Patents are big news these days, and sometimes the day is not complete without a column from a tech magazine, or an op-ed by some corporate mouthpiece about how our patent system is malfunctioning and not performing its goal of “promoting innovation.” As evidence of this supposed lack of innovation promotion, these inane articles nearly uniformly point to patent lawsuits, or, for authors wholly incapable of rational thought, to a claimed escalation in patent lawsuits. Indeed, mainstream pieces, like Intellectual Ventures VP Ken Lustig’s Forbes article, No, the Patent System Is Not Broken, that set the record straight on the facts and policy greatly contributes to the debate, but are few and far between. Lustig’s editorial was the inspiration for my own historical tale about the role of patents in promoting innovation in an environment that–romanticized, revisionist history to the contrary–very much resembles the one we see today.
Unfortunately, pieces like one authored by Slate’s Ray Fisman, claiming that “patent assertion entities” stifle innovation, are far more commonplace. Fisman, apparently blindly following the lead of an economics scholar from MIT, claims that patent owner Acacia “stifled” innovation in the medical sector by licensing IP rights related to storage and distribution of medical images. Fisman’s adopts a more nuanced and empircal explanation for the supposed “stifling” than seen in past rhetoric, so the details of the “Acacia Effect” are discussed in more detail below. More traditionally, authors simply wave their hand over a large collection of patent litigation, like this 2010 Wired article, and proclaim that “patent holders’ increasingly aggressive tactics have created a situation that some claim is choking, rather than promoting, innovation.” As time went on, other pontificators offered up complicated looking graphs to convince us that a)
the emperor has a new wardrobe a patent thicket exists and b) they’re made of the finest silks these thickets prove that innovation is being stifled.
First of all, a patent lawsuit may actually represent the worst possible piece of evidence to use in support of a case that innovation is being stifled. A patent lawsuit represents an allegation that a company’s product uses technology originally created by another, and from whom the company neglected (intentionally or not) to acquire the appropriate rights. The lawsuit, therefore, aims to prevent the uncompensated use of property belonging to another. Equating lawsuits to “stifling innovation” essentially equates the opposite, promoting innovation, to “profiting from the work of others without compensation.” Does this proposed view of patent lawsuits place a value judgment on the lawsuit without regard to its specific merit? Perhaps. But so too does the contrary view above, regarding patent lawsuits indiscriminately as some kind of hold-up operation. Admittedly, the “stifling innovation” argument also holds appeal to certain collectivists who would argue that the novel creations of inventors should be distributed for all of society to benefit, but such a philosophy specifically runs counter to the 200+ year old policy of granting individual rights to inventors.
Like it or not, inventors create new manifestations and applications of technology to solve real-world problems. The patent system incentives those creators with the promise of property rights. However, the creators may not (and often are not) adequately skilled at running a successful business. The genius of the patent system–as explained in both mine and Lustig‘s articles mentioned above–is to enable rights transfer mechanisms where producers skilled at making products can do so while still ensuring compensation back to the creators.
Second, those who claim an increase in litigation activity, or increased complexity in overlapping patent assertions (and counter-assertions) proves a “stifling” effect have an even far less rational argument. Lawsuits cost money. A typical patent lawsuit can easily run several millions of dollars in both attorney time and out-of-pocket expense. Thus, patent owners typically only file lawsuits when there is money to be made. When there is no (or not enough) money to be made, despite the fact that unauthorized use of their property may be occurring, there would be little or no economic incentive to attempt to recover. Conversely, when there is money being made through use of the technology, the motivation to collect becomes amplified and the level of interest peaks.
Thus, a relative increase in litigation activity is more likely tied directly to an increase in economic activity of the rights-users relative to the rights-owners. In other words, increasing patent litigation results from increased adoption of technology, which indicates that innovation has been promoted by the pursuit of, among other things, patents. It would be quite disingenuous to claim, after the fact, that the later use of those patents to serve the very purpose of their creation cancels out and ultimately stifles innovation.
Finally, as noted above, Fisman’s Slate article argues a slightly more nuanced rationale for theinnovation stifling position. The research cited by Fisman follows an example of a patent licensing effort by Acacia Research Group, and claims that companies to whom Acacia attempted to license their patents demonstrated reduced sales following the licensing attempt. Fisman explains that none of the companies targeted by Acacia introduced new versions of their products in the 2 years following Acacia’s lawsuits, apparently proving “that R&D at the affected companies went into a deep freeze.”
Ignore for a moment the fact that 2 years of slower product sales could hardly, without more, correlate to an effect on R&D, and just assume the assertion is true. Is this truly evidence of innovation stifling, or merely a logical reaction and adjustment for a previously unknown situation? Consider a hypothetical example of a land developer that believes it has acquired 10,000 acres of land on which it begins building a planned community. After a year or two into a 10+ year building project, imagine a property owner comes forward, claiming to own part of the land the developer has already built upon. Better yet, imagine several property owners come forward with such claims, forcing the developer to consider whether the individuals entrusted in obtaining the land for the planned community acted diligently and thoroughly to acquire all of the parcels it needs.
If the hypothetical developer canceled or suspended future plans to develop the undeveloped areas until it adequately assessed the risk posed by the previously unforeseen property claims, would any rational person (again, the collectivist notwithstanding) suggest that private property rights should be eliminated because they are standing in the way of progress?