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.