats’ out there – only they just don’t know it yet …).

  23. Roland, when some Brits argued that patent litigation should be made quicker and cheaper, while retaining high quality, it met with uproar from within patent litigation circles. Those in the know said that the last thing we need round here is quicker and cheaper: the courts have quite enough cases to handle already, thank you. Any more and the system will be hopelessly overloaded.

    Besides, the higher the cost of litigating (even if you win) the more that parties are driven to settle. And that’s good. Isn’t it? Think about it some more. Who wants a system like they have in Germany: quick and cheap litigation, and so the courts are engaged as a first rather than a last resort. Is that what you want?

    The interesting thing about patent litigation is that Europe is an ongoing testbed for forum shoppers. Do you want discovery? Go to UK. Do you want your case decided by a court-appointed technical “expert”? Then go to Germany. Do you want a nice blend of speed and quality, and proceedings in English? Then consider Holland.

    These different jurisdictions are competing with each other for the lucrative patent litigation business. And it shows. How? In the ongoing reforms each of those jurisdictions is diligently and assiduously making.

    Is innovation in Europe dead or dying? Wishful thinkers would say yes. But I happen to think not.

  24. MaxDrei, I wonder whether the courts really should be the first place of appeal in patent cases and whether the first place shouldn’t be some form of review by an expert panel. Naturally if the gap between the parties is too large for them to reach a settlement then they can resort to the courts …

    I agree the various court battles, particularly those revolving around Apple, where effectively the same case is being heard, is enabling us to more easily compare the differing approaches to patent litigation in the EU member states.

    Your mentioning of Holland brought a wry smile to my face. From my experience of working in Anglo-French companies, I’ve found that the best way to get the French to adopt UK ideas was to get the Dutch to promote them as their own!

  25. Good point Roland. Makes perfect sense. The EU would have settled on English as its sole working language long ago, but for one thing: it is the language of the UK.

  26. MaxDrei,

    My apologies for neglecting our conversation. I have been slammed, but did wnat you to know that I have read your posts with interest and see some very deep problems that I would love to explore, but cannot at this time.

    While focused on a different theme, the article by Jason Rantanen and Lee Petherbridge share som eof my views (by no means all) on what I consider you default listing towards litigation as a necessary form of patent examination. If the job is impossible, can the patent actually be granted? Rather than “impossible,” the job is mandatory. An electronic copy of the article is available at: http://ssrn.com/abstract=1859764