Facts: Basic and Alternative


Facts: Basic and Alternative

March 9, 2017

As a new Congress descends on DC, the push for changes to our patent system continues. In February, despite already historic changes to the system over the past few years, Senate leaders called for more tweaks. With a new administration in town it’s a good time to review the bidding.  

Let’s start with some basic facts: Patents are more than arcane legal documents; they represent a legal claim to rights in an invention. Regardless of whether you subscribe to the “patents as property” or “patents as defining a liability” theory, there is no dispute that patents are an asset – they can be bought, sold, licensed or otherwise transferred.

This fact is fundamental to the functioning of the patent system, and the notion that inventions are valuable and are worthy of investment is the core operating principle of Intellectual Ventures. This was true when my co-founder Nathan wrote a Harvard Business Review piece on the topic nearly a decade ago, and it is true today.

Over the years others have adopted IV’s principle and, as a result, a market grew up around these investments. One would think that this would be viewed as a good thing – if we agree that inventing is something to be incentivized, then a market for investing in inventions will provide additional incentives for those doing the invention and, ultimately, fund more invention.

Unfortunately, not all saw the growing market for invention rights as a positive development. Market leaders were quite happy with the status quo in which inventors had limited ability to seek recourse when their inventions were used. As the market developed, and the playing field was leveled, the market leaders developed a strategy familiar to the new administration – they developed a set of alternative facts to push the idea that the system was failing.

For example, there was much hue and cry over the alleged use of mass mailing of demand letters to end users of products alleging infringement. After extensive analysis (and expenditure of tax dollars) the FTC reached a settlement with the one (1) actual offender, who had extracted licenses from exactly two (2) small businesses.

Over the past decade these rhetorical attacks on invention rights have been endless. Common refrains include: Patent litigation is out of control! Poor quality patents are killing investment in technology and dragging down companies! Demand letters are defrauding businesses! Software shouldn’t be patentable! Trolls are abusing the International Trade Commission!

Upon closer inspection many of these claims fall apart. It’s easy to see that patent litigation is on the decline; as patent rights have weakened, US companies are filing for more patents in Europe while applications for US patents remain flat; no public company has yet to report a material patent infringement award against it; and, venture capital investment has approached near-record levels.

This assault on the system lead to the passage of the America Invents Act, and a further bevy of changes including several Supreme Court rulings: two encouraging judges to award attorney’s fees to the winner in patent cases, another which muddied the waters when it comes to what is even deserving of a patent, and a third that could reshape where a patent owner can assert his rights.

And while the Supreme Court has certainly been busy, it isn’t  alone, as the lower courts recalibrated patent litigation through new rules increasing the amount of information a patent owner must bring to bear at the beginning of a case and the Patent Office has effectively stopped issuing patents in some areas of technology while invalidating existing patents at a rapid clip.

The result of the policies put in place by the Courts, Congress and the USPTO, over the past decade have – by design – made it more difficult for a patent holder to keep an infringing product off the shelves, made it impossible for anyone to say with certainty whether an existing patent is valid, and have made it impossible to predict the amount of damages a patent holder can expect if his invention is used without permission. 

While many large companies are complicit in pushing the anti-patent rhetoric publically, a small set of scholars have been working diligently to espouse these views in academia, and, as a result have become extremely influential, reshaping the patent system in their image.

In a recent law review article, a professor from USC’s Gould School of Law argues that these scholars not only built their case with “little to no supporting evidence,” but also that the outcome of their advocacy – the litany of changes to the patent system over the past decade – is doing the opposite of their intent, and actually harming innovation. 

The net result of the uncertainty is hardly a surprise. When experts can’t accurately predict the value of an asset – or even say with certainty if it actually exists! – there will be less investment in that asset. And that is what we are seeing now; the market leaders, and the academics supporting them, have effectively suppressed the amount of investment available for invention in the US.

While the short-sighted among us may rejoice at this result, surely others will see the folly in this approach. We urge policy-makers to reject efforts to reshape the system by anecdote. With a new Congress in session, patent holders have a chance to dispute the alternative facts put forth by a small subset of academics and reverse the trend towards a weaker patent system. 

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