Recently Professor Robin Feldman (UC Hastings Law) and Professor Mark Lemley (Standord Law) published a working paper titled Does Patent Licensing Mean Innovation? The study reaches a conclusion that patent licensing does not lead to new innovation. In order to reach this conclusion Professors Feldman and Lemly rely on 188 survey responses from “people who actually engage in negotiating patent licenses.” The point of the survey was “to see whether the deals they strike lead to new products or to technology transfer or other markers of innovation.”
The paper’s abstract explains:
A commonly offered justification for patent trolls or non-practicing entities (NPEs) is that they serve as a middleman facilitating innovation, bringing new technology from inventors to those who can implement it. We survey those involved in patent licensing to see how often patent licenses actually led to innovation or technology transfer. We find that very few patent licenses from assertion actually lead to new innovation; most are simply about paying for the freedom to keep doing what the licensee was already doing. Surprisingly, this is true not only of NPE licenses but even of licenses from product-producing companies and universities. Our results cast significant doubt on one common justification for patent rights.
There are a variety of problems with this paper, the conclusions reached and the methodology. Perhaps the largest problem is that Professors Feldman and Lemley rely on subjective evidence rather than volumes of objective evidence that contradict the self-serving responses from those who are licensing rights they are already infringing. As troubling as that is it is hardly the only problem with the draft article. The paper is fundamentally flawed on many levels and can only be expected to mislead decision makers by giving unjustified cover to those who want to dismantle the patent system. Despite the obvious flaws there is no doubt that this draft paper will be misused as part of the ongoing debate over patent reform.
First, it seems peculiar to frame the question as whether licenses in the face of an infringement allegation lead to new innovation. Stating the question about whether patent licensing leads to “new innovation” seems to almost intentionally miss the entire justification for having a patent system in the first place. The very phrasing of the question suggests a bias, and a failure to appreciate the reality that issued patents represent an innovation in the first place. Therefore, despite what Professors Feldman and Lemley conclude, it is hardly surprising that licenses entered into when the licensee faces allegations of patent infringement do not result in new innovation. The entire point is that the patent owner believes, usually with very good reason, that their rights have been trampled and an innovation misappropriated.
This is extremely problematic because the paper and survey both seem to forget that patents provide an exclusive right, which grants the owner of the patent the right to exclude others. When there is an infringement the innovation has already been seized away from the rightful owner without payment or permission. To cloak the question about whether a license to settle an infringement allegation leads to “new innovation” misses the point entirely. The new innovation was represented in the patent rights that were infringed by a tortfeasor in the first place.
By pointing out that in the case of infringement there has been a misappropriation of an innovation I am not suggesting that there aren’t nefarious actors in the industry, or that those people shouldn’t be called patent trolls. There is evil in the industry, but when there is infringement it is perfectly accurate to say that a once new innovation has been misappropriated by someone without permission. To somehow suggest that the question should be about whether the infringer has the ability to further innovate puts a ridiculous burden on the patent owner and misses the point of the quid pro quo completely. In exchange for disclosure patent owners get exclusive rights, which last for an extremely limited time. In the overwhelming number of cases patents fall into the public domain either after 4 or 8 years. If a patent is infringed during the finite window of exclusivity the infringer is taking what the patent owner has already innovated. The fact that the infringer has to pay for taking what belongs to another is hardly a revolutionary concept.
Frankly, in many circumstances the infringer has taken the innovation from the original innovator because they themselves have long since lost the ability to innovate. The Wall Street Journal has addressed the innovation slowdown in Silicon Valley and pointed out that once high-flying innovators rely on purchasing the innovations of others because they themselves are simply not innovating anymore. The fact that large corporations cannot innovate is hardly shocking. Innovation overwhelmingly happens in start-up companies and small businesses, in research labs and universities. When a company gets too large they lose the ability to innovate because they are no longer nimble and their corporate structure simply doesn’t support innovation. There are too many layers between a potentially promising innovation and the visionary who can green-light the project. This is precisely why large tech companies buy smaller, nimble, exciting, innovative companies. Cisco has long done this, so to has Apple, Google, Facebook, Oracle and virtually every large pharmaceutical company and biotechnology company.
It is ridiculous to suggest that the patent system has a licensing problem because large infringers aren’t able to innovate after they have infringed valid patent rights. With very few exceptions (i.e., IBM, Qualcomm, for example) large entities don’t innovate any more. That is why they infringe in the first place.
Further, despite what Professors Feldman and Lemley say, it is hardly surprising that those who have been complaining that they are not allowed to infringe with impunity would answer the survey the way they did. What else would you suspect from a homogenous subset of individuals who collectively don’t like the patent system very much? Collective bias seems a far more likely answer as to why there is “near unanimity,” as the Professors claim.
Additionally, where is the intellectual curiosity? Anytime there is unanimity or near unanimity significant questions need to be asked. How is it possible that any group could ever achieve near unanimity about anything? The fact that there was near unanimity demands one to question whether there is a bias or flaw in the survey, yet no such inquiry seems to have been made.
Remember, less than 36% of America watches the Super Bowl, about half of the people in the U.S. do not file or are not counted on a federal income tax filing, only 79% of Americans know that the earth revolves around the sun and only 76% of Americans know that we achieved our independence from the England/Great Britain/UK. See Gallup poll. 100% is never achievable, yet in several instances 99+ percent of respondents agreed. We laugh at Banana Republic elections where a dictator receives 90+ percent of the vote, but it is somehow academically acceptable to assume that 99% of people could agree legitimately on anything, let alone something as nuanced and complex as patent litigation and licensing? In some cases there was 100% agreement in this survey. Clearly, either the survey is flawed, the sample is biased, or both.
One of the biggest problems I have with this draft article is the reliance on a subjective survey as objective evidence. This is particularly alarming given that irrefutable objective evidence directly contradicts the survey results and conclusions reached.
To say that Universities do not transfer technology as part of licensing is simply not true. It is a complete and utter fabrication. The numerous joint ventures between universities and the private sector are irrefutable proof that directly contradicts any sentiment expressed in a self serving, subjective survey of a homogenous group. In addition to numerous joint ventures there have been more than 10,000 university start-ups built on technology developed at universities. Indeed, between 1980 and 2011 there 8,778 new companies established to develop and market university technologies. In fiscal year 2012 alone there were 705 start-ups formed to commercialize university developed technologies, and in fiscal year 2013 alone there were another 818 start-ups formed.
Are we supposed to believe that those 10,000+ start-up companies built on licensed university technology didn’t innovate? Apparently so. If only Professors Feldman and Lemley had cross checked their subjective survey results against objective data they would have discovered that in FY 2012 alone 591 new commercial products were created using university technology, and another 719 new commercial products were created in FY 2013.
Clearly, the claim that university licensing of patents does not result in innovation is false. Yet, the draft paper states:
When universities initiated the contact through licensing requests, however, indirect markers of innovation were largely absent. Little, if any, transfer of knowledge or transfer of personnel occurred, including consulting agreements, nor were joint ventures created.
At the very least this and other passages are horribly misleading in light of the fact that licensed university technology has resulted in over 10,000 start-ups being formed and many thousands of new commercial products created. But what hair are Feldman and Lemley trying to split to justify the conclusion that university licensing results in no innovation? It is unclear, but the tone of the article is striking. Feldman and Lemley openly admit to relying on anecdotes. Indeed, the above passage cites to a previous work by Professor Lemley who says that he is repeatedly told that “universities are the new patent trolls,” and that “university licensing is increasingly about freedom to operate rather than actual technology transfer.” To be fair, neither Professors Feldman or Lemley say this is true, they merely report that is what they have heard anecdotally. Of course, such a statement would have to be based on anecdotes because they are simply false.
Of course, it is nonsensical to even suggest that universities are patent trolls in the first place. In May 2014, I interviewed Jane Muir, who at the time was President of AUTM and is the Director of Technology Transfer at the University of Florida. Muir explained in great detail exactly why it is pure nonsense to consider universities patent trolls. She pointed out, the overwhelming majority of troll cases are confined to the software field, which is not an area universities do not typically focus research efforts. Universities primarily focus on life sciences, such as biotechnology and pharmaceuticals, which is not an area of trolling. She would go on to tell me:
The universities are not the next patent troll because at the end of the day, university tech transfer offices were put into place to ensure that the new discoveries that happen in the research laboratories ultimately get out into the marketplace by way of product and services that improve the human condition. The big difference is with patent trolls. They’re not interested in commercializing discoveries. They’re interested in using those patents to sue legitimate companies who do want to move those products into the market. From the commercialization standpoint that really is the fundamental difference. Patent trolls have no real interest in commercializing. Their interest is in litigating.
It is also correct to point out that universities engage in the most basic, foundational scientific research. The entirety of the system is set up based on the correct premise that for-profit corporations who have to answer to shareholders cannot, will not and do not engage in speculative scientific research. University research is foundational by its very nature. To suggest there is no transfer of technology that supports new innovation is simply false and contradicted by volumes of evidence. For example, it is widely known that pharmaceutical companies rely on university research and breakthroughs. Further, prior to Bayh-Dole being enacted zero drugs were commercialized from underlying university research. Since Bayh-Dole there have been over 150 new drugs reach the market that are directly related to university research. See TheRole of Public-Sector Research in the Discovery of Drugs and Vaccines, The New England Journal of Medicine, February 10, 2011.
The following is a small list of important innovations that were invented and then commercialized under the Bayh-Dole act: (1) drugs to treat breast cancer; (2) Hepatitis B vaccine; (3) synthetic penicillin; (4) cysplatin and carboplatin (cancer therapies); (5) human growth hormone; (6) treatment for Crohn’s disease; (7) avian flu vaccine; and (8) countless clean water technologies. Furthermore, Bayh-Dole is responsible for countless green-technologies, such as the lithium ion battery, biomass gasifier that produces clean synthetic gas for electricity and heating, pesticide-free methods to eradicate bed bugs and revolutionary nanomaterials for the solar industry. See Bayh-Dole Makes Everyday Earth Day.
So the objective evidence available tells a significantly different story than the one told by Professors Feldman and Lemley and their survey respondents. So why prefer anecdotes and subject surveys of a biased set of individuals over objective data? It’s not as if the objective data is difficult to obtain or claimed to be proprietary. The failure to rely on or even mention volumes of objective data that tells a completely different story is hard to reconcile.
Finally, another significant problem is that the article and survey ignore the very real predicament facing innovator companies that are driven from the market by large companies that infringe. This isn’t about new innovation or tax collecting, as Professors Feldman and Lemley say, rather it is about those who innovate and then have their rights trampled, ultimately finding themselves being pushed out of business. Those original innovators are small companies and individuals, they are university based start-ups and research laboratories. What about them?
Lawyers for large companies laugh gleefully at conferences when they explain they just throw away any licensing inquiry or notice letter they receive. They are too busy to deal with anything unless you sue them, in which case they will complain that you sued them without trying to talk to them first, even if they threw away your letter. But put the hypocrisy aside. It is well known that many of the monetizers who are most often vilified are asserting rights on behalf of those original innovators who are laughed at and pushed out of the marketplace. Without partnering with large monetizers, or selling their portfolios to those large monetizers, those original innovators who spend the time, money and energy to create new innovations would simply watch others make money trespassing on their rights. These large infringers thrive while the original innovators go out of business, file for bankruptcy and gain no benefit whatsoever.
This issues are far more complicated than those who want to destroy the patent system want to make it. To base any decision on a subjective survey seems unwise. To base any decision on a subjective survey that contradicts substantial objective evidence seems wholly unjustified, if not completely preposterous. This draft article and survey can only be expected to mislead those not intimately familiar with the industry. It lacks any legitimate foundation in reality and should be completely ignored.