“The mistake the ‘bad patent’ narrative makes is that a patent is less a technical instrument than it is an economic instrument. A patent is an instrument of profit, and it must be treated as such to encourage people to advance technology by filing patents.”
Over the last 15 years, Congress, the courts and the USPTO have gutted the patent system. Fortunately, USPTO Director Andrei Iancu has been taking important steps to reverse some of the damage, with revised 101 guidance and changes in the Patent Trial and Appeal Board (PTAB). But the most important thing Iancu is doing is silencing the big tech “patent troll” narrative.
False political narratives condense complicated issues into an object and then villainize the object. Once a villain is created, its evil can be expanded to encompass anything you don’t like. When you have pushed enough bad stuff into the moniker, you can simply state its evil name, add a few campaign contributions, and Congress will magically pass laws in your favor to kill the villain.
The “patent troll” narrative has been valuable to big tech. It bought the laws they needed to perpetuate their monopolies. With Iancu silencing the “patent troll” narrative, big tech created a new one: “bad patents”.
The halls of Congress are now infested with stories explaining how “bad patents” destroy innovation. They demand that Congress preserve Supreme Court legislated exceptions to Section 101 subject matter eligibility, and that Iancu revert back to previous PTAB rules because both kill “bad patents” and this is the only way to protect us from evil “patent trolls”.
Big tech defines a “bad patent” as a “trivial variation,” an “abstract building block or technology,” or “so poorly written that it’s impossible to understand what it covers.” It is an emotional argument conjuring up feelings of anger and righteous indignation because “bad patents” are used to shake down innocent multinational corporations for something as inconsequential as patent infringement.
But what makes a “bad patent” bad? The answer should be found through logic and reason, not emotion and righteousness. Because patents are economic instruments, there must be a net negative economic effect for a patent to be “bad.” The reasonable question should ask if the patent creates a negative economic effect that is greater than its positive economic effect.
Fortunately, big tech gave the Senate Judiciary IP Subcommittee’s Section 101 roundtable some examples in February of “bad patents”: a method of proposing marriage, a method of swinging on a swing, and Amazon’s one-click patent. So, let’s evaluate whether these patents have a net negative economic effect. (If you want to see more “bad patents” they are available at the Electronic Frontier Foundation, or Patent Progress, both of which are big tech lobbyists masquerading as nonprofits.)
The Positive Economic Effect of Patents
All three patents were examined by the USPTO. The method of proposing marriage was not issued, but Amazon’s one-click patent and the swinging on a swing patent were both issued.
In all three, the USPTO was paid examination fees. In two, the USPTO was paid maintenance fees. It is likely that all three hired patent professionals in the economy. All were disclosed to the public, so others were able to advance the art by inventing around or improving it. Therefore, all three have the positive economic effects of funding the USPTO, hiring patent professionals and advancing the art.
The Negative Economic Effect of Litigating Patents
Around 97% of patents are never litigated because they are either not commercially viable (not useful), thus not infringed, or not commercially valuable, thus damages are too small to return the cost of litigation. But when a patent is commercially viable and valuable, and it is litigated, both sides expend resources and experience uncertainty, which are highly disruptive to their businesses.
While both parties experience negative economic effects in litigation, in most cases the infringer is a resource-rich multinational corporation, and the patent holder is a resource-starved small entity: an independent inventor, a startup or an investor, or sometimes a non-practicing entity (NPE) acting on their behalf. Due to this resource asymmetry, the negative economic effects are by far more severe for the patent holder than for the large infringing corporation.
It is a simple fact that a patent does not cause litigation. A patent is a piece of paper. The infringer can cause it by the act of infringing, or the patent holder can cause it by asserting the patent outside its scope. However, the patent itself does nothing and therefore cannot be attributed negative economic effects.
This fact alone means that there can be no “bad patents.” However, since many in Congress seem to have accepted the false narrative of “bad patents” running around destroying innovation, let’s investigate further.
The Infringer’s Negative Economic Effect
Many years before a patent is issued, most patent applications are published on the USPTO website. All patents are also published there. The USPTO has a search engine, as do Google and others, so anyone can find patents relevant to their business simply by searching the USPTO website or Google Patents. Patent infringement is illegal, so anyone in business has a responsibility to identify patents that they may infringe to avoid breaking the law.
That means that if a patent is litigated within the scope of its claims against an infringing product, the infringer knew (or should have known) the patent existed and that their product was infringing. Therefore, the infringer caused litigation by the act of infringing, thus the negative economic effects must be attributed to the infringer.
When a large competitor infringes a startup’s patent, the startup has no good choices. It can sue the infringer, but that means it must divert already scarce resources into litigation and away from business activities like engineering, marketing, sales, etc. Resources burned in litigation may never be recovered because loss rates for patent holders are unreasonably high.
Since eBay v MercExchange, injunctive relief is now restricted, so in the unlikely event the startup wins the infringement suit, the court will grant a compulsory license, not an injunction. The resource-starved startup will be forced to compete with the resource-rich infringer. Due to resource asymmetry and a very real risk that the infringer will use their deep pockets and existing market power to take the market and kill the startup, the startup will have difficulty attracting investment. When a startup sues an infringer, the startup may very well fail, whether it wins the infringement case or loses.
Many startups ignore infringement. They accept that they are forced to compete against a large infringer. At least they won’t have to divert resources to litigation. But for the same asymmetrical reasons, the startup will have difficulty attracting investment and is at risk of being run out of business.
The negative economic effects caused by infringement are damaging not only to the infringed startup, but also our nation’s innovation engine and our national security. When startups die and their investors lose money, investors invest their money in places where they get better protection, like China. For example, in 2017 48% of early stage funding for artificial intelligence went to startups in China—only 36% went to U.S. startups.
The “patent troll” narrative attributes all negative economic effects to the patent holder regardless of the cause of litigation even though the infringer is the sole party who can avoid the act of infringement. The patent holder cannot avoid the act of infringement. In fact, the patent holder attempted to discourage infringement by filing for patent protection. The negative economic effects of infringement must be attributed to the infringer and law should recognize this by discouraging infringement with injunctive relief, low costs and quick resolutions.
The Patent Holder’s Negative Economic Effect
If a patent is litigated outside the scope of the claims, and thereby against a non-infringing product, the patent owner caused litigation. Thus, the negative economic effects must be attributed to the patent holder.
The negative economic effects to businesses that have been wrongly sued for patent infringement have been made known, so they need not be regurgitated here. Unfortunately, the overreaction by Congress, the USPTO and courts has wiped out patent protection for small entities.
“Bad Patents” Have a Positive Economic Effect
The method of proposing marriage was never issued. It was a patent application, so it can never be litigated and therefore can’t produce a negative economic effect. This big tech example of a “bad patent” is nothing but a disingenuous attempt to sway Congress with false information.
Nobody sues anyone without a potential damages award because money spent litigating will never be returned. No damages can be calculated for a method of swinging on a swing because nobody is making any money doing it. Since there could be no damages awarded, money spent litigating would not be returned. This patent was never litigated, and the example is another disingenuous attempt to sway Congress.
But what about the “bad patents” that big tech says are too trivial to warrant patenting, like Amazon’s one-click?
Nobody can invent anything without improving what already exists, so all inventions are in some way an improvement. Sometimes, a trivial improvement becomes the primary factor differentiating the marketability of one product over another. Amazon’s one-click patent was a trivial improvement that had a significant market effect. It made the buying experience on Amazon’s site better than that of Amazon’s competitors, thereby drawing customers to Amazon’s site and away from competitors. It is one of the early reasons that Amazon got ahead of its competitors and therefore became the outrageously successful company it has become.
Amazon’s one-click patent did not affect its competitors’ products. Their customers could still use them just as they did prior to the one-click patent. Therefore, Amazon’s patent did not have a negative economic effect on any technology already on the market. But it had a significant effect on the marketability of Amazon’s products, which is an advancement of the art and a positive economic effect.
The mistake the “bad patent” narrative makes is that a patent is less a technical instrument than it is an economic instrument. Yes, a patent discloses advancements in technology, so patents are technical instruments. And yes, most of these advancements are trivial from the perspective of technology. But many are not trivial in their market effect.
Nobody does the hard work and spends money writing and filing a patent for the sheer joy of advancing technology. People do it to improve their lot in life. They do it for profit. A patent is an instrument of profit. It is an economic instrument, and it must be treated as such to encourage people to advance technology by filing patents.
The degree to which an invention improves the mountain of technology on which we live is not important for any given invention. It is the accumulation of many trivial improvements that is important, because some trivial improvements may turn out to be very important. For example, Edison’s lightbulb was a trivial improvement from a technical perspective. All he really figured out was that a carbonized thread used as a filament would last long enough to create a marketable lightbulb. But everything else in a light bulb already existed, even filaments. He just advanced it a little bit with a carbonized thread.
If we buy into the big tech “bad patent” narrative and agree that only big inventions should be worthy of patenting, there will be fewer trivial inventions. But we will never get a critical mass of trivial inventions needed for that one that matters, like a carbonized thread filament.
We will have to subjectively decide which inventions are significant enough to deserve a patent. Who can answer that question? Certainly not a patent examiner, and I don’t think we have any former Soviet central planners employed at the USPTO. Maybe we should do what we have for the last two plus centuries and let the market decide. After all, if the invention is so trivial that the market does not adopt it, there can be no litigation and therefore no negative economic effects.
Just as the false “patent troll” narrative wrongly villainized early stage investors as greedy rent seekers, the false “bad patent” narrative wrongly considers patents to be technical instruments, ignoring all positive economic effects and wrongly attributing all negative economic effects to the patent instead of to the party causing the infringement.
Both false narratives dangerously teach a fundamental misunderstanding of how patents achieve their Constitutional mandate to “promote the Progress of Science and useful Arts.” Without correcting this misunderstanding of patents, bad public policy will continue.
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