Innovation and Its Discontents: Jaffe and Lerner in Wsj

Lynne Kiesling

We’ve seen lots of discussion of how dysfunctional the US patent system is at the moment; from business process patents to laws of nature patents to the recent Research in Motion (Blackberry) lawsuit, we see the pernicious entry barriers that too broad a patent policy can erect.

In today’s Wall Street Journal, Adam Jaffe and Josh Lerner have a lengthy commentary on patent policy. Among other things, they provide an overview of the current situation:

The problems of the U.S. patent system are under discussion today with an urgency not seen in decades. The Supreme Court will soon hear oral arguments in eBay v. MercExchange LLC, which promises to be its most far-reaching examination of patent law in many years. Today the court will also consider LabCorp v. Metabolite Laboratories — the contested matter is whether a patent can be issued for the correlation between a disease and a naturally occurring substance in the human body. That is: Can you actually patent the laws of nature? And shockingly, Research in Motion has been forced to pay $612 million to prevent all of our BlackBerry handhelds from going dark, even though the U.S. Patent and Trademark Office (USPTO) has indicated that it is likely to find all of the patents behind this ransom demand invalid. Congressional subcommittees, with good reason, have recently held hearings asking fundamental questions about developments like these in the patent system.

The importance of this long-overdue focus on patents cannot be overemphasized. The past decade has seen periodic uproars over particular patents, such as Amazon’s “one click” patent for online shopping. The troubling patents have been well publicized, but the wrong lessons have typically been drawn. Commentators have tended to focus on the incompetence of the USPTO in allowing “bad patents.” Others have concluded that the patent system is not working with respect to a particular area of technology. Concerns about software awards led, for instance, Jeff Bezos of Amazon to propose a new patent type for software; others have suggested that biotechnology be excluded in various ways from the patent regime.

Jaffe and Lerner then go on to make an argument with which I agree, and which becomes increasingly incontrovertible as we see events like the RIM lawsuit: Congress changed patent law, and institutions matter. Thus the problems with the patent law are systemic and would not, contra Bezos, be remedied by increasingly layered and complex patent definitions. Legal changes have made patents much easier to get.

Congress set us on this road in 1982 when it created a centralized appellate court for patent cases, the Court of Appeals for the Federal Circuit. Its decisions — which advocates argued would simply ensure judicial consistency — are largely responsible for the significant strengthening of the legal potency of patents. Then, a decade later, Congress turned the USPTO into a “profit center.” The office has been pushed to return “excess” revenue to the U.S. Treasury. This shift led to pressures to grant more patents, difficulties in attracting and retaining skilled examiners, and a torrent of low-quality patent grants. These include such absurdities as patents on wristwatches (paw-watches?) for dogs, a method of swinging on a swing (“invented” by a five-year-old), and peanut butter and jelly sandwiches. But they also include the patents on broad ideas related to mobile email — virtually devoid of any details of implementation — that have imposed a $612 million tax on the maker and users of BlackBerries.

People respond to incentives, and that increased ease has led to increased patent filings. The USPTO is overwhelmed, and thus is less likely to give filings the thorough due diligence and prior art check that would nullify some applications. But even more problematic is the set of incentives unleashed by these institutional changes. The incentive to use the USPTO as a profit center leads to a distortion in thee number of patents (more than is efficient), which creates deadweight loss due to the suppression of otherwise valuable innovations that would otherwise come to market.

It might be tempting to view patent law as just another area where litigation has spun out of control. But there is more at work here than a general increase in litigation; and its effects are particularly worrisome, because a faulty patent system can have profound impact on the overall process of innovation. The hugely successful BlackBerry may be able to bear an enormous “innovation tax” and still succeed, but other valuable but not-quite-blockbuster innovations may be driven from the market entirely.

Jaffe and Lerner then go on to recommend changes to the patent system: the review process has to include more information about prior art, and the incentive for frivolous patent-holders to bring antagonistic lawsuits (such as the recent RIM one) need to be removed.

Our proposed reforms start with the recognition that much of the information needed to decide if a given application should be approved is in the hands of competitors of the applicant, rather than the USPTO. A review process with multiple levels efficiently balances the need to bring in outside information with the reality that most patents are unimportant. Multilevel review — with barriers to invoking review increasing at higher levels, along with the review’s thoroughness — would naturally focus attention on the most potentially important applications. Most patents would never receive anything other than the most basic examinations. But for those applications that really mattered, parties would have an incentive and opportunities to bring information in their possession before the USPTO, and the USPTO would have more resources to help it make the right decision. (Changes in this direction are at the heart of the patent reform bill currently under consideration in the House Subcommittee on Courts, the Internet and Intellectual Property.)

With such review, incentives to file frivolous applications fall, which cascades through to reduced frivolous patent litigation.

For a more extensive analysis, see Jaffe and Lerner’s book Innovation and Its Discontents.


8 thoughts on “Innovation and Its Discontents: Jaffe and Lerner in Wsj

  1. The following letter had been sent to the Wall Street Journal on March 2, 2006, but not published:

    The editorial “Patently Absurd” (A14, March 1, 2006) depicts an out-of-control Patent Office approving almost 90% of submitted applications and a powerless court system constrained by a “clear and convincing evidence” standard. In reality, patent grant rates have been steadily declining since 1999, when the rate was 70.8%; the rate was 62.5% in 2004. Efforts to fashion adjusted patent grant rates, initiated by Quillen and Webster and later relied upon by Jaffe and Lerner, have been shown to be flawed on both numerical and legal bases. If there were indeed a tide of questionable patents, the court system would readily invalidate them over prior work, under any evidentiary standard. Studies by Lunney have shown that invalidation of patent claims by the court system has declined over the last twenty years. In situations wherein there is published prior work, either dead-on to the later work or rendering the later work obvious, the procedure of re-examination is available to invalidate claims on a preponderance of evidence standard. The patents asserted against RIM, Microsoft, and eBay have been placed in the re-examination process. The patent system is about disclosure of inventions that meet the requirements of patent law, which disclosure increases the public knowledge base. It is up to businessmen to innovate, with attention to the disclosed knowledge. People who disregard public disclosures may suffer, but ignoring the work of others should be made perilous so that society can operate efficiently. (end of letter)

    Of the Metabolite case, on the matter of “patenting” a law of nature, one notes some background information. First, the patent in question was allowed through the Bayh-Dole Act, and is the work of three university professors, two at Colorado (still alive and represented by a different university professor, from the Stanford Law School, who otherwise advocates patent reform) and one at Columbia (now deceased). It does indeed rely on a correlation, first identified by the professors and not accepted by the scientific community initially, rather than a law of nature. There was no evidence at trial that anyone else had discovered the correlation previously, and the current issue is on the indefiniteness of the claim. Second, the present two corporate litigants were previously in a posture of licensee and sublicensee, so this litigation has the appearance of a business deal gone bad.

    One can debate whether this sort of patent claim is of the type that fosters innovation. However, it is becoming increasingly clear that the business community does not want to hear about its role in the problems: the failure to conduct negotiations that, if implemented, would decrease the involvement of the court system in the market and the failure to treat the patent system seriously (the RIM case being a notable example of something that could have turned out differently, but for some bad decisions on the front end).
    Although one can certainly point to many sound byte examples of bad patents (which largely have been eliminated through re-exam), it is a sad day when the Wall Street Journal and the eBay brief rely on false figures of patent approval rates to advance their arguments.

    Lawrence B. Ebert
    March 21, 2006

  2. My experience with USPTO covers the period 1964-1989, so it does not include the most recent 16 year period. In the areas of technology in which I was working over the period, the “standard proceedure” of USPTO was to reject every patent application in its entirety on its first submission; and, to base the rejection on every patent in the technology area which might have any possible relationship to the claimed invention. This approach required the applicant(s) to provide a detailed response to USPTO explaining why each of the cited patents did not either disclose the technology covered in the patent application or make the subject of the application “intuitively obvious to the casual observer”.

    In most cases, in my experience prosecuting 22 patents through the system, most or all of the patents cited by USPTO in the first review should not have been cited because they were totally unrelated to the invention claimed in the applications. I always viewed this as the bureaucrats’ way to shift the bulk of their workload to the applicant(s). The patents cited after a second review were generally far more pertinent to the application under review. My experience with face to face meetings with principal examiners at USPTO, on the other hand, was very good. They knew the technologies, they understood the claimed invention(s) and they were willing to negotiate the breadth of claims in the application under review to assure that the claims were not over-broad.

    It is not uncommon for applicant(s) to include several claims which are arguably too broad, to test the breadth USPTO was willing to allow in a specific patent. In my experience, none of these claims survived as submitted, though some of them did lead to greater breadth than the next broadest claim in the application. Our applications were universally improved by our involvement in defending the application through the USPTO review process.

  3. My experience with USPTO covers the period 1964-1989, so it does not include the most recent 16 year period. In the areas of technology in which I was working over the period, the “standard proceedure” of USPTO was to reject every patent application in its entirety on its first submission; and, to base the rejection on every patent in the technology area which might have any possible relationship to the claimed invention. This approach required the applicant(s) to provide a detailed response to USPTO explaining why each of the cited patents did not either disclose the technology covered in the patent application or make the subject of the application “intuitively obvious to the casual observer”.

    In most cases, in my experience prosecuting 22 patents through the system, most or all of the patents cited by USPTO in the first review should not have been cited because they were totally unrelated to the invention claimed in the applications. I always viewed this as the bureaucrats’ way to shift the bulk of their workload to the applicant(s). The patents cited after a second review were generally far more pertinent to the application under review. My experience with face to face meetings with principal examiners at USPTO, on the other hand, was very good. They knew the technologies, they understood the claimed invention(s) and they were willing to negotiate the breadth of claims in the application under review to assure that the claims were not over-broad.

    It is not uncommon for applicant(s) to include several claims which are arguably too broad, to test the breadth USPTO was willing to allow in a specific patent. In my experience, none of these claims survived as submitted, though some of them did lead to greater breadth than the next broadest claim in the application. Our applications were universally improved by our involvement in defending the application through the USPTO review process.

  4. Jaffe and Lerner bring up the idea on focusing on “the most potentially important applications,” eerily reminiscent of the 2003 Note in the Harvard Law Review (which stated without qualification that the PTO granted 97% of all applications) and certainly in tune with Lemley’s gold-plating proposal (but in Metabolite Lemley’s for patenting laws of nature; not to worry, after yesterday, the Supreme Court may not decided the patentability issue in Metabolite).

    The Jaffe/Lerner idea is out-of-touch with reality. Many accused trolls find out the perceived value of patents LONG AFTER they have issued, not while the application is being reviewed by the USPTO. Think about Forgent and JPEG, think about BT and the hyperlink, think about Kodak and Sun.

    Jaffe/Lerner state: If bad patents with important consequences were weeded out by the USPTO, the incentive to file frivolous applications in the first place would be weeded out. And how is the PTO to learn which applications are the “most potentially important” with “important consequences.” Businessmen can’t figure this out. Innovators like Torvalds tell his people not to read patents. Patent examiners are to focus on whether the claims of the application are novel, useful, and nonobvious, not whether they have “important consequences.”

    Jaffe and Lerner base their evidence on low patent quality on the flawed work of Quillen and Webster, and ignore the work of Lunney on court decisions. It’s bad scholarship, and should be recognized as such.

  5. There is a patent on peanut butter and jelly sandwiches? That in itself is worth a massive overhaul of the USPTO.

    A year ago, I went to a “new business workshop” and was very surprised when the facilitator went into this ultra-excited rant about how to patent an idea that is close to what’s already patented but is more broader. He explained how you can then cause the original patent holder to “squirm with unease” as your idea emcompasses his even though you have no clear implementation.

    I knew right then it was time for me to go. Sounded like a hustle. Guess it’s legit for now, eh?

  6. There is a patent on peanut butter and jelly sandwiches? That in itself is worth a massive overhaul of the USPTO.

    A year ago, I went to a “new business workshop” and was very surprised when the facilitator went into this ultra-excited rant about how to patent an idea that is close to what’s already patented but is more broader. He explained how you can then cause the original patent holder to “squirm with unease” as your idea emcompasses his even though you have no clear implementation.

    I knew right then it was time for me to go. Sounded like a hustle. Guess it’s legit for now, eh?

  7. Of –There is a patent on peanut butter and jelly sandwiches? That in itself is worth a massive overhaul of the USPTO.–

    #1. Check out re-exam 90/005,949.

    #2. An argument based on an anecdote isn’t too powerful.

    There have been examples of misuse of the patent system for a long time. Enforcement of the Selden patent tops anything being done now in terms of “trollism.” The issue is whether Jaffe/Lerner’s suggestions to change the system are going to be effective in improving the system. It would be great if anybody could identify which patent applications were worthy of special treatment, but that hasn’t happened, and won’t be happening, any time soon. The impact of an invention cannot be judged apart from the business model to implement it, as Xerox proved time after time.

  8. I was being sarcastic Mr. Ebert with the peanut butter and jelly remark. 🙂

    But you bring up some interesting points and I will definately look into what you are saying. I’m close to the patent process and need as much information as possible.

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