Category: Law and Economics

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C-IP2 News Law and Economics

Scalia Law’s Innovation Law Clinic Partners with BizLaunch for Online Legal Clinic on Business Entities for Startups

The following post comes from Wade Cribbs, a 2L at Scalia Law and a Research Assistant at CPIP.

a hand hovering under lightbulbs drawn on a chalkboardBy Wade Cribbs

Last week, Arlington Economic Development’s BizLaunch network co-hosted an online legal clinic event entitled “Mason Law Clinic @BizLaunch: Which Entity is Right for Your Startup?” with Antonin Scalia Law School’s Innovation Law Clinic, which is led by CPIP Executive Director Sean O’Connor. The virtual clinic addressed entrepreneurship and which business entities might best fit a business’s needs and attract investment. The panelists were Kenneth Silverberg, Senior Counsel at Nixon Peabody, and third-year Scalia Law students Mitch Gibson and Rebecka Haynes.

Mr. Gibson opened the discussion by describing the kinds of non-corporate pass-through business entities: sole proprietorships, partnerships, and limited liability companies (LLC). Sole proprietorships are operated by only one person, while partnerships can have as many participants as desired. Neither form of business entity requires registration with the State Corporation Commission; nevertheless, registering a business’s name or obtaining an employer identification number may be necessary. Similarly, partnership agreements are borderline necessary before beginning a partnership so that all parties agree on profit splits, decision making, and how much say each partner has in the venture.

An entrepreneur must register an LLC with the State Corporation Commission. An LLC is made of members and managers. A member of an LLC is anyone who owns a stake in the company—analogous to a shareholder—while a manager can be either a member or an outside person who handles the business decisions. Either members or a manager can run an LLC. To create an LLC, form LLC-1011 must be filed with the State Corporation Commission. If the business is for professional occupations—such as for doctors, lawyers, or architects—form LLC-1103 is needed.

Pass-through taxation is where the business itself is not taxed for the gains and losses. Pass-through taxation occurs at the ownership level, and its most significant advantage is that there is only a single level of taxation. Gains are taxed as the owners’ income and are taxed only once—instead of being taxed when made as profit by the business and then again when distributed to shareholders. Similarly, another advantage is pass-through losses. If the business loses money, the losses can be used to diminish other tax burdens. Liquidity, however, is a disadvantage of pass-through taxation. Liquidity occurs when the business has made a profit that remains within the business. When this happens, the owners are still taxed on the profits without receiving any of them. Another disadvantage is that there is a limit of $10,000 that can be deducted from state or local taxes per member or partner.

Ms. Haynes continued the discussion of pass-through taxation with how it applies to corporations. A corporation utilizes pass-through taxation by electing to be taxed as an S-Corporation, which is a corporation that chooses to be taxed under Subchapter S of the tax code. An S-Corporation is formed by incorporating in the desired state and submitting form 2553, “Election by a Small Business Corporation,” signed by all shareholders. For a business to be an S-Corporation, it must be a domestic corporation, have no more than 100 shareholders, and have only one class of stock. Furthermore, the kind of shareholder is limited to individuals, certain trusts, and estates. Certain financial institutions, insurance companies, and international sales corporations are ineligible to be S-Corporations. An S-Corporation is different from other tax-through businesses in that it allows for tax-free reorganization, provides stock options, and can easily convert to a C-Corporation.

A C-Corporation, on the other hand, is a corporation that does not elect to be taxed under Subchapter S of the tax code and by default is taxed under Subchapter C of the tax code. C-Corporations are closely or publicly held. A closely held corporation has a limited number of shareholders, whereas a publicly held corporation has a large number of shareholders with shares on the market. Some states allow for closely held C-Corporations to dispense with some of the formalities of operating a corporation. C-Corporations are taxed separately from their owners at a flat 21% tax rate. Any further profits distributed to shareholders are then taxed again, resulting in an effective tax rate of 41% on the distributions. The exception to this is that qualified small business stock that has been held for more than five years after its issuance is eligible for 100% exclusion from gain on disposition, not to exceed $10 million for any one shareholder. For a stock to be a qualified small business stock, there are three requirements: it must be issued by a C-Corporation at original issuance; the corporation must be engaged in active business that is not a service business; and the business’s gross assets cannot exceed $50 million. A C-Corporation’s benefits are that it can issue more than one class of stock and have unlimited deduction of state and local taxes.

Prof. Silverberg addressed how the various tax and business structures apply to someone who wants to start, run, and sell a business. Prof. Silverberg did this by examining the sale of a hypothetical landscaping business. Through this hypothetical example, Prof. Silverberg looked at what motivates a purchaser to buy a business and how this affects the taxation of the transaction. The buyer and seller have to agree on the purchase price and how that price is allocated to different assets. Prof. Silverberg then discussed the amount pocketed by the entrepreneur after selling the business under pass-through taxation; he also discussed the sales structure under the different possible business structures and compared it to taxation under a C-Corporation. Looking at the numbers, Prof. Silverberg highlighted the tension between the seller’s desire to sell the business as stock under a C-Corporation and the buyer’s desire to buy assets under a sole proprietorship or the like.

The event page can be found on AED’s website and on the Eventbrite page. The video of the event is available below:

Categories
Administrative Agency Economic Study FTC Innovation Inventors Law and Economics Legislation Uncategorized

Acknowledging the Limitations of the FTC’s PAE Study

dictionary entry for the word "innovate"The FTC’s long-awaited case study of patent assertion entities (PAEs) is expected to be released this spring. Using its subpoena power under Section 6(b) to gather information from a handful of firms, the study promises us a glimpse at their inner workings. But while the results may be interesting, they’ll also be too narrow to support any informed policy changes. And you don’t have to take my word for it—the FTC admits as much. In one submission to the Office of Management and Budget (OMB), which ultimately decided whether the study should move forward, the FTC acknowledges that its findings “will not be generalizable to the universe of all PAE activity.” In another submission to the OMB, the FTC recognizes that “the case study should be viewed as descriptive and probative for future studies seeking to explore the relationships between organizational form and assertion behavior.”

However, this doesn’t mean that no one will use the study to advocate for drastic changes to the patent system. Even before the study’s release, many people—including some FTC Commissioners themselves—have already jumped to conclusions when it comes to PAEs, arguing that they are a drag on innovation and competition. Yet these same people say that we need this study because there’s no good empirical data analyzing the systemic costs and benefits of PAEs. They can’t have it both ways. The uproar about PAEs is emblematic of the broader movement that advocates for the next big change to the patent system before we’ve even seen how the last one panned out. In this environment, it’s unlikely that the FTC and other critics will responsibly acknowledge that the study simply cannot give us an accurate assessment of the bigger picture.

Limitations of the FTC Study

Many scholars have written about the study’s fundamental limitations. As statistician Fritz Scheuren points out, there are two kinds of studies: exploratory and confirmatory. An exploratory study is a starting point that asks general questions in order to generate testable hypotheses, while a confirmatory study is then used to test the validity of those hypotheses. The FTC study, with its open-ended questions to a handful of firms, is a classic exploratory study. At best, the study will generate answers that could help researchers begin to form theories and design another round of questions for further research. Scheuren notes that while the “FTC study may well be useful at generating exploratory data with respect to PAE activity,” it “is not designed to confirm supportable subject matter conclusions.”

One significant constraint with the FTC study is that the sample size is small—only twenty-five PAEs—and the control group is even smaller—a mixture of fifteen manufacturers and non-practicing entities (NPEs) in the wireless chipset industry. Scheuren reasons that there “is also the risk of non-representative sampling and potential selection bias due to the fact that the universe of PAEs is largely unknown and likely quite diverse.” And the fact that the control group comes from one narrow industry further prevents any generalization of the results. Scheuren concludes that the FTC study “may result in potentially valuable information worthy of further study,” but that it is “not designed in a way as to support public policy decisions.”

Professor Michael Risch questions the FTC’s entire approach: “If the FTC is going to the trouble of doing a study, why not get it done right the first time and a) sample a larger number of manufacturers, in b) a more diverse area of manufacturing, and c) get identical information?” He points out that the FTC won’t be well-positioned to draw conclusions because the control group is not even being asked the same questions as the PAEs. Risch concludes that “any report risks looking like so many others: a static look at an industry with no benchmark to compare it to.” Professor Kristen Osenga echoes these same sentiments and notes that “the study has been shaped in a way that will simply add fuel to the anti–‘patent troll’ fire without providing any data that would explain the best way to fix the real problems in the patent field today.”

Osenga further argues that the study is flawed since the FTC’s definition of PAEs perpetuates the myth that patent licensing firms are all the same. The reality is that many different types of businesses fall under the “PAE” umbrella, and it makes no sense to impute the actions of a small subset to the entire group when making policy recommendations. Moreover, Osenga questions the FTC’s “shortsighted viewpoint” of the potential benefits of PAEs, and she doubts how the “impact on innovation and competition” will be ascertainable given the questions being asked. Anne Layne-Farrar expresses similar doubts about the conclusions that can be drawn from the FTC study since only licensors are being surveyed. She posits that it “cannot generate a full dataset for understanding the conduct of the parties in patent license negotiation or the reasons for the failure of negotiations.”

Layne-Farrar concludes that the FTC study “can point us in fruitful directions for further inquiry and may offer context for interpreting quantitative studies of PAE litigation, but should not be used to justify any policy changes.” Consistent with the FTC’s own admissions of the study’s limitations, this is the real bottom line of what we should expect. The study will have no predictive power because it only looks at how a small sample of firms affect a few other players within the patent ecosystem. It does not quantify how that activity ultimately affects innovation and competition—the very information needed to support policy recommendations. The FTC study is not intended to produce the sort of compelling statistical data that can be extrapolated to the larger universe of firms.

FTC Commissioners Put Cart Before Horse

The FTC has a history of bias against PAEs, as demonstrated in its 2011 report that skeptically questioned the “uncertain benefits” of PAEs while assuming their “detrimental effects” in undermining innovation. That report recommended special remedy rules for PAEs, even as the FTC acknowledged the lack of objective evidence of systemic failure and the difficulty of distinguishing “patent transactions that harm innovation from those that promote it.” With its new study, the FTC concedes to the OMB that much is still not known about PAEs and that the findings will be preliminary and non-generalizable. However, this hasn’t prevented some Commissioners from putting the cart before the horse with PAEs.

In fact, the very call for the FTC to institute the PAE study started with its conclusion. In her 2013 speech suggesting the study, FTC Chairwoman Edith Ramirez recognized that “we still have only snapshots of the costs and benefits of PAE activity” and that “we will need to learn a lot more” in order “to see the full competitive picture.” While acknowledging the vast potential benefits of PAEs in rewarding invention, benefiting competition and consumers, reducing enforcement hurdles, increasing liquidity, encouraging venture capital investment, and funding R&D, she nevertheless concluded that “PAEs exploit underlying problems in the patent system to the detriment of innovation and consumers.” And despite the admitted lack of data, Ramirez stressed “the critical importance of continuing the effort on patent reform to limit the costs associated with some types of PAE activity.”

This position is duplicitous: If the costs and benefits of PAEs are still unknown, what justifies Ramirez’s rushed call for immediate action? While benefits have to be weighed against costs, it’s clear that she’s already jumped to the conclusion that the costs outweigh the benefits. In another speech a few months later, Ramirez noted that the “troubling stories” about PAEs “don’t tell us much about the competitive costs and benefits of PAE activity.” Despite this admission, Ramirez called for “a much broader response to flaws in the patent system that fuel inefficient behavior by PAEs.” And while Ramirez said that understanding “the PAE business model will inform the policy dialogue,” she stated that “it will not change the pressing need for additional progress on patent reform.”

Likewise, in an early 2014 speech, Commissioner Julie Brill ignored the study’s inherent limitations and exploratory nature. She predicted that the study “will provide a fuller and more accurate picture of PAE activity” that “will be put to good use by Congress and others who examine closely the activities of PAEs.” Remarkably, Brill stated that “the FTC and other law enforcement agencies” should not “wait on the results of the 6(b) study before undertaking enforcement actions against PAE activity that crosses the line.” Even without the study’s results, she thought that “reforms to the patent system are clearly warranted.” In Brill’s view, the study would only be useful for determining whether “additional reforms are warranted” to curb the activities of PAEs.

It appears that these Commissioners have already decided—in the absence of any reliable data on the systemic effects of PAE activity—that drastic changes to the patent system are necessary. Given their clear bias in this area, there is little hope that they will acknowledge the deep limitations of the study once it is released.

Commentators Jump the Gun

Unsurprisingly, many supporters of the study have filed comments with the FTC arguing that the study is needed to fill the huge void in empirical data on the costs and benefits associated with PAEs. Some even simultaneously argue that the costs of PAEs far outweigh the benefits, suggesting that they have already jumped to their conclusion and just want the data to back it up. Despite the study’s serious limitations, these commentators appear primed to use it to justify their foregone policy recommendations.

For example, the Consumer Electronics Association applauded “the FTC’s efforts to assess the anticompetitive harms that PAEs cause on our economy as a whole,” and it argued that the study “will illuminate the many dimensions of PAEs’ conduct in a way that no other entity is capable.” At the same time, it stated that “completion of this FTC study should not stay or halt other actions by the administrative, legislative or judicial branches to address this serious issue.” The Internet Commerce Coalition stressed the importance of the study of “PAE activity in order to shed light on its effects on competition and innovation,” and it admitted that without the information, “the debate in this area cannot be empirically based.” Nonetheless, it presupposed that the study will uncover “hidden conduct of and abuses by PAEs” and that “it will still be important to reform the law in this area.”

Engine Advocacy admitted that “there is very little broad empirical data about the structure and conduct of patent assertion entities, and their effect on the economy.” It then argued that PAE activity “harms innovators, consumers, startups and the broader economy.” The Coalition for Patent Fairness called on the study “to contribute to the understanding of policymakers and the public” concerning PAEs, which it claimed “impose enormous costs on U.S. innovators, manufacturers, service providers, and, increasingly, consumers and end-users.” And to those suggesting “the potentially beneficial role of PAEs in the patent market,” it stressed that “reform be guided by the principle that the patent system is intended to incentivize and reward innovation,” not “rent-seeking” PAEs that are “exploiting problems.”

The joint comments of Public Knowledge, Electronic Frontier Foundation, & Engine Advocacy emphasized the fact that information about PAEs “currently remains limited” and that what is “publicly known largely consists of lawsuits filed in court and anecdotal information.” Despite admitting that “broad empirical data often remains lacking,” the groups also suggested that the study “does not mean that legislative efforts should be stalled” since “the harms of PAE activity are well known and already amenable to legislative reform.” In fact, they contended not only that “a problem exists,” but that there’s even “reason to believe the scope is even larger than what has already been reported.”

Given this pervasive and unfounded bias against PAEs, there’s little hope that these and other critics will acknowledge the study’s serious limitations. Instead, it’s far more likely that they will point to the study as concrete evidence that even more sweeping changes to the patent system are in order.

Conclusion

While the FTC study may generate interesting information about a handful of firms, it won’t tell us much about how PAEs affect competition and innovation in general. The study is simply not designed to do this. It instead is a fact-finding mission, the results of which could guide future missions. Such empirical research can be valuable, but it’s very important to recognize the limited utility of the information being collected. And it’s crucial not to draw policy conclusions from it. Unfortunately, if the comments of some of the Commissioners and supporters of the study are any indication, many critics have already made up their minds about the net effects of PAEs, and they will likely use the study to perpetuate the biased anti-patent fervor that has captured so much attention in recent years.

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Commercialization High Tech Industry Innovation Intellectual Property Theory Internet Inventors Law and Economics Patent Law Patent Licensing Patent Theory Software Patent Uncategorized

The Commercial Value of Software Patents in the High-Tech Industry

In CPIP’s newest policy brief, Professor Saurabh Vishnubhakat examines the important role patents play in commercializing software innovation and supporting technology markets. He explains how a proper understanding of this commercial role requires a broader view of patents in software innovation than the all-too-common focus on a small handful of litigated patents and legal questions of patentability and patent quality. He concludes that the flexibility and efficiency of the patent system fosters the emergence of new markets for the exchange of technology and knowledge.

Read the full brief: The Commercial Value of Software Patents in the High-Tech Industry

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Commercialization Copyright Copyright Licensing Copyright Theory History of Intellectual Property Innovation Intellectual Property Theory Internet Law and Economics Uncategorized

Copyright’s Republic: Promoting an Independent and Professional Class of Creators and Creative Businesses

By Mark Schultz and Devlin Hartline

The following essay is the first in a series of CPIP essays celebrating the 225th anniversary of the Copyright Act by recognizing the rich purposes, benefits, and contributions of copyright. This series of essays will be published together in a forthcoming collection entitled “Copyright’s Republic: Copyright for the Last and the Next 225 Years.”

The current academic and policy discussion of copyright focuses on balancing the gross economic benefits and harms of copyright. A more complete understanding of copyright can account for both the needs and rights of individuals and the public good. Copyright is important because it helps creators make an independent living and allows them to pursue and perfect their craft. In short, it enables a professional class of creators.

The creative industries benefit from this independence too. They must find a market, but they are not beholden to anybody but their customers and shareholders in choosing what creative works to promote. This enables a richly diverse cultural landscape, with movie studios, television channels, record labels, radio stations, and publishers specializing in vastly different types of material.

To understand the importance of a professional class of creators, it’s helpful to understand the paradoxical role of money in creativity. While some are quick to say, “It’s not about the money,” in some essential ways, it really is about the money. Certainly, for some creators, the proposition is straightforward. As the eighteenth-century poet Samuel Johnson famously and cynically proclaimed: “No man but a blockhead ever wrote, except for money.” For countless others, however, creative endeavors hardly bring riches. And even commercial creators frequently leave money on the table rather than do something they find distasteful. Nevertheless, money is important.

This seeming paradox can be resolved by considering the role of money overall in creative work. We can take creators at their word: There are many nonmonetary factors that influence and incentivize creativity, such as love, independence, curiosity, and passion. In fact, thinking about the money can hurt the creative process. But while creators may not “do it for the money,” the money is what makes it possible for them to spend their time honing skills and creating high-quality works. The money endows a professional class of creators and the various creative industries and channel partners that support them. This vibrant ecosystem – empowered by copyright – generates a rich diversity of cultural works.

Creative individuals, like every other human being, need to eat, and, like most of us, they need to work to eat. The real question is, what kind of work are they able to do? Some notable creators have worked in their spare time, but many of the greats thrive most when they can merge their avocation with their vocation. They get better at creating when their work is creation.

There is, of course, more than one way to fund professional creation – patronage, tenured university teaching, and commercial markets founded on copyright are notable ways to do it. One of the virtues of a commercial property rights system is that it fosters creative independence.

The independence afforded by a commercial system based on property rights is highlighted by contrasting it with the greater constraints under other systems. Before the first modern copyright statute passed nearly three centuries ago, many creators depended heavily on the patronage system. Wealthy patrons funded creative efforts by either commissioning works directly or employing creators to staff positions where they were given time to develop new works. To be sure, many great works were produced under this system – the musical compositions of Johann Sebastian Bach and Joseph Haydn stand testimony to this fact.

However, the economic benefits of patronage often came at the expense of the personal autonomy and integrity of these creators. As the old adage goes, “he who pays the piper calls the tune.” Sometimes these constraints were quite direct. When Johann Sebastian Bach attempted to leave the service of one of his patrons to go work for another, the former patron refused to accept his resignation and briefly had him arrested.

More important, patrons had tremendous say in the work of composers. They could decide what and when the composers wrote. They might not appreciate the value of the works created for them. For example, Bach’s Brandenburg Concertos are now recognized as works of genius. Unfortunately, the noble to whom they were dedicated, Christian Ludwig, the Margrave of Brandenburg, was apparently indifferent. The score sat on his shelf, unperformed and unappreciated, for decades. The concertos were not published until nearly 150 years later, after being rediscovered in an archive.

For these reasons, many composers dreamed of financial independence. For example, the composer Joseph Haydn once celebrated leaving behind the patronage of the Esterhazys, which was rather secure and relatively undemanding. Haydn moved to London, where he became the eighteenth-century equivalent of a successful rock star – in demand for his services and making lots of money. London had a private market – not yet so much supported by copyright and publishing as by private commissions and paid performances. In any event, Haydn prospered. In fact, at one point he wrote letters urging his friend Mozart to join him in London as soon as possible, unabashedly rhapsodizing over the money to be made there.

Still, he was now on his own, earning his own pay rather than being kept by a patron. For Haydn, artistic independence trumped economic security:

How sweet this bit of freedom really is! I had a kind Prince, but sometimes I was forced to be dependent on base souls. I often sighed for release, and now I have it in some measure. I appreciate the good sides of all this, too, though my mind is burdened with far more work. The realization that I am no bondservant makes ample amend for all my toils.

Haydn, Letter to Maria Anna von Genzinger, September 17, 1791

The modern copyright system, beginning with the English Statute of Anne in the early eighteenth century, freed creators from the restrictive patronage system. Like patronage, copyright offered creators the financial support they needed so that they could devote themselves to their craft. Unlike patronage, however, it gave them much-needed personal autonomy and artistic independence.

Beethoven, a young contemporary and student of Haydn working at the end of the patronage era, was able to support himself. His facility at performing his own difficult work helped him make a living. But he also used and supported copyright. He would often publish his works first in England to ensure that they received copyright there. He also lobbied the German states for a copyright law.

For Beethoven, too, money was important for the artistic independence it provided:

I do not aim at being a musical usurer, as you think, who composes only in order to get rich, by no means, but I love a life of independence and cannot achieve this without a little fortune, and then the honorarium must, like everything else that he undertakes, bring some honor to the artist.

Ludwig van Beethoven, Letter to publisher, August 21, 1810

The era of patronage was long ago, but human nature has not changed in the decades and centuries since. Creators still face the dilemma of trying to support themselves while maintaining independence. Every economic arrangement imposes some constraints, but some impose more than others.

A good example of how modern copyright enables individual creators to enjoy independence while supporting themselves is provided by the career of photographer Michael Stern. Stern is a hard-working creative entrepreneur – one 30-minute video he made required 103,937 photographs and 900 hours to produce. Stern doesn’t depend on subsidies or grants; rather, he values the independence he gets from being self-employed. He explains:

“The real benefit of being a self-employed photographer,” he says, “is that I can move through life on my terms and do what I want in the way I want to do it. That freedom drives me.” But, it’s not for everybody, he warns. “Nobody loves you like your mother, and even sometimes not even her. So ya gotta do it for yourself. If you don’t, you won’t have the drive needed to reach your goals.”

Instead of creating works that conform to the limited demands of their patrons, creators supply their works to the marketplace, where the demands of consumers are far more diverse. This proves beneficial to creators and society alike. Creators from all walks of life and with all sorts of interests can find the market that will support them, and this fosters a rich cultural landscape encompassing multiple political and social views.

Copyright fulfills its constitutional purpose of promoting progress by incentivizing creators through the grant of marketable rights to their works, but these rights do more than simply lure creators with the hope of economic benefits. Just as crucially, these rights endow creators with substantial personal autonomy while respecting their individuality and dignity. This fosters a creative environment conducive to the creation of high-quality works with enduring social value.

Copyright is a market-based system that supports a professional class of creators who rely on the value of their rights in order to make a living. These marketable rights have also given rise to entire creative industries that lend critical support to professional creators, and through the division of labor these industries enable professional creators to accomplish great feats that would be impossible if they worked alone.

The numbers testify to copyright’s success in helping to create a professional class of creators in the United States. As a recent report on the creative industries enabled by copyright found, there are 2.9 million people employed by over 700,000 businesses in the United States involved in the creation or distribution of the arts. They accounted for 3.9 percent of all businesses and 1.9 percent of all employees.

This creative ecosystem enables professional creators to produce the sorts of high-quality works that society values most. The popularity of these works in the marketplace makes them commercially valuable, and this in turn compensates professional creators and the creative industries that support them for creating the works that society finds so valuable.

This virtuous circle benefits creators and the public alike – just as the Framers had envisioned it. Copyright is not only doing its job, it is doing it well. The number of works available in the market is incredible – certainly more than anyone could ever possibly consume. And the diversity of voices able to connect with audiences in the marketplace makes our cultural lives all the more fulfilling.

Categories
Commercialization Copyright Copyright Licensing Copyright Theory History of Intellectual Property Innovation Intellectual Property Theory Internet Law and Economics Uncategorized

Copyright’s Republic: Copyright for the Last and the Next 225 Years

By Mark Schultz and Devlin Hartline

This past Sunday marked the 225th anniversary of the first U.S. Copyright Act. As we move well into the twenty-first century, a claim that copyright no longer “works” in the “digital age” has become commonplace – so commonplace, in fact, that it’s arguably the dominant cliché in modern copyright discussions. Like many clichés, it contains a tiny grain of truth wrapped in a huge ball of glib, unhelpful, and even harmful generalizations.

Before one can understand what the future of copyright and the creative industries could and should look like, one should first appreciate what the first 225 years of copyright has given to the United States. Copyright laid the foundation for, and continues to support, the largest, most enduring, and most influential commercial culture in human history. That commercial culture is uniquely democratic, progressive, and accessible to both creators and audiences.

Could the Copyright Act profitably be revised? In theory, perhaps, and thus there is a grain of truth in the clichés about modernizing copyright. The 1976 Copyright Act and many of its subsequent amendments are overburdened with detailed regulatory provisions contingent on outdated assumptions about technology and business. They also sometimes embody political compromises that reflect circumstances that have long since passed. However, we should pause before hastening to replace yesterday’s contingencies with those of today. And we should also pause – indefinitely – before overturning the entire enterprise on the grandiose assumption that the Internet has changed everything.

Before we can understand what the future of the creative industries could and should look like, we need to appreciate what we have achieved and how we achieved it. The American creative industries are everything the Founding generation that drafted the 1790 Copyright Act could have dreamed – and so much more. Through its press, news media, and publishing industries, the U.S. has perpetuated the spirit of the Enlightenment’s Republic of Letters, with lively, reasoned, and sustained public discussions and debates about values, science, and politics.

The U.S. has produced a creative industry that enlightens and edifies while also diverting and distracting billions of people with its cultural products. This vast commercial creative marketplace allows professional writers, artists, musicians, actors, filmmakers, game designers, and others to make a living doing something that fulfills them and their audience. The U.S. has achieved much based on the twin foundations of free expression and copyright, securing the right to express oneself freely while securing the fruits of the labors of those who craft expressions.

The past thus has much to teach the future, while inevitably yielding to change and progress. Copyright should continue to secure the many values it supports, while being flexible enough to support innovation in creativity and business models.

On this occasion of the 225th anniversary of the first U.S. Copyright Act, the Center for the Protection of Intellectual Property (CPIP) is recognizing the essential contribution of copyright and commercial culture to the United States. To that end, CPIP will be publishing a series of essays highlighting the fact that, contrary to the facile narratives about copyright that dominate modern discussions, copyright isn’t simply a law designed to incentivize the creation of more creative stuff. It has much richer purposes and benefits. Copyright:

  • Supports a professional class of creators.
  • Enables a commercial culture that contributes to human flourishing.
  • Serves as a platform for innovation in both the arts and sciences.
  • Promotes a free republic.

U.S. copyright law has achieved these lofty goals for the last 225 years, and it will continue to do so—but only if we let it and help it do so. In many important ways, U.S. culture and politics has been so shaped by the commercial culture created by copyright that it rightly can be called Copyright’s Republic.

Part I: Copyright Promotes an Independent and Professional Class of Creators and Creative Businesses

Categories
Commercialization Economic Study High Tech Industry Innovation Law and Economics Legislation Patent Law Patent Licensing Patent Litigation Software Patent Uncategorized

Cohen et al. “Patent Trolls” Study Uses Incomplete Data, Performs Flawed Empirical Tests, and Makes Unsupportable Findings

PDF summary available here

I.   Introduction

A recent draft study about patent licensing companies entitled “Patent Trolls: Evidence from Targeted Firms” is making the rounds on Capitol Hill and receiving press coverage. This attention is unfortunate, because the study is deeply flawed and its conclusions cannot and should not be relied upon. If the draft paper is ever published in a peer reviewed journal, it will certainly need to be greatly revised first, with its most notable results likely changing or disappearing.  In sum, the study should receive no credit in policy debates.

The study, by Lauren Cohen, Umit G. Gurun, and Scott Duke Kominers, finds that non-practicing entities (NPEs) are “opportunistic” because they target defendants that (1) are cash-rich (particularly compared to practicing entity patentees), (2) operate in industries that “have nothing to do with the patent” in suit, (3) are staffed by small legal teams, and (4) are busy with numerous non-IP cases. Additionally, the authors conclude that defendants that lose in patent litigation with NPEs on average have marked declines in subsequent R&D expenditures, on the order of $200 million per year. On this basis, the authors suggest “the marginal policy response should be to more carefully limit the power of NPEs.” One of the authors has been circulating this unpublished study to congressional staffers to make the case that NPEs have a large negative effect on US innovation.

II.   Critique of the Study

Professor Ted Sichelman, University of San Diego School of Law, and an expert in empirical studies of patent litigation, critiques the most recent, publicly available version of the Cohen et al. study in detail in his response paper, “Are Patent Trolls ‘Opportunistic?”.[1] He finds that the study’s dataset is incomplete and unrepresentative, its theoretical model is flawed, and its empirical models are unsound. Professor Sichelman concludes that neither their findings nor policy prescriptions are justified. Major weaknesses in the study are as follows:

  • The study’s public firm defendant dataset in current version of paper is incomplete and unrepresentative
  • The study relies on proprietary, unverified coding from PatentFreedom that groups together numerous NPE types (including individuals, R&D shops, and IP holding companies of operating companies), but in making its policy recommendations, the study assumes all NPEs are patent aggregators
  • The study’s finding that NPEs sue cash-rich defendants may simply be driven by the fact that NPEs tend to target software, Internet, and finance-related companies for reasons unrelated to cash holdings, but these companies simply happen to have larger cash-holdings than the average publicly traded company
  • When comparing NPE behavior to that of operating companies, the study improperly includes operating company suits in which the patentees primarily seek injunctions, which are not cash-driven suits
    • Our belief is that NPEs and operating companies alike that primarily seek royalties are likely to seek defendants with enough cash to pay likely damage awards and—like a seller of goods ensuring that a buyer has sufficient cash to pay for those goods—there is nothing “opportunistic” in this behavior
  • NPEs asserting patented technology that is different from the primary industry of the accused infringer are typically not going “after profits unrelated to the patents”
    • For instance, the use of patented computer hardware, software, or technical equipment may occur in any industry and provide a competitive advantage relative to others using non-patented technology
  • The study’s datasets and variables to determine the size of law firm and the number of pending cases are incomplete and flawed
  • The authors’ finding that R&D of accused infringers is differentially affected by a “loss” is based on a very small dataset of “wins” (n=35)

In sum, there is no support for the study’s policy recommendation “to more carefully limit the power of NPEs.” In this regard, we reiterate our view that any plaintiff targeting defendants with enough cash to satisfy a damages judgment is simply ordinary litigation behavior. According to Professor Sichelman, there is “massive risk aversion by many small NPEs” and “large uncertainty in [patent] cases” that may cause any patentee primarily seeking money damages to assert its patents against defendants who can pay their bills.

Finally, in making their policy proposals to restrict NPEs, Cohen et al. rely on the discredited study of Bessen and Meurer (2014) to argue that NPEs do not channel a large percentage of funds received back to inventors. As Schwartz and Kesan (2014) have shown, Bessen and Meurer’s study is inapplicable to most NPEs, because only 12 publicly traded aggregators were examined, and even for those 12 aggregators, Schwartz and Kesan persuasively argue that Bessen and Meurer’s findings are wrong. Indeed, there is ample evidence that many patent aggregators return 50% of net recoveries in litigation or licensing (i.e., after paying for attorneys’ fees and related costs) and that many NPEs are individuals, R&D shops, and other entities that effectively keep 100% of the net returns from recoveries.

As such, the Cohen et al. (2014) study should receive no credit in congressional policy debates. Indeed, another leading academic at a recent conference expressed surprise and dismay that this early-stage study was being circulated by its authors throughout Congress.

Notes:

[1] The authors presented new material in response to Sichelman’s critique at a recent conference, but as far as we know, they have not made any of it available to the general public. As such, we focus on Sichelman’s critique of the most recent, publicly available version of the study.

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Commercialization Conferences Copyright Copyright Licensing Copyright Theory Economic Study High Tech Industry History of Intellectual Property Injunctions Innovation Intellectual Property Theory Internet Inventors Law and Economics Patent Law Patent Licensing Patent Litigation Patent Theory Remedies Software Patent Uncategorized

Intellectual Property Unites Creators and Innovators

This is the first in a series of posts summarizing CPIP’s 2014 Fall Conference, “Common Ground: How Intellectual Property Unites Creators and Innovators.” The Conference was held at George Mason University School of Law on October 9-10, 2014. Videos of the conference panels and remarks, as well as panel summaries, will be available soon.

Introduction by Professors Adam Mossoff and Mark Schultz

Common Ground: How Intellectual Property Unites Creators and Innovators

The creative industries and innovation industries have much in common, but too often this is overlooked. Both industries engage in brilliant intellectual work to bring new products and services into the world, both take great risks to commercialize this work, and both depend on intellectual property – copyrights (for the creative industries) and patents (for the innovation industries). Unfortunately, most accounts of these two industries emphasize their differences and frequently portray them in conflict.

This conference will explore the common ground shared by these two dynamic industries, focusing on the similar values secured by their patents and copyrights and thus their common policy goals and commercial developments.

It should be unsurprising that these two industries share much in common. The work of inventors and artists is much the same. We see hints of this in their respective aspirations. Engineers, for example, often talk of seeking “elegant” or “beautiful” solutions to the technological problems they face. Artists also strive to innovate technically in how they create their works, as demonstrated with much panache in the recent documentary, Tim’s Vermeer. Many creators apply their prodigious talents to both art and invention.

One may think of a Steve Jobs today as exemplifying this truth, but history is replete with examples. Leonardo da Vinci also comes to mind, the quintessential Renaissance Man. In the 19th century, Samuel Morse invented the telegraph, but he was also a successful artist and in fact he developed the telegraph while working as a well-known Professor of Art at New York University.

In modern America, Walt Disney has defined much of our culture not just with his artistic creations, but also with his innovative technological creations in movies, theme parks and products. More recently, filmmakers George Lucas and James Cameron have cast large shadows in popular culture, but their contributions to filmmaking technology may prove even more enduring and pervasive.

These and many other examples are unsurprising when one considers that art and technology both result from the same source: productive intellectual labor.

As the work of artists and inventors is at heart the same, so is the moral and economic case for securing property rights to them. Artists and inventors deserve to own the fruits of their productive labors. In protecting these labors, intellectual property rights secure to them their liberty and their careers. These rights thus fuel the vast economic activity that drives the innovation economy – bringing to market the products and services that ensure full and flourishing lives for them and for the rest of us as well.

Too often, though, the creative and innovation industries are portrayed as being at odds. One popular narrative today – in both scholarly and popular accounts – is that technology disrupts the creative industries, forcing copyright owners to adapt. This is a myopic account of their relationship that ultimately creates a false picture. In truth, creativity and innovation – secured by copyrights and patents – constantly spur each other to greater heights.

The true story of creativity and innovation is more properly viewed as a virtuous circle.

Recording and broadcast technology, for instance, gave musicians and other performers their first worldwide audiences, whose demand for ever-more entertainment and information spurred further improvement and expansion of technology. The invention of the electric guitar, spurred by a series of patented improvements, enabled blues and rock ‘n’ roll, which in turn pushed further developments in music and recording technology.

The Internet certainly created much disruption, but it also has been a fountainhead of creativity. To take just one example, streaming of original, creative content enables television viewers to enjoy storytelling as never before, bringing about what some are now calling a Second Golden Age of Television.

Our technological devices, such as smartphones and iPads, would not be so well loved and so ubiquitous without the games, music, and video content they deliver to hundreds of millions of people the world over.

The common ground and shared aspirations of creators and innovators is clear, but rarely appreciated in the din of today’s policy debates.

Thus, our Annual Conference this year considers afresh the common goals, challenges and needs of the creative and innovation industries. Many distinguished speakers with extensive knowledge and experience in both fields will address how intellectual property rights represent the bedrock of this common ground. We hope that you will enjoy what promises to be enlightening discussion.

**Panel summaries coming soon**

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Administrative Agency Antitrust Commercialization Damages DOJ Economic Study FTC Injunctions Innovation Law and Economics Patent Law Patent Licensing Patent Litigation Reasonable Royalty Remedies Uncategorized

Patent Policy Debates Characterized by "Intolerably High Ratio of Theory to Evidence"

In an interview with Law360 last week, FTC Commissioner Joshua Wright spoke about the FTC’s upcoming study on PAEs and the state of today’s patent policy debates. The interview is well-worth reading in it’s entirety, and we’ve also highlighted a couple key quotes below.

“One of the most fascinating things about the the policy debates in and around patents and by extension the intersection of patent law and antitrust law, is that most of the debate is chock full of theory and supposition but completely devoid of empirical evidence…It is very difficult to move forward sensibly in debates with those characteristics”

“Wright said that without evidence of ‘pervasive market failure’ in the standard setting space, the FTC and the U.S. Department of Justice should avoid the temptation to serve as ‘management consultant’ to standard setting groups and their members.”

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Copyright Copyright Theory History of Intellectual Property Innovation Intellectual Property Theory Law and Economics Patent Law Patent Litigation Patent Theory Statistics Uncategorized

Intellectual Property, Innovation and Economic Growth: Mercatus Gets it Wrong

By Mark Schultz & Adam Mossoff

A handful of increasingly noisy critics of intellectual property (IP) have emerged within free market organizations. Both the emergence and vehemence of this group has surprised most observers, since free market advocates generally support property rights. It’s true that there has long been a strain of IP skepticism among some libertarian intellectuals. However, the surprised observer would be correct to think that the latest critique is something new. In our experience, most free market advocates see the benefit and importance of protecting the property rights of all who perform productive labor – whether the results are tangible or intangible.

How do the claims of this emerging critique stand up? We have had occasion to examine the arguments of free market IP skeptics before. (For example, see here, here, here.) So far, we have largely found their claims wanting.

We have yet another occasion to examine their arguments, and once again we are underwhelmed and disappointed. We recently posted an essay at AEI’s Tech Policy Daily prompted by an odd report recently released by the Mercatus Center, a free-market think tank. The Mercatus report attacks recent research that supposedly asserts, in the words of the authors of the Mercatus report, that “the existence of intellectual property in an industry creates the jobs in that industry.” They contend that this research “provide[s] no theoretical or empirical evidence to support” its claims of the importance of intellectual property to the U.S. economy.

Our AEI essay responds to these claims by explaining how these IP skeptics both mischaracterize the studies that they are attacking and fail to acknowledge the actual historical and economic evidence on the connections between IP, innovation, and economic prosperity. We recommend that anyone who may be confused by the assertions of any IP skeptics waving the banner of property rights and the free market read our essay at AEI, as well as our previous essays in which we have called out similarly odd statements from Mercatus about IP rights.

The Mercatus report, though, exemplifies many of the concerns we raise about these IP skeptics, and so it deserves to be considered at greater length.

For instance, something we touched on briefly in our AEI essay is the fact that the authors of this Mercatus report offer no empirical evidence of their own within their lengthy critique of several empirical studies, and at best they invoke thin theoretical support for their contentions.

This is odd if only because they are critiquing several empirical studies that develop careful, balanced and rigorous models for testing one of the biggest economic questions in innovation policy: What is the relationship between intellectual property and jobs and economic growth?

Apparently, the authors of the Mercatus report presume that the burden of proof is entirely on the proponents of IP, and that a bit of hand waving using abstract economic concepts and generalized theory is enough to defeat arguments supported by empirical data and plausible methodology.

This move raises a foundational question that frames all debates about IP rights today: On whom should the burden rest? On those who claim that IP has beneficial economic effects? Or on those who claim otherwise, such as the authors of the Mercatus report?

The burden of proof here is an important issue. Too often, recent debates about IP rights have started from an assumption that the entire burden of proof rests on those investigating or defending IP rights. Quite often, IP skeptics appear to believe that their criticism of IP rights needs little empirical or theoretical validation, beyond talismanic invocations of “monopoly” and anachronistic assertions that the Framers of the US Constitution were utilitarians.

As we detail in our AEI essay, though, the problem with arguments like those made in the Mercatus report is that they contradict history and empirics. For the evidence that supports this claim, including citations to the many studies that are ignored by the IP skeptics at Mercatus and elsewhere, check out the essay.

Despite these historical and economic facts, one may still believe that the US would enjoy even greater prosperity without IP. But IP skeptics who believe in this counterfactual world face a challenge. As a preliminary matter, they ought to acknowledge that they are the ones swimming against the tide of history and prevailing belief. More important, the burden of proof is on them – the IP skeptics – to explain why the U.S. has long prospered under an IP system they find so odious and destructive of property rights and economic progress, while countries that largely eschew IP have languished. This obligation is especially heavy for one who seeks to undermine empirical work such as the USPTO Report and other studies.

In sum, you can’t beat something with nothing. For IP skeptics to contest this evidence, they should offer more than polemical and theoretical broadsides. They ought to stop making faux originalist arguments that misstate basic legal facts about property and IP, and instead offer their own empirical evidence. The Mercatus report, however, is content to confine its empirics to critiques of others’ methodology – including claims their targets did not make.

For example, in addition to the several strawman attacks identified in our AEI essay, the Mercatus report constructs another strawman in its discussion of studies of copyright piracy done by Stephen Siwek for the Institute for Policy Innovation (IPI). Mercatus inaccurately and unfairly implies that Siwek’s studies on the impact of piracy in film and music assumed that every copy pirated was a sale lost – this is known as “the substitution rate problem.” In fact, Siwek’s methodology tackled that exact problem.

IPI and Siwek never seem to get credit for this, but Siwek was careful to avoid the one-to-one substitution rate estimate that Mercatus and others foist on him and then critique as empirically unsound. If one actually reads his report, it is clear that Siwek assumes that bootleg physical copies resulted in a 65.7% substitution rate, while illegal downloads resulted in a 20% substitution rate. Siwek’s methodology anticipates and renders moot the critique that Mercatus makes anyway.

After mischaracterizing these studies and their claims, the Mercatus report goes further in attacking them as supporting advocacy on behalf of IP rights. Yes, the empirical results have been used by think tanks, trade associations and others to support advocacy on behalf of IP rights. But does that advocacy make the questions asked and resulting research invalid? IP skeptics would have trumpeted results showing that IP-intensive industries had a minimal economic impact, just as Mercatus policy analysts have done with alleged empirical claims about IP in other contexts. In fact, IP skeptics at free-market institutions repeatedly invoke studies in policy advocacy that allegedly show harm from patent litigation, despite these studies suffering from far worse problems than anything alleged in their critiques of the USPTO and other studies.

Finally, we noted in our AEI essay how it was odd to hear a well-known libertarian think tank like Mercatus advocate for more government-funded programs, such as direct grants or prizes, as viable alternatives to individual property rights secured to inventors and creators. There is even more economic work being done beyond the empirical studies we cited in our AEI essay on the critical role that property rights in innovation serve in a flourishing free market, as well as work on the economic benefits of IP rights over other governmental programs like prizes.

Today, we are in the midst of a full-blown moral panic about the alleged evils of IP. It’s alarming that libertarians – the very people who should be defending all property rights – have jumped on this populist bandwagon. Imagine if free market advocates at the turn of the Twentieth Century had asserted that there was no evidence that property rights had contributed to the Industrial Revolution. Imagine them joining in common cause with the populist Progressives to suppress the enforcement of private rights and the enjoyment of economic liberty. It’s a bizarre image, but we are seeing its modern-day equivalent, as these libertarians join the chorus of voices arguing against property and private ordering in markets for innovation and creativity.

It’s also disconcerting that Mercatus appears to abandon its exceptionally high standards for scholarly work-product when it comes to IP rights. Its economic analyses and policy briefs on such subjects as telecommunications regulation, financial and healthcare markets, and the regulatory state have rightly made Mercatus a respected free-market institution. It’s unfortunate that it has lent this justly earned prestige and legitimacy to stale and derivative arguments against property and private ordering in the innovation and creative industries. It’s time to embrace the sound evidence and back off the rhetoric.

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Commercialization Conferences High Tech Industry Innovation Intellectual Property Theory Law and Economics Legislation Patent Law Patent Licensing Patent Litigation Patent Theory Software Patent Uncategorized

The Unintended Consequences of Patent "Reform"

By Steven Tjoe

Much of today’s patent policy debate focuses on the dynamics of patent litigation.  Sensational anecdotes of abusive demand letters, litigants strategically exploiting bad patents, and tales of so-called “patent trolls” (reinforced by now debunked empirical claims) have captured the public’s imagination and spurred Congress to rush to revise the patent system.  Unfortunately, the fervor to address perceived patent litigation abuses often overlooks the substantial unintended consequences of recent and proposed legislation.

CPIP and WARF’s recent conference, From Lab to Market: How Intellectual Property Secures the Benefits of R&D, featured a panel designed to fill this void in the conversation.  Instead of myopically focusing on trolls and litigation abuse, the panelists, Eb Bright, Robert Sterne, and Carl Gulbrandsen, brought the discussion back to reality and addressed the greater context of how recent and proposed changes to patent law impact our innovation ecosystem at large.

First, an understanding of how ideas are developed and brought to market is crucial to evaluating the ramifications of patent legislation.  Eb Bright, Executive Vice President and General Counsel of ExploraMed, illustrated this often-overlooked process from the perspective of the medical device industry.  In the world of medical device development, the financial risks of bringing an idea to market are very high.  The cost from conception to market can range from approximately $75 million for low-risk devices to approximately $135 million for high-risk devices.  Additionally, it takes 8-10 years on average to begin seeing a return on investment.

The result is that innovators in the medical device space – mostly small start-up companies – must secure significant financing from venture capitalists and other investors to keep their companies alive during this lengthy process.  Strong patents are fundamental to securing this financing.  They are essential to keeping competitors from free-riding on a company’s work and poaching its investors’ returns.  Investors are loathe to finance a start-up without confidence that the company can protect its intellectual property (which often accounts for a significant portion of the company’s value) from free-riders.  In this fragile innovation ecosystem, legislation that weakens patents and makes it harder for small companies to enforce their patent rights could have devastating consequences on start-ups’ ability to secure essential financing.

Carl Gulbrandsen, Managing Director of WARF, discussed proposed patent legislation from the perspective of a large university technology transfer office.  As the University of Wisconsin’s licensing arm, WARF licenses university patents and returns approximately $80 million a year to the university to support further research.  This symbiotic relationship fuels research and also adds significant value to the university’s inventions.  By marketing and licensing inventions to companies (often small start-ups) that take on the substantial effort of turning those inventions into actual products, WARF plays a crucial role in moving innovation from the lab to the marketplace.  Importantly, strong patent rights lie at the center of this virtuous cycle.

Mr. Gulbrandsen observed that proposed legislation would disrupt this process by making it substantially more difficult for universities to enforce their patents, and therefore substantially more difficult for universities to license and commercialize their inventions.  While established organizations like WARF may be able to handle the increased costs and risks, at the margin fewer universities would be able to license their intellectual property.  The result is that fewer inventions would move from lab to market, and universities would have less revenue to fuel future research.

It is against this backdrop that efforts to revise our patent system occur.  Overbroad “patent abuse” legislation that fails to appreciate the economic realities of our innovation ecosystem can lead to significant unintended consequences.  Robert Sterne, Director of Sterne Kessler, illustrated some unintended consequences from the last major patent “reform” legislation, the America Invents Act of 2011 (AIA).  In particular, Mr. Sterne addressed issues arising from the Inter Partes Review (“IPR”) and Covered Business Method Patent Review (“CBM”) procedures implemented under the AIA.

Mr. Sterne spoke about trial practice before the USPTO Patent Trial and Appeal Board (“PTAB”), noting that Rule 42.1(b) establishes that the rules should “be construed to secure the just, speedy, and inexpensive resolution of every proceeding.”  While the resulting procedures are certainly speedy (cases proceed through the USPTO and through appeal at the Federal Circuit within 2 years) and are cheaper than District Court proceedings, the procedures are far from just, and have proved particularly unforgiving for patent owners as a result of vast departures from well-established rules and procedures utilized by the courts.

Mr. Sterne explained how the new IPR procedures include more limited claim construction rules, less stringent burdens of proof to invalidate a patent, and less opportunity to adequately prove non-obviousness.  Of particular concern to patent owners is the inability to show non-obviousness.  In District Court, patent owners generally show non-obviousness by telling the story of the invention.  Inventors recount the state of the technology prior to their invention and the contributions their invention made.  By contrast, PTAB’s narrow time limitations and constraints on responses filed strip patent owners of the ability to do the same in IPR proceedings.

Consequently, the trial outcomes under the new system have yielded startlingly negative results for patent holders.  As of March 7, 2014, the PTAB had issued 19 Final Written Decisions on the merits for IPRs and CBMs.  In all but three of these proceedings, the Board cancelled all claims for which trial was instituted.  In total, 95.2% of all claims for which trial was instituted were cancelled and 82.9% of all claims that were initially challenged by the petitioner were cancelled.

Furthermore, IPR proceedings are always available and may stand alone or exist as part of a litigation strategy.  A patent owner does not have to take any action before being challenged.   New business entities, such as subscription services designed to work around the estoppel provisions, are already being formed to capitalize on the lopsided nature of the process.  It’s important to note that the constant threat of IPR and the risks and costs associated with it are not only detrimental to patent owners, they also affect our entire innovation ecosystem.

The central takeaway from the panel was this:  As we consider patent legislation ostensibly designed to curb abusive litigation, it is crucial to consider the potential unintended consequences of weakening patent rights across the board.  We must recognize the economic realities of our innovation ecosystem, and we must narrowly tailor any solutions to address the limited instances of abuse without harming start-ups, universities, and all the other patent owners that fuel our innovation economy.