The Story of How Patents Promote Innovation

Those who claim that patents harm innovation and stifle innovation see a patent at an insurmountable hurdle, or perhaps a brick wall. There is no way around the obstacle. The only option is to infringe or simply not offer the product or service, but to them that is not an option because if they can’t sell the product that they want to sell then that has to mean that innovation is being harmed. But innovation is about busting through the brick wall, or going around the brick wall. Because of the existence of that brick wall a paradigm shift is necessary, and that is what leads to true innovation.

Of course, critics don’t understand true innovation because they conflate a particular product or service, which is new to them, to be something that is innovative. I have always found it amazing how true inventors so frequently don’t think what they have come up with is unique enough to pursue a patent, but those who offer little or nothing unique conclude that their product represents innovation. The hubris is high on the part of those who really don’t understand innovation, and the true purpose of a patent system. Those who don’t understand think it is an afront to humanity if they are not able to sell what they want, when they want, without having to pay a licensing fee to the innovator.

Recently this issue came up again when a comment was posted to an article about whether patents harm or promote innovation. The comment proclaimed loudly, confidently, and yet incorrectly that patents harm innovation. The commenter even provided an example about how he has received a cease and desist letter, which means the product that he is selling is in jeopardy of having to be pulled from the market and damages paid. This scenario was intended to be proof that patents harm innovation. In fact, it is proof that the patent system is working exactly as intended, and that patents do not stifle innovation. Patents foster innovation!

Anymore anyone who gets sued for patent infringement or receives a cease and desist letter complains that patents harm innovation because they can’t sell the product that they want to sell. Thus, products are erroneously being conflated with innovation. But to innovation is to do something new. In fact, the definition of “innovation” is “(1) something new or different introduced; or (2) introduction of new things or methods.” Generally speaking, if one is infringing on a patent then they are not innovating. Instead, what is happening is the very antithesis of innovation.

In fact, what was missing from the aforementioned comment was any real discussion of the innovation that was being stifled.  The commenter concluded that his products are innovative, and offered that his products cost less and are preferred in the market. But costing less and being preferred in the marketplace are hardly evidence of innovation. In fact, it is at least as likely in most cases that a copycat can and does sell infringing products for less because all they have done is copy the innovator. Because the innovator has time and money invested in the innovation they have to charge more than the actor who simply copies and has no sunk costs to recoup. A lower cost point for consumers easily can, and usually does, explain market preference.

[Varsity-2]

Even if this, or any other commenter, were to be able to point to something they are being prevented from doing that is objectively superior to what is covered in a patent that still wouldn’t be any kind of proof that patents stifle innovation. In fact, it would be proof that the patent system is working exactly as it was designed to work and has worked for hundreds of years.

The patent system has been intended from its very earliest days to create the very scenario complained about by those who erroneously claim that patents harm innovation. Patent are by specific design intended to give the patent owner an exclusive right to prevent others from making, using, selling and importing products (or services) covered by a U.S. patent. The exclusive rights of a patent, which come with virtually no real fair use rights except in the very limited scenario of pure research, forces industry to come up with other ways to move forward that do not infringe on the patent. That is specifically why patents promote innovation rather than harm innovation, and it the point missed or more often completely ignored by critics.

The short of it is this: When an innovative person is blocked by a patent they design around. This is precisely why the Supreme Court has typically focused patent eligibility considerations on whether an idea would be preempted by a patent. If an idea as a whole is preempted then no patent can issue. If, on the other hand, there remain ways forward then it is incumbent upon the second comers to either find those ways forward that do not infringe, or to simply stand clear of the rights granted the patentee. Instead, what we have today is an awful lot of people complaining that they can’t do what they want to do and, therefore, that has to mean that patents harm innovation. Simply not true. What it means is we have a lot of uncreative people throwing up their hands and giving up rather than innovating around, and forward, as the patent system is designed to encourage.

It is impossible for critics to understand, but it has always been the rigid exclusive nature of patents that has caused innovation to move forward. As one area because saturated in order to provide better functionality or reliability an entire new paradigm must be discovered, refined and perfected. It is those paradigm changing innovations that we all say we want, including the critics, but paradigm changing innovation doesn’t occur in a world where copying goes unchecked. Paradigm shifting innovation happens only when there is a sufficiently high barrier facing the innovator. Then and only then does the innovator create.

The comment concluded that this fellow found himself in a terrible position with no good choices. On that point we can likely all agree. But the interesting question is why is he caught between a rock and a hard place, in a catch-22?

In my experience those who find themselves facing a cease and desist letter, or a patent infringement lawsuit, have failed to do several important things prior to launching a product or service. First, in most cases the party facing the lawsuit did engage in any kind of evaluation before launch to determine whether they would be infringing any patents. While such an investigation prior to launch is not required, by not doing such an evaluation you are really doing nothing more than engaging in an exercise of hope. Hope is not a business strategy, particularly when there is a patentee who believes their rights are being infringed.

Second, those who find themselves in this situation always cite the $2 million figure, which is the industry agreed upon average attorneys fees to litigate a patent infringement matter to conclusion. They rightly point out that they don’t have $2 million to spend. But the next, obvious question is whether they have insurance. So far I’ve never seen a situation where those being sued for patent infringe actually have patent infringement insurance to cover defense costs. Patent infringement insurance is available, but seldom purchased.

Simply stated, if you have not engaged in any kind of research to determine the likelihood that you are infringing, and/or you do not have patent infringement insurance, then the terrible choices you face after you get sued or receive a cease and desist letter are really of your own making. Poor business choices are what has so many claiming foul rather than any defect in the patent system. The patent system is operating exactly as designed.

Now for one big caveat: We all know that there are parties engaging in abusive litigation tactics and taking advantage of large and small companies. They exploit inefficiencies in the judicial system and leverage that to extract small, less-than-nuisance-value settlement payments. Something needs to be done about patent trolls; there is no doubt about that.

But even still, who now doesn’t know that there is a patent troll problem? It is all over the news; even President Obama speaks of patent trolls and abusive patent litigation. Yet, even knowing that hungry sharks are swimming in the shallow water just offshore you decide to get into the water anyway? Fine, but should you be in a boat rather than in a wet suit camouflaged like a seal?

Simply stated: If you know there is a patent troll problem and you are not going to take steps to protect yourself, as through procuring patent infringement insurance, then the problem you face is your own fault. Failure to operate your business in a business responsible way shouldn’t, and doesn’t, mean that the patent system is the problem.