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IP, Patent

Patent Connections – Licensors vs Implementers: Who’s Really Promoting Innovation?

This week’s Patent Connections column offers another look at the role of licensing in the overall quid pro quo of the patent system.  Specifically, licensing is examined in the context of litigation over past and continued infringement.  It is often assumed that patent litigation reflects one of the costs of the patent system on society as a whole, rather than conferring a benefit.  Yet my column makes the unconventional argument that such activity can, and in fact does contribute to innovation, thus fulfilling the Constitutional aspiration of promoting progress of innovation. Granted, this benefit is based on the assumption that patent litigation involves a validly issued patent that is actually infringed by the defendant.  It does no good to debate the efficacy of a patent system by relying on examples where the Patent Office simply made a mistake in issuing the patent.  Similarly, a patent owner’s understanding based on an investigation into evidence provided by an alleged infringer might ultimately be incorrect.  In the American legal system, we use civil juries, not a government bureaucrat, to decide what actually happened when two parties have different versions of the facts.

First, consider two widely different takes on the DataTreasury patent litigation. From Techdirt:

On the face of it, it looks like a typical patent holding lawsuit, where a company (that doesn’t do anything) holds a very broad patent on the concept of automatic check scanning. It’s suing a whole bunch of banks for their use of automatic check scanning without paying a big licensing fee for permission to do so.

Via Alberto Gonzales Finds A Job: Helping To Settle Patent Trolling Disputes, at Techdirt.com (emphasis added).

And from Huffington Post:

DataTreasury’s founder invented a revolutionary check-processing system in the mid-1990s and tried to market it to high-level executives at Chase Manhattan Bank (now known as JPMorgan Chase). Instead of partnering with DataTreasury, those bankers are accused of walking off with the idea and using it to start a pair of highly successful check-processing companies of their own — companies which are now owned by the biggest banks in the nation.

Via Patent Theft as a Business Strategy at HuffingtonPost.com.

From here, I make the bold assertion that the patent owner, not the infringer, is encouraging progress and innovation, despite the fact that the infringer has deployed the patented technology in a commercial fashion.

And what do I mean when I say infringers don’t advance technology? Well, assuming they are actually infringing, then they are duplicating the claimed invention owned by another.  (Some might also call such duplication “copying.”)  As such, while their contribution has been to take an invention and deploy it commercially, such work doesn’t necessarily give rise to new inventions.  It may be true that infringers make certain improvements or add additional features, but the fact remains that the act of infringement itself is nothing but a repetition of something that was already made known by publication of the patent.

Meanwhile, patent owners file lawsuits seeking to license their technology in a very loud and significant way.  Patent lawsuits are a matter of public record, and attract more attention than the mere issuance of a patent.  Further, litigation gets the attention of more than just the accused infringer.

For example, even if an infringer wasn’t previously aware of the existence of the patent, patent litigation notifies not only the infringer, but also the infringer’s other competitors.  Federal litigation is a very public way of identifying a likely infringer, and companies generally keep an eye on what’s being said and done about themselves and competition.  (While I haven’t seen anything written, I have little doubt that someone at General Electric is paying at least passive attention to the turbine blade patent battle going on between Pratt & Whitney and Rolls Royce.) Litigation is also a sign of the seriousness of a patent owner’s interest in ensuring that any use of the patent technology is compensated.  Thus, separate from patent issuance itself, the value of the technology can be validated by the existence of patent lawsuits.

Incentives to innovate are created out of a desire to mitigate damages, or avoid litigation (in the case of the observant competitor) by exploring alternative technologies. Even if these alternatives represent incremental advances, they can add up to support a commercially important innovation.

Finally, I oppose the argument that the patent system has failed because it rewards inventions that would have been created in the absence of a patent system. Such arguments miss the point of patents entirely:

Patents provide the vehicle for disclosure of inventions, including how to make and use them, and this knowledge is imparted to all, even if the rights to apply the knowledge in specific ways must be procured through license.  In the absence of patents, intellectual creations can be protected by trade secrets which have the opposite effect, encouraging firms to shield their know-how from the public.  Consider every IP attorney’s favorite trade secret example, the Coca-Cola formula.  This trade secret has existed for over 100 years, and the formula (other than a brief aside, and a substitution of high fructose corn syrup for sugar) has gone largely unchanged for decades.  How innovative is that?

Read the full article: Licensors vs Implementers: Who’s Really Promoting Innovation?

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