//
you're reading...
IP, Patent

Did Serial Infringers Commission “Academic” Patent Study To Support Widespread Infringement?

A new working paper published by Boston University School of Law states:

In the past, non-practicing entities (NPEs) — firms that license patents without producing goods — have facilitated technology markets and increased rents for small inventors. Is this also true for today’s NPEs? Or are they “patent trolls” who opportunistically litigate over software patents with unpredictable boundaries?

The authors also take the time to thank the Coalition for Patent Fairness for “support.”* The statement is likely intentionally ambiguous, but I’m guessing they’re not thanking the likes of Cisco and Google for calling up on the phone with an enthusiastic “attaboy!” for their conclusion that patent litigation by one specific class of patent owners is somehow responsible for “the loss of billions of dollars of wealth” and therefore “harms society.”

Regardless of whether this study was specifically commissioned by some of the world’s most well-known patent infringers, even a brief review shows several reasons to question the conclusions reached.  First, and perhaps even more importantly, the basis for the conclusion rests on the laughable assertion that “reaction of the [accused infringer] firm’s share price during the days following the filing of [a patent infringement] lawsuit” is by any means a valid proxy for estimating the “private losses” of companies so accused.  Second, the authors imply that monies paid by infringers but not reaching “small inventors” has somehow been entirely wasted, without benefit.  Finally, the researcher’s objectivity is compromised–not only by the apparent close relationship with companies routinely accused of appropriating inventions belonging to others–but by the way they present their findings to the reader. In particular, the authors disparage an entire class of patent owners based on reasons entirely beyond the patent owner’s control.

Of course a company’s stock price decreases in the days following the filing of a lawsuit.  Investors routinely watch public events like litigation, and information spreads like wildfire throughout the market.  However, while I understand the logic that “investors respond to the news of a lawsuit filing by reducing their expectations of future earnings,” the author’s apparent (and unsupported) conclusion that the expectation reduction “should reflect all the costs the firm faces from the suit.”  For what reason? Are investors that react to individual events by selling their ownership really behaving rationally and reducing “expectations of future earnings”?

The far simpler explanation for any correlation between patent lawsuits and stock price is that the news creates uncertainty about the future of the company.  Uncertainty translates to increased risk, and risk-averse investors react to increased risk by dumping the stock. You don’t need graduate courses in economics to follow that logic.  Using stock price as a proxy might equally lead people to blame the weather, the President’s speeches, or the New York Yankees for loss of wealth.

As to whether patent litigation activity benefits “small inventors”, the authors explain that if these claimed corporate “losses were offset by massive transfers to independent inventors, we think we would have heard or read reports documenting this bonanza and a corresponding surge in research activities by small inventors.”  First of all, selling a patent to a “non-pracitcing entity” is, more often than not, a last resort of the inventor. Inventors, particularly independent inventors, treat their creations as though they were their own children (and many have referred to them as such in personal conversations).  In my experience, inventors decide to sell only after exhausting all other efforts, and in some cases live to regret the decision later.

More importantly, the implication that a patent owner’s earnings are wasted if not significantly transferred to the inventor is simply ludicrous.  Most inventors receive nothing more than the loyalty provided by at-will employment (and if they’re lucky, a nominal bonus check).  Inventors who deal with NPEs receive a fair bargain for their invention (or else they wouldn’t sell).  Meanwhile, NPEs receive compensation (when they make the right buys) for recognizing value in the patent rights acquired. Both phenomenon are as they should be, since they allow each party to continue their respective pursuits, with the net result continuing to encourage inventors to disclose their inventions.  (See my post Patent Licensing Is The Answer, But What Is The Question? for more on this argument).

As the biggest insult, however, this so-called “academic” paper uses unjustified, biased terminology to describe a class of patent owners, immediately raising suspicion about the objectivity of any conclusions reached.  My personal reaction to this would be on par with reaction to a study of some racial or ethnic group that described the group with a well-known racial slur. In all seriousness, would anyone care to imagine the reaction to a study about Native American casinos with a title like Why Do Redskins Deal Poker?

Moreover, the authors repeat throughout that patents asserted in litigation may have “fuzzy boundaries” and that infringement is often “inadvertent” or “independent” of the patent’s existence.  First, while “fuzzy boundaries” represents a legitimate concern, any resultant problem rests with the patent office, not with patent owners.  Patent owners spend thousands to secure patent rights as broadly as possible, entrusting the patent office to conduct an appropriate examination.  Further, the patent office applies a broader interpretation to patents, so patent owners correctly rely on possession of a duly issued patent.  If “fuzzy boundaries” poses a significant problem, the solution lies with the patent office, not with patent owners.  (And the solution is simple: give the patent office the funding it needs).

Second, liability even in the face of “independent” or “inadvertent” is not only unavoidable, it is justified.  The justification cuts to the heart of the patent system in the first instance.  The bargain struck by forming the system asks inventors to come forward and disclose. In exchange, they receive a patent.  The risk of remaining ignorant of patents should be borne by the ignorant party, not the patent owner.  Further, if lack of pre-infringement knowledge were a defense, companies (to an even greater extent) could easily avoid liability by remaining ignorant of patents. This frustrates goals of the patent system centered around dissemination of knowledge and advancement of the technological arts, and acts as a material disincentive to disclose new inventions.

(The natural counter-argument at this point would be for someone to suggest that patents are unhelpful when it comes to teaching new technologies.  Having read hundreds, if not thousands, of patents, I respectfully disagree. Moreover, if legitimate concerns about enablement and written description exist, this too is a matter than can be resolved by dealing with the patent office, rather than disparaging patent owners.)

I do thank the academics at Boston University for publishing their research. Doing so gives me the opportunity to remind myself (and my readers) why I started this blog in the first place.  Prior to Gametime IP, the strongest defense of NPE-based patent litigation generally revolved around the fact that it is every patent owner’s right to take accused infringers to court, whether we like it or not.  This tepid “defense” produces a bad aftertaste, sort of like saying “I hate the cable company, but it’s their product and I suppose they can do what they want.”  Our public discourse largely lacked any affirmative argument for the value created by NPEs, giving infringing companies free rein to pollute the literature with only anti-patent owner content. Thankfully, those days are over.

* In the interest of full disclosure, the author would like to thank his childrens’ college fund for “supporting” this article.

Discussion

8 thoughts on “Did Serial Infringers Commission “Academic” Patent Study To Support Widespread Infringement?

  1. Patrick,

    Excellent article thanks. I really appreciate the paragraph “Second, liability even in the face of “independent” or “inadvertent” is not only unavoidable, it is justified. The justification cuts to the heart of the patent system in the first instance. The bargain struck by forming the system asks inventors to come forward and disclose. In exchange, they receive a patent. The risk of remaining ignorant of patents should be borne by the ignorant party, not the patent owner. Further, if lack of pre-infringement knowledge were a defense, companies (to an even greater extent) could easily avoid liability by remaining ignorant of patents. This frustrates goals of the patent system centered around dissemination of knowledge and advancement of the technological arts, and acts as a material disincentive to disclose new inventions.”

    Keep up the good work

    Posted by dbhalling | September 20, 2011, 10:43 pm
  2. Hear hear!

    The Bessen and Meuren paper is a good example of a bad phenomenon. In an endeavor—whether or not biased or funded by vested interests—to understand the economic return of an activity quantitatively, people often look for proxy metrics. Some of them then run elementary statistical analyses and draw sweeping conclusions. In some cases this may be warranted, but in the case of complex issues such as why people get patents and assert patents, and how people value patents, any simplistic approach (such as measuring public companies’ stock prices, or trying to reduce value per patent to some allocation of R&D spend across a patent portfolio, or even measuring direct patent revenue as a proxy for patent value), is doomed to failure.

    To take an example, in order to understand invention behavior in large companies, one would need to think about what motivates inventors (clearly not just cash), what motivates patent portfolio managers, what the role of patents is in an overall R&D program (are they just documentation of what was done, or does the process help stimulate new invention), and so forth. NONE of this information is available in public databases (and much is not available anywhere in quantitative form, which doesn’t mean it’s not relevant), so trying to say anything about the return on patent investment from public information such as lists of patents, stock prices, overall revenue, positions in respective marketplaces, etc., is foolish. Patents are just not a major driver of stock prices except in rare circumstances. That fact does not mean patents are not important. HR policies don’t drive stock prices either (unless they involve HP’s executive policies!), yet it would be unwise to conclude that HR doesn’t matter.

    What has galled me even more over the years since their paper was published is that it gets cited so often, and so uncritically. I have read things like “a leading academic paper showed that patents add negative value for firms”, citing Bessen and Meuren, and have concluded that it is no wonder public discourse can be so skewed. If you publish in a peer-reviewed journal, people can then quote with authority, regardless of the quality of your work. Since it seems few actually READ the paper or considered how far you could trust its conclusions (not very!), what ends up happening is an activist academic succeeds in establishing a public meme.

    I realize of course I could try to counter their efforts, but since I have paying clients and focus on serving their needs, and since I have no interest in being an academic, I have not done so.

    I am very glad you did!

    Posted by bgalvin | September 21, 2011, 12:22 pm
  3. “Second, liability even in the face of “independent” or “inadvertent” is not only unavoidable, it is justified.”
    “The natural counter-argument at this point would be [...]”

    I’d say that your mentioned natural counter-argument is the wrong one. The right one would be that many patents not are written in a language that makes them easy to find. You could be working in airplane mechanics and be hit by a patent about lawnmower mechanics because you couldn’t find that patent when you were searching for patents using the terms you use in your trade.
    There’s often not a chance you’ll find all the patents that applies to you because of it being so hard to know what words will be in the patents.

    If you disagree, I expect you to at least be able to point me to a good guide on how to find all (or at least most) applicable patents for *any* given thing. (Example: see “method of swingning on a swing”. How can I even expect a patent like that to exist? Sure, it’s unlikely to be enforced, but that doesn’t mean it won’t waste my time and money. And if I have less resources than the patent owner and can’t afford a good lawyer, I might lose in court anyway)

    Posted by Natanael L | September 27, 2011, 1:53 am
  4. 4 things bro:

    1. ” Regardless of whether this study was specifically commissioned by some of the world’s most well-known patent infringers, even a brief review shows several reasons to question the conclusions reached. First, and perhaps even more importantly, the basis for the conclusion rests on the laughable assertion that “reaction of the [accused infringer] firm’s share price during the days following the filing of [a patent infringement] lawsuit” is by any means a valid proxy for estimating the “private losses” of companies so accused. Second, the authors imply that monies paid by infringers but not reaching “small inventors” has somehow been entirely wasted, without benefit.”

    first, that assertion is far from lolable. it is not only a “valid proxy” it is a great proxy.

    “:Of course a company’s stock price decreases in the days following the filing of a lawsuit.”

    Thanks for the admission bro.

    second, monies not reaching “small inventors” is wasted in so far as it isn’t going towards promoting the progress, it’s just going to tards to argue about the promotion of the progress. /boggle. You know that’s true bro, don’t try to pretense your way out o it.

    To end 1 let me just say that the situation is analogous, roughly, to a group of people setting up a business on someone else’s land, the business becoming successful, and the land owner telling them to leave. To say that the landowner has no control over the resulting losses suffered by the business is absurd to say the least.

    2. Let’s talk about the inventors.

    “Inventors who deal with NPEs receive a fair bargain for their invention (or else they wouldn’t sell).”

    Lulz, says you, one of the fat cats feeding off of these “fair bargains” right? Right? Lulz. Such outstanding inability to see the corruption of the system that pays your bills is hardly unexpected, but come on sir.

    ” Most inventors receive nothing more than the loyalty provided by at-will employment (and if they’re lucky, a nominal bonus check).”

    How does some inventors being cheated justify cheating other inventors? Because I’m not understanding how two wrongs make a right here.

    3. Lets talk about infringement.

    ” The risk of remaining ignorant of patents should be borne by the ignorant party, not the patent owner. ”

    And why is that? Why not impose upon the patent holder a duty to make others aware, personally, of their infringing activities? Why not require more “notice”? More notice is never a bad thing.

    4. How, precisely, is providing more $ to the PTO supposed to help remedy fuzzy patents? Applicants still controll the drafting of claims. The PTO can do little, if anything at all, to remedy fuzziness. Indeed, decisions like Miyazaki intended to remedy this nonsense are regarded as being extra-legal by many attorneys. In short, $ is not what is needed to remedy that and enablement etc. issues. LEGISLATION, and GOOD LEGISLATION AT THAT, is all that is required. Indeed, it could be said that “fuzziness” is the one thing we don’t have a statute to combat. We’ve got one to combat over breadth, ineligibility, indefiniteness (not really the same thing as fuzziness as you can draft claims that are definitely drafted to a fuzzy boundary and have satisfied definiteness), and non-enablement, but fuzziness never really got around to being addressed and as a result is all too common and desirable. The fact is of course that if you apply all the other rigid standards a lot of the fuzzy claims would get caught like tuna passing through several different nets, but some still get through and that would make a good target for a lawl.

    Posted by 6 | October 13, 2011, 6:43 pm
    • > 4 things bro:

      I’m not your bro, pal :-P

      > first, that assertion is far from lolable. it is not only a “valid proxy” it is a great proxy.

      IANAE but some preliminary research indicates your assertion is incorrect except in the most simplistic of analyses.

      > second, monies not reaching “small inventors” is wasted in so far as it isn’t going towards promoting the progress, it’s just going to tards to argue about the promotion of the progress. /boggle. You know that’s true bro, don’t try to pretense your way out o it.

      Two things:
      1) It’s not like the small inventors are not getting paid at all. They are. How much they get paid depends on how potentially valuable the patent is and how well they negotiate.

      2) Those taking more risk always get more money, unfortunately, regardless of where the value is produced… that’s just economics (and about as much as I know of it). By getting paid up front and often a percentage of any settlement/damages with no further risk, the inventor is actually taking a very safe position for an equivalently reduced pay-off. The NPE, on the other hand, risks getting nothing after lots of time, money and effort has been invested in getting potential infringers to pay up, and also risks having paid for a patent that may be worthless after the legal dust has settled.

      As such, having to monetize patents through NPEs certainly is inefficient (in the economic sense), no doubt, but that is only because most infringers would rather not pay for somebody else’s IP if they can get away with it.

      > Lulz, says you, one of the fat cats feeding off of these “fair bargains” right? Right? Lulz. Such outstanding inability to see the corruption of the system that pays your bills is hardly unexpected, but come on sir.

      But he’s right. Inventors selling their patents get exactly what they bargain for. And the problem is never that they don’t ask for enough, it’s almost always that they ask too much. Every inventor has a “million-dollar idea”, and they won’t settle for anything less than a million, or two. Or ten. I should know, I’ve been a “$1M idea” inventor myself. I blame that on my naivete. I’m still an inventor, and that idea may still be worth a lot, but I now have a better idea of how the world works.

      > How does some inventors being cheated justify cheating other inventors? Because I’m not understanding how two wrongs make a right here.

      I’ve never heard of an NPE cheating inventors who sell to them, so I doubt those are being cheated. On the other hand, “at-will employed” inventors rarely get a fair share of the value their employer derives (or could derive) from their inventions. That does seem unfair, but, again, they get exactly what they signed up for. And even if some benevolent employer chose to compensate their employees fairly for inventions, the problem becomes “how much is the patent worth?”, and that is never an easy question to answer.

      > And why is that? Why not impose upon the patent holder a duty to make others aware, personally, of their infringing activities? Why not require more “notice”? More notice is never a bad thing.

      Many patent holders do provide notice. It’s only when they’re blown off or ignored that the legal option is considered. (Or in case of small inventors, selling off to an NPE.)

      > 4. How, precisely, is providing more $ to the PTO supposed to help remedy fuzzy patents?

      As you said, it’s a tough problem, but money, if you have enough of it, is often a good solution for any problem. For instance, here, more money could allow the PTO to hire more examiners, so that each examiner can spend more time on each patent to better reason about potential fuzziness. But, yes, much better legislation is needed in some areas, such as better 101 guidelines for computer-implemented inventions.

      Posted by kinkfisher | October 14, 2011, 3:52 pm

Trackbacks/Pingbacks

  1. Pingback: Flawed Study by Boston University Used to Justify Infringement | Blog of Dale B. Halling, LLC - Intellectual Property Law Firm - Patent Attorney - Patents, Trademarks, Copyrights - September 21, 2011

  2. Pingback: Myopic Patent Cynicism « Gametime IP - January 26, 2012

  3. Pingback: Do NPE’s “Cost” Us $29 B? Intellectual Ventures Co-Founder Peter Detkin Sets The Record Straight « Gametime IP - June 28, 2012

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 309 other followers

%d bloggers like this: