Patent Reform II

Lynne Kiesling

[NOTE: this post is a continuation of the immediately preceding one.]

The second Economist article (subscription required) goes into more detail regarding the problems and proposed reforms. First, the article usefully references Innovation and Its Discontents, a new book on patenting by Adam Jaffe and Josh Lerner (two of the most knowledgeable IP economists out there). Jaffe and Lerner dig in thusly, according to Amazon:

In one telling vignette, Jaffe and Lerner cite a patent litigation campaign brought by a a semi-conductor chip designer that claims control of an entire category of computer memory chips. The firm’s claims are based on a modest 15-year old invention, whose scope and influenced were broadened by secretly manipulating an industry-wide cooperative standard-setting body.

Such cases are largely the result of two changes in the patent climate, Jaffe and Lerner contend. First, new laws have made it easier for businesses and inventors to secure patents on products of all kinds, and second, the laws have tilted the table to favor patent holders, no matter how tenuous their claims.

After analyzing the economic incentives created by the current policies, Jaffe and Lerner suggest a three-pronged solution for restoring the patent system: create incentives to motivate parties who have information about the novelty of a patent; provide multiple levels of patent review; and replace juries with judges and special masters to preside over certain aspects of infringement cases.

Patent scope has extended, patent length is often extended through renewals or through patenting of sub-parts of whole things (such as separate patenting of reformulations of subsets of pharmaceuticals), and patent offices are swamped and sometimes ill-equipped to evaluate the claims on which the patent is being requested.

This is all a problem because the US is the most dynamic and innovating economy, but also because other parts of the world are following our lead, to everyone’s likely detriment:

The mission creep of America’s patent system into more contentious areas is also spreading elsewhere. Later this month, the European Council of Ministers will discuss draft legislation on harmonising policy on computer-implemented innovations. Many small software companies in Europe, as well as “open-source” software developers that make non-proprietary software, oppose the initiative. They fear that it is a first step towards adopting controversial software patents, already awarded in America, which could block different implementations of the same features. Were further proof needed that this may not be an entirely positive development, look no further than the mighty software monopolist, Microsoft, whose chairman, Bill Gates, has called on employees to increase the number of patents that the company files.

The rising importance of patents has led both to an arms race and a game of bluff. Many firms in the information-technology and life-sciences industries say they have an incentive to obtain as many patents as possible as bargaining chips in litigation. The patents are used to reach a cross-licensing agreement, usually with some cash thrown in, so that both firms can continue to do business. Those firms that lack patents are thus disadvantaged.

Some reform ideas include a pre-patent public comment period in which others can file comments with the PTO. This is a good idea, because although it opens the door to critics who are competitors with the patentor, it also decentralizes the testing and monitoring function. On net, I think that’s a good move, because it’s easy to discount the grumblings of competitors. One problem that arises, though, is when the only ones qualified to provide evaluation of the patent are the competitors. Hmmmm …

I have had a love-hate relationship with patents throughout my professional life. Are they a government granted monopoly, which I oppose? Yes. But are they a useful means of inducing beneficial innovation that might not otherwise occur (i.e., solving an externality problem)? Maybe. And that relationship has changed over time. Perhaps now patents are not on balance the socially useful property right that they were in the 17th century.


7 thoughts on “Patent Reform II

  1. I’m a skeptic on most forms of intellectual property but business method patents and software patents are just beyond the pale. Is the Patent Office really equipped to determine the difference between genuine innovation and applications to patent the equivalents of the wheelbarrow? How and when did they gain this expertise?

    And there’s an additional issue that you brushed by without actually touching on: international patent venue shopping i.e. finding a country that will give you a patent and bootstrapping that into patents in other countries based on reciprocity agreements.

  2. “In one telling vignette, Jaffe and Lerner cite a patent litigation campaign brought by a a semi-conductor chip designer…”
    They are almost certainly referring to RAMBUS. They basically got their patents into what was supposed to be an open industry standard (DDR memory), then demanded that anyone manufacturing DDR memory should pay them licence fees. They of course broke the forums rules that said that all patents had to be disclosed.
    I must say though, it was prolly more fraud than patent abuse.

  3. Making patent applications public would prevent “submarine” patents like the single-chip microprocessor patent that was pending for almost 20 years. It was novel back in the early 1970s, but delay after delay allowed a billion dollar industry to spring up making them (no one else was allowed to patent them because of the pending patent, therefore no company made any risk management for an invisible risk). You have several single chip micros in every car and in almost every other piece of electronic gear.

    End result: the newly awarded patent holder entered into a joint venture with some lawyers who managed to extort several hundred million dollars from each manufacturer of single chip microprocessors. This sort of “lottery by patent” happens far more often than you would think and costs manufacturers far more than the sort of “sue-happy” suits that allegedly clog our court system.

  4. Making patent applications public would prevent “submarine” patents like the single-chip microprocessor patent that was pending for almost 20 years. It was novel back in the early 1970s, but delay after delay allowed a billion dollar industry to spring up making them (no one else was allowed to patent them because of the pending patent, therefore no company made any risk management for an invisible risk). You have several single chip micros in every car and in almost every other piece of electronic gear.

    End result: the newly awarded patent holder entered into a joint venture with some lawyers who managed to extort several hundred million dollars from each manufacturer of single chip microprocessors. This sort of “lottery by patent” happens far more often than you would think and costs manufacturers far more than the sort of “sue-happy” suits that allegedly clog our court system.

  5. The benefits of patents are not just that of directly encouraging innovation. They also require revealing new ideas. If you believe the lessons I had on patents at engineering school, the original motive was to stop knowledge dying out if, e.g. the family that knew how to make a particular dye colour was wiped out by a plague. The inducement to reveal knowledge was, and is, the temporary monopoly.

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