Saturday, November 7, 2020

Review of Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk by James Bessen , Michael Meurer

This review was written by Eugene Kernes

Elaborate Description

Patents are meant to support the innovators. To provide incentives for innovators to not only innovate, but also share their innovations. The author used empirical evidence to show that the current patent system is failing innovators. There are industries for which the patent system works well, but patents are hurting software innovators. Much of the book is a comparison between property rights systems which work extremely well such as tangible property rights, and those property rights which are failing such as intellectual property rights.

There are those who purposely manipulate the patent system to gain profit such as patent trolls. People and businesses deliberately and strategically withhold patent claims for years until others have developed the technology independently. When the new entrants are found, the inventor will release the patent claim and sue entrants for infringement of the patent. Patent trolls and other problems do exist within the patent infrastructure, but most violations are not intentional. Violators of intellectual property rights did not intentionally violate the property of others, rather, they thought their innovations did not infringe on owner’s rights. Seeing patent infringers as purposeful infringers is counterintuitive as infringers would not need to spend much on R&D but those who are sued for infringement, spend a lot on R&D. Statistically, the more spent on R&D, the more likely they will be sued for infringement. Software is easy to reverse-engineer which also makes checking for infringement is easy. This should cause the infringers to hide their products but the opposite is true, that there are more lawsuits over publicly observable features.

Unlike normal tangible property rights which are exclusive such as being used by a single individual at any given time, patents can have more than one inventor claimant. Inventions can be invented independently at the same time. It is the first to make the invention pubic who gets the patent rather than the first inventor. The benefit of having an effective property rights system are various ways property can be used. Property rights are a bundle of rights which can transfer some of the rights to others. Property rights fail when their validly is uncertain, have costly negotiations due to high fragmentation, public is not aware of boundary information, and when boundaries are neither clear or predictable.

The authors point out that the information cost of identifying property boundaries and acquiring permission to use the property are borne by the third party. Property law reduce the informational cost by making property rights easily recognizable and facilitating the clearance of property usage. Implantation of property and patent rights differ in their notice function. Property rights have well-developed notice function to inform others of the boundary. Even with extensive research in the boundaries of patents, technology investors are still at risk of disputes and litigation because patents do not have clearly defined boundaries.

Clear and easily determined rights allow third parties to avoid violating the property rights and facilitate permission to use the property when needed. Property right examination in land are routine with any discrepancies being found before the sale. Patent search in costly and inconclusive. With increasing pool of patents and vague language used in the patent description, infringers may not be aware of the prior inventions and related patent rights. Property rights such as copyrights are efficient because they enable various usage of prior art to be cleared in advance. The search for technology patents in advance is becoming more costly than litigation of any single patent. By searching through patents, the innovators take on the risk of being seen as willful infringers on the patents.

Unlike tangent property rights, innovators have unreliable legal options regarding boundaries as their interpretation can be defined differently. Patent owners can prevent the public from seeing the claim language which defines patent boundaries. Possession of technology is not enforced patent law which enables patent owners’ rights over technologies which are very different and new than the technology actually developed. As the number of patents needed to be checked for possible infringement increases, so does the clearance costs.

Abstract property rights have unclear property boundaries. Software is an abstract technology which makes it difficult to set precise patent boundaries to fit actual technologies. Definite boundaries become clearer with appeals court judges but their opinions are not consistent. Consistent interpretation of patent claims can mitigate problem with ambiguity, but lawyers have difficulty counseling how ambiguous claims will be interpreted during potential infringement. The problem with accepting abstract claims is not just that they cover broad range of technologies, but also technologies unknown to the inventor. As the authors claim, abstract claims reward inventors with inventions they do not invent. The risk of patent litigation reduces expected profits into potential losses of investing into innovation.

The authors do not hide the research which contradicts their claim that the patent system needs reform. Patents for pharmaceuticals remains very profitable. Small investors also gain from the current system. The problem that small investors have in terms of the patent system is that it does not enable them to commercialize on their inventions. What they find is more complicated than the various individual claims, but also many patent systems problems which need to be rectified.

The patent office has two problems which are being in pursuit of revenue they process patents quickly at the expense of quality, and examiners do not have the knowledge of prior innovations when facing unfamiliar new technologies. Over time the patent office did hire examiners who would be more familiar with the new technologies and learn to better process patents while evidence shows that even with these implementations, the litigation rates have not declined for software. The authors do claim that patent office tried applying rigorous standard of non-obviousness but were overruled by the Federal Circuit.

Even though the patent system has problems, history does have precedents of technologies being denied patents due to abstract claims. There are also alternatives to patents which explains why patents did not play a significant role in the Industrial Revolution. Trade-secrecy protection is one such alternative. Innovators can also earn profit from their innovations without the need for patents such as having a lead-time which enables them to recoup the cost of inventions. Imitation costs limit free-riders on others inventions.

Using empirical research, the authors show that patents are less effective at facilitating economic payoffs compared to property rights. It is patent implementation which limits the value of the patent system to facilitate innovations. Institutions for patents are more difficult to develop and maintain as they are more specialized and complex. The system can be made to better facilitate innovations by making sure they contain predictable information, their interpretations are clear and unambiguous, and reducing clearance searches.

Book Details

Edition ISBN:  9780691143217
Pages to read:   263
Publication:     2008
1st Edition:      2008
Format:            Paperback

Ratings out of 5:
Readability    5
Content          5
Overall           5