A Global IP System at the Crossroads

By Wayne S. Sobon
January 19, 2015

Editorial Note: Below are the prepared remarks for a speech given by Wayne Sobon to the World IP Forum in Delhi, India, on January 11, 2015. Republished with permission.

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Businessman Sign Post Dilemma.I am very pleased to be here today for this important world forum on intellectual property. I would first like to note that I am here representing just myself in this discussion, and the points I want to make are not on behalf of either my company Inventergy Global, Inc. or the American Intellectual Property Law Association.

Anyone who reads the press today knows that the global IP system that held reasonably stable for 50-plus years is now under attack across a number of fronts. Perhaps the most visible sign of this, of course, is the patent system in the United States, where multi-billion-dollar patent wars, doubts about patent quality, decisions diminishing the availability of patenting for new technologies and processes, and the role of so-called patent “trolls” are front page news.

But I had the privilege of traveling around the world this past year, during my presidency of AIPLA, and I was struck by the many similar concerns expressed by everyone from policymakers and judges to business people and IP professionals with whom I spoke. Indeed, I even detected a bit of panic about the future of IP among people I spoke with in both the developed and developing world about these issues.

The challenges to the global IP system, however, go much, much deeper than mere debates over so-called patent trolls or patent quality. The very premises of our intellectual property laws — the economic value of the intellectual property system itself — are now in deep dispute, not only in the U.S. but worldwide. Indeed, global anti-IP sentiment seems to be at its highest level since the late 1860s, when opponents of intellectual property rights succeeded — for a time, at least — in abolishing or weakening the patent systems of several nations around the world.

I am here in this forum, among (I believe) IP friends. Each of us, in one way or another, one life path or another, came to do what we do not just out of a need for a job or to make some money, but (if you are a bit like me) out of a deep faith that the various strands that make up our intellectual property systems are vitally important for the world of discovery, innovation, arts and sciences, indeed so many of the artifacts of human creativity that have propelled us forward since the Enlightenment and Industrial ages. We are called to what we do because we believe it not only does good for our individual clients and companies, but is good in the long run for us all.

What makes these challenges so unsettling is that they threaten to undermine that greater good that so many of us (and so many countless others before us) have worked so hard for all our lives to strengthen.

So what are the sources of these deep challenges to the IP system? I think there are several.

First, and perhaps most challenging, is the very nature of intellectual property itself. IP is “intangible.” It is evanescent. It is like a gas, everywhere and nowhere. While so much of the scaffolding of intellectual property theory and law is based on analogies to real property and the world of physical assets and things, IP is the most unusual sort of asset. Unlike physical objects or real property — and except for the limits created by law — most IP can be used and reused by any number of people without actually diminishing its underlying use-value.

Economists call this a non-rivalrous good. In fact, for many of the most valuable forms of IP, these goods can grow more valuable the more they are used, rather than less. In that case you could call IP an anti-rivalrous good! It is only our legal frameworks that make this evanescent IP into an excludable good which seems to have many of the properties of a new kind of hammer, or a piece of property like an apartment building.

That we have managed this feat of extraordinary imagination is a bit stunning. But this legal and social feat doesn’t sit easily with our all-too-human minds. If you look at social biology, neurophysics and evolutionary theory, they all demonstrate how rooted our conscious and subconscious minds are in our human past. When we evolved on the Africa savannah, experience taught us that now is much more important than some vague future.  And that things we can touch and which are changing very quickly grab our attention more strongly than things we cannot touch or that change only by slow degrees. All this explains so much of our sad global response to climate change. Also, the difficulties we probably all have in planning for retirement, and any number of other long-term, slow moving, concerns.

But it also explains why “selling” policy makers and the general public on the value of IP is often so difficult. Intellectual property law is based on the extraordinary premise that by creating this special asset today, and giving its control temporarily to its creator alone, we will generate many more creations and innovations in the future and thereby enhance the welfare of all people, including future generations. What an extraordinary feat of human imagination!

And now the modern world has made that bit of mental gymnastics all the more difficult to manage.

To start with, the foundations of IP law now face huge technological challenges. The digitalization of everything, everywhere has helped to undermine the classical structures of IP creation and enforcement. Making nearly if not absolutely perfect copies, at near zero cost, has become a reality. Music, and books and films certainly. And now 3D printing for physical objects. All of this has allowed the average person to replicate just about anything.

I’ll admit something here: when I grew up as a teenager, our local record store allowed you to buy a record and if you didn’t like it, return it—no questions asked. Of course that spawned lots of us taking albums home, recording them on cassette tape, and then bringing them back. But those copies were not perfect. Even with the best Dolby tape decks, they weren’t the real music album with the liner notes and cover art and all. And so we still bought lots of records too. But now, my MP3 copy is identical to the original album. It IS the album. This technological change has wreaked havoc in nearly every industry, from music to software to basically nearly every good.

And because digitalization seems to allow everyone to effortlessly make and use such non-rivalrous goods and information — we have a generation (roughly after the advent of Napster) raised to see intellectual property as only an impediment to their ability to get and use these easily created copies.

They forget the hard-won truth that unless the intellectual property rights of inventors and authors are protected, the wellsprings of creation and productivity inevitably dry up for lack of incentive. And it’s not just individual incentive that is harmed by infringement of IP rights. It also weakens the larger public policy goal of mobilizing the fruits of individual creativity to serve the public good.

Then we have new economic and geographical challenges. Reflect on the sort of company formed at the beginning of industrialization: the vertically integrated corporation. Railroad companies, telephone companies, automotive companies. These were the industrial models much of our IP system was based around. I would dare say most patent attorneys, in the back of their minds, think of something like AT&T/Bell Labs or IBM as their core model for how inventing is done, and by whom and to which ends. One or two or three key inventors, working together inside the brick walls of a company, developing a new machine or chemical process for that company’s sole use.

The last 30 years have seen the dismantling of much of that world. The disintermediation of all goods and services, pervasive outsourcing (which is simply division of labor taken to its logical extreme), and the global mash-up of creative new content and goods has undone that model. AT&T no longer is the sole source of telephones, switches, and satellites. Hundreds of companies across the planet now cooperate together to create the services that AT&T sells today. The same is true of Apple’s iPhones, as it is of nearly every successful global business today. Who owns which pieces of these supply chains has become devilishly complicated.

R&D innovation occurs at every step in these supply chains, and in turn so does potential infringement. The smart phone we all carry is one of the most complicated devices humans have ever devised. It combines hundreds of technological innovations, so it is hardly surprising that significant IP battles have been fought over its deployment.

That’s not a sign of a failure; that’s how the rights to groundbreaking new technologies get distributed and commercialized, and it has always been thus. Take the first telephone war in the 1880s, in which American Bell Telephone and its successor, AT&T, litigated an astonishing 587 patent cases alone. That’s nearly four times the number litigated by all parties in today’s smartphone patent wars. I think we can all agree that at the very least, outsourcing and the growing separation of R&D from manufacturing has created a much more distributed innovation environment that poses huge challenges to the global IP system today.

Next we come to generational challenges. Put simply, many of the influencers in government, academia and the tech industry today came of age amidst an “open source” ethos that proclaimed that “information wants to be free!” I’m talking again about this post-Napster generation — the generation that grew up amidst the digitalization of music, film, and other content.

These are the people who most directly and indirectly drive public policy today. They are the up and coming academics, government staffers, public intellectuals, and influential media pundits who shape opinion and policy decisions. And they are used to downloading nearly everything for free. Indeed, they may expect that as a given, as the norm, and they may have a very understandable difficulty, given all that we have just said, seeing why what we might consider IP theft is wrong or why government or business should intrude on what they feel should be everyone’s right.

In fact, it seems from various blogs and the like that a number of them view the IP system as inherently suspect, a tool of potential monopoly control, a means of extracting unfair profits from, for example, desperate women suffering from breast cancer, as opponents of Myriad Genetics’ BCRA1 and BCRA2 test patents argued in the US Supreme Court case last year.

Interestingly, many of the government officials in the U.S. and Europe today probably weren’t even adults during the “competitiveness” debates of the 1980s. That was probably the last time many nations in the developed world even had a national discussion about the importance of a strong IP system to economic growth.

Many in this post-Napster generation often speak in favor of weakening, or even some for abolishing, the patent system. Or if they do recognize the value of providing some sort of incentives for innovation, they prefer compulsory licensing or some sort of government-managed innovation ecosystem that divides patent rights up based upon specific technologies.

They may not remember Japan’s and Europe’s failed efforts to develop government-mandated analog HDTV programs in the 1970s and 1980s. Europe and Japan both wasted many billions of dollars on these analog HDTV schemes only to be totally outflanked by the unexpected entrepreneurial invention of the digital HDTV system created by various private players.

By unlocking the secret of digitizing television signals, those players inadvertently gave birth to the Digital Technology Revolution. The result was the avalanche of invention, investment and industrial convergence — and the cornucopia of new digital products and services — that we enjoy today.

There is surely a lesson here for those who believe that government is able to mandate innovation or plan the development of new industries. And that lesson is, when you lock in mandates, in either commands or incentives, you lock out true innovation.

In the U.S. especially, another new challenge is the loss of public confidence in the patent system. There are a number of causes of this crisis of public confidence. These include, rather prominently, the emergence in recent years of certain abusive litigants who extort so-called “license fees” from small businesses unable to pay the cost of standing up to them in court — behavior which clearly has no more in common with legitimate patent licensing than a mafia protection racket has with the sale of genuine “liability insurance.”

The perceived decline in patent quality also fuels this growing loss of confidence in the system. After all, when property rights (either real or intellectual) are seen as overbroad, ill-defined or illegitimate, people are much more willing to trespass on them.

There’s also a new distressing “best practice” in legal circles also contributing to a growing disrespect for IP rights. Until very recently, many companies, when confronted with genuine evidence of use or the need to acquire an outside technology for use internally, would be willing to at least discuss taking a reasonable license.

But something big has changed in the last few years. Even when a CEO or chief technologist is willing to acknowledge his firm’s need to take a license, in most cases today the general counsel or the company’s outside law firm will shut down the negotiation and advise the CEO to “wait until you’re sued” before discussing anything.

I hate to say it among this group, but this may be due, in part, to the fact that law firms generally make a great deal more money from conflict and litigation than they do from negotiated settlements.

But “Wait till you’re sued” … regardless of the evidence or the merits? That’s a whole new and very dangerous consensus regarding IP rights. And ironically it creates the very increase in IP litigation about which these same companies complain to policymakers.

Public confidence in the patent system is also eroded by the fact that licensing can be so constricted by high transaction costs and legal risks that it may exclude the vast majority of small and mid-sized businesses and prevent perhaps 95 percent of all patented discoveries from being put to productive and legitimate use to create new products and services, new jobs, and new economic growth.

Simply put, for most small and mid-sized businesses in the U.S., patents are not rich R&D assets; they are ticking time bombs of perceived infringement. These companies feel unable to access the greatest library of new technological knowledge on the planet — for example, 2.3 million active U.S. patents — to improve their products and services.

What an irony! The patent system was expressly designed to foster technological disclosure, yet how many companies today actually encourage their engineers and R&D managers to read and apply the knowledge contained in patents?

There is, however, one set of challenges to the global IP system that is NOT new — namely, the cultural and international divisions between developed and developing nations over IP policy issues. These divisions have existed for some time, although of course they are exacerbated by the growing doubts expressed even within the developed world over the value of intellectual property. And this has caused some concern over whether substantive harmonization efforts can really move forward — and over the resulting impacts on trade if they do not.

So what is to be done?

First, we all must be open to reasonable adjustments and shifts in “classic” IP principles, if doing so enables these principles to better meet the concrete needs of our new digital age.

Second, we must also recognize that in developing nations, the proper balance between IP rights and public need may not always be achieved in exactly the same way as it is in more developed nations. Each nation can uphold universal IP principles while applying these in varying configurations according to local conditions.

I think that is the spirit and theme of negotiated agreements such as TRIPS, and should be built upon and encouraged. We cannot be dogmatists, nor can we allow the perfect be a continual scourge of the good.

Third, all of us — whether we work in the private or public sector, in academia or business or in non-governmental organizations — must develop a much more robust set of education efforts to explain the powerful role played in today’s knowledge economy by intellectual assets, including IP.

Like that character in the movie “The Graduate” who says “The future is plastics” — which was, by the way, true — we have to explain that with intellectual assets now accounting for at least half of GDP in many advanced economies, “The Future really is IP,” like it or not. And we have to do this in a way that ordinary people, especially young people, can understand and embrace. That means meeting people on their own terms, and with respect. We have to first understand their concerns before we can convince.

And guess what? We have to really do this now. We have unfortunately let a whole generation go by, while we slumbered, secure in our (now mistaken) belief that IP was unassailable. We have much work to do. And, I fear, we don’t have a lot of time. Perhaps never has IP been more important for our entire society, and never been more in jeopardy.

Finally, while we recognize local adaptations, and encourage the development of IP systems adapted to our new age, we must also reassert the fundamental truths about intellectual property rights that have been proved and reproved the world over. These are:

  • Innovation is driven primarily not by happenstance but rather by markets and the expectation of profit from securing the rights to new technologies. Any nation that wishes to advance technologically must construct an IP system that recognizes and rewards this fundamental driver of innovation.
  • In countries without strong IP rights, innovation is far less robust and diversified across the economy, and direct investment much reduced. 
  • Besides encouraging ex-ante innovation, IP rights also encourage the more rapid and efficient ex-post transfer of knowledge across firms and the allocation of resources throughout the economy.
  • Despite their grant of temporary exclusivity, IP rights are actually the most effective tool for knowledge-sharing and technology transfer ever devised.

None of the challenges to the global IP system — nor the debates within each of our nations over IP rights — will be settled today or even tomorrow.

But if we invest ourselves in education and public engagement with an open mind but firmness of principle, we can avoid the mistakes of our forebears 150 years ago and revitalize public confidence in the IP system as a force for good in the world.

Thank you.

The Author

Wayne S. Sobon

Wayne S. Sobon is Senior Vice President and General Counsel for Invenergy, an investment and licensing company that is strategically focused on partnering with technology leaders. Sobon, a former President of the American Intellectual Property Law Association, has also served on the Public Patent Advisory Committee, which advices the United States Patent and Trademark Office on patent policy. In 2014, Sobon was awarded a Gold Medal from the U.S. Department of Commerce in recognition of his extraordinary support and service with respect to implementation of the America Invents Act (AIA).

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