Tag: patents

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Innovation Inventors Legislation Patent Law Uncategorized

No Consensus That Broad Patent ‘Reform’ is Necessary or Helpful

Here’s a brief excerpt of an op-ed by Adam Mossoff & Devlin Hartline that was published in The Hill:

Two recent op-eds published in The Hill argue that broad patent legislation—misleadingly labeled “reform”—is needed because the U.S. patent system is fundamentally broken. In the first, Timothy Lee contends that opponents “cannot with a straight face” argue that we don’t need wide-sweeping changes to our patent system. In the second, Michele Boldrin and David K. Levine maintain that there is “consensus among academic researchers” that the system is “failing.”

Both op-eds suggest that there are no principled reasons, whether legal or economic, to object to the overhaul of the patent system included in the Innovation Act. Both op-eds are wrong.

To read the rest of this op-ed, please visit The Hill.

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Innovation Inventors Patent Law Uncategorized

Jennifer Lawrence Movie “Joy” Highlights the Need for Patent Protection

The following guest post comes from Rebecca Cusey, a second year law student at George Mason University School of Law and a movie critic at The Federalist.

By Rebecca Cusey

Rebecca_Cusey_Headshot

There are two patents in the movie “Joy”: the one the titular character failed to get and the one for which she is willing to fight tooth and nail.

The first, for an idea she had in high school to improve dog collars, fills her with regret as she sees a similar product successfully sold in shops. As a single mother working to care for not only her children, but her extended family, Joy instinctively knows that owning that idea and marketing the product would have put her life on a different track.

When she has an idea to vastly improve the household mop, she sets out to found a new business empire on ownership of her idea. Joy has a million ideas and the passion to see them through. What she does not have is experience with patents. Her main investor, who happens to also be her father’s girlfriend, gets some bad advice from a lawyer with no patent expertise. His cursory patent search turns up an owner of a similar idea in Hong Kong and his legal advice is to pay advance royalties to this owner.

The owner’s United States representative is only too happy to take her money and, furthermore, he has connections with a factory that can make the parts for her product. A match made in heaven!

However, Joy increasingly loses confidence in the manufacturer. When she flies out to investigate, she discovers the representative is taking steps to fully patent her idea himself and freeze her out. She learns that paying him royalties may have weakened her legal claim to the patent.

That’s when Jennifer Lawrence goes all black leather and aviator sunglasses. She becomes a bad-to-the-bone (but still legal) heroine, an infringer avenger, and a crusader for intellectual property rights. Joy is going to fight to own her idea for a better mop.

The movie does an excellent job of showing why it matters. The mop is more than a mop. It is literally the roof over her kids’ heads. She has taken financial risks, put all her assets into her invention. That alone is enough, but there is more to it than that. Her lifelong dream has been to invent ways to make the world better. An innovator is who she is, down in her core. If some fly-by-night outfit can just take her idea, they take something from her that is the essence of who she is.

Sadly, perhaps, for patent lawyers, and probably only for patent lawyers, the final battle of the film does not happen in a courtroom. Joy finds, shall we say, alternate means of protecting her property. The point stands, however, in a surprisingly ringing endorsement of intellectual property rights. The idea for the mop belongs to Joy and no one has the right to take it from her.

In fact, the movie notes that, in the years after winning her first battle, Joy Mangano secured over a hundred patents. One became the highest selling product ever on the Home Shopping Network. Not bad for a girl who started with just with an idea and a dream.

Written and directed by David Russell and starring Jennifer Lawrence, Bradley Cooper, and Robert Di Nero, Joy is currently playing in theaters.

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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.

Categories
Legislation Patent Law Patent Licensing Patent Litigation Uncategorized

Scratching my Head Over the SHIELD Act

By Michael Risch

[The following is a blog posting by Michael Risch, a patent law scholar at Villanova Law School, that he originally posted on March 10, 2013 at the law professor group blog, Madisonian.net, where Professor Risch regularly blogs.  Professor Risch kindly gave us permission to repost his blog posting here.]

Scratching my Head Over the SHIELD Act
By Michael Risch

I get that many people hate patent trolls. I get that many people would like to find a way to limit NPE activities in enforcing patents. But I’m scratching my head over the rhetoric and content SHIELD Act, which was reintroduced last week. For the uninitiated, the proposal would mandate fee shifting for all losing NPEs. Carved out of this group are initial assignees of a patent (that is, individuals and companies who obtained the patents themselves), universities, and companies that spend “substantial” resources making something. Further, NPEs must post a bond for the fees before they can even get into the courthouse.

I should start by saying that I don’t have a strong position on fee shifting. I think that mutual fee shifting might actually do some good to reduce litigation costs and force more reasonable licensing negotiations. I’m also in favor of all sorts of behavior based fee shifting: filing frivolous cases, demanding license fees that far exceed reasonableness, ridiculous claim construction arguments, frivolous discovery requests, unrealistic damages expert reports, etc. I think the threat of fee shifting is a stick that could be used to tame costs. But note that all of these proposals are based on behavior, not identity.

This leads to my concerns with the SHIELD Act, which leave me scratching my head. As a taste of my further thoughts, I’ll note that the EFFs poster child for the act, a podcasting NPE, is actually excluded from the act, and would not have to pay fees on loss.

Rhetoric

Let’s start with the rhetoric. It seems like few people have actually examined the act in detail, and thus support for it sounds like a propagandistic echo chamber. I joined Twitter only recently, and originally attributed this to the 140 character limit. Get rid of trolls! $29 billion in costs! Meritless patents! However, it turns out that longer discussion also repeats the same claims without much analysis, albeit with more words. Indeed, very few of the reports actually link to the text of the act, which is here, but instead link to each other, all saying the same thing.

I have a problem with this rhetoric for two reasons. First, the facts are way, way more complicated than that (see Kesan & Schwartz, for example, for a critique of the $29 billion estimate, and see the PWC study on patent judgments since 1995 for discussion about how often and how much NPEs and practicing entities win).

Furthermore, there are many types of NPEs out there, from pre-adoption technology houses to the most abusive frivolous claim filers. The SHIELD Act and its proponents consider none of this nuance.

This leads to my real problem with the rhetoric: it is driven by large companies and presented as if it will benefit small companies. If we were so worried about small companies, why wouldn’t we make the act apply to all patent plaintiffs? After all, large companies routinely assert their patents against smaller, disruptive entities in order to stake out market position or even put them out of business. Just compare the Barnes & Noble submission to the FTC about Patent Assertion Entities with the Barnes & Noble complaints about Microsoft’s licensing practices. The complaint is the same, so it is unclear why the solution should not be the same.

I am bothered by any rhetoric purportedly intended to “protect innovation” that does not, well, protect innovation by its own terms. The EFF campaign focus on a patent that would not actually be subject to the act is just one example. And the fact that no one pushing the SHIELD Act—many of whom I respect even though I disagree—is asking these questions makes my knees jerk to oppose it.

Content

My general point of view is that we should address the behavior, not the owner. Yes, it’s bad that an NPE has asserted what many think is a meritless podcasting claim against Adam Corolla. (I won’t address the merits here, but I will note that the initial patent application was filed in 1996, not last year).

But would we really feel better if it were a product company making the same claim? A meritless claim hinders innovation no matter who makes it. That’s about all I will say about the core question of whether NPEs should be required to post a bond just to get into the courthouse. I think they should not—nor should anyone,—even if fee shifting were mutual. But defending that statement is more than I can do in this blog post. I’ve written at least two articles that address the topic and there are a multitude of other studies that address the role of NPEs in licensing as well as the parallels between NPE and product making patentee behavior.

Thus, my questions about the Act relate to the particulars and their unintended consequences. Note that the text of the act has been carefully written to carve out everyone who might object to it, except NPEs. This is the root of the problem, because “patent troll” means different things to different people.

Some points:

1. The act mandates a fee award to any party victorious on noninfringement or invalidity. This means that a company can sue for declaratory relief and force fee shifting, even though the patentee never filed suit. I realize that many people would say, “Great! No more demand letters!” But consider two things. First, there are many, many transactions – millions, if not billions of dollars worth – that are undertaken between technology licensing companies and product companies without the imprimatur of “trollishness.” This provision could disrupt that ecosphere in an effort to fix a different one. Second, this provision could have a perverse effect of multiplying the number of litigations. I don’t believe that patent holders should overclaim in order to seek higher licenses, but I also don’t believe that potential infringers should underclaim in order to force litigation.

2. The act excludes parties that have a “substantial investment” in the exploitation of a patent via production or sale. This is fraught with difficulty. First, what does “substantial” mean? Presumably it is intended to ensnare NPEs that decide to make things, but not make enough (or good enough) things. But why should a court get to decide what is enough? And what do we do about start-ups who have patents but have not yet commercialized their invention? Are they trolls, too?

And what is to stop NPEs from becoming distributors? They could buy competing products wholesale (perhaps products where they have secured licenses) and sell them. This only makes sense; by being resellers, they can claim that the competition of the infringing product is harming their sales business. This points to the general complexity of licensing in the first place: companies might license patents when their opponents do not in order to gain a competitive advantage, even if the patent is old.

3. This exploitation prong leads to other questions. What if a claim construction goes against the patentee, and the patent isn’t quite as broad as the owner thought. This happens all the time, to patentees of all types. Does this mean that the product selling patent holder is no longer exploiting the patent? The language seems to say so, and even the biggest producer would be ensnared.

4. The potential for producers to be liable doesn’t stop there. Consider Palm, which developed WebOS, and made stuff. Consider HP, which has spent billions of dollars in research and development. HP bought Palm, and made WebOS tablets. For various reasons, maybe in part due to patent claims from other tablet makers like Apple, HP decides to stop selling WebOS tablets. HP then decides to enforce Palm’s patents. Mind you, HP didn’t just buy the patents, it bought the company. And then it made stuff, it researched, it developed, and it has even licensed WebOS out to LG try to resurrect it for televisions. Is HP a troll now? It falls under the text of this act. I think that just cannot be right, and yet there it is, in black and white. By the way, HP sold some patents to HTC, who then asserted them against Apple. Soon after, HTC and Apple settled a long running, very costly litigation. Would the SHIELD Act change the dynamic of this dispute? I hope not, my family bought HTC phones.

5. Universities and technology transfer organizations are excluded. This offers a potential way for NPEs to avoid the law. They can become technology transfer organizations for small colleges that cannot afford them, or perhaps coordinate with each other to offer 1 year programs that satisfy the higher education requirements. This latter likelihood is a longshot, I think, but when money is at stake, you never know. This exception also ignores the role of universities in the patent ecosystem; do universities really never assert meritless claims? What happens when they start bringing more lawsuits? Maybe NPEs should team with tech transfer organizations and the tech transfer folks can bring suit instead; it would only take a few large university related intermediaries to make the entire bill fall apart.

6. Excluded are “original assignees,” which are assignees prior to patent issuance that appear on the face of the patent. This leads to two issues. First, what if the assignment is done late, even at a product company? It happens. I suppose they would rely on the “investment” prong, but the company might not be making the patented product.

Second, many NPE patents are assigned to the NPE as the initial assignee. NPEs often buy patents while they are in process and assign continuation applications to themselves; those continuations are often the broadest claims (and thus the least likely to be meritorious as a matter of logic). In other words, the patents we worry about most are the patents that are least likely to fall under the rule. Some of the most highly-litigated, most-litigated patents were originally assigned to the NPE enforcing them now. This brings us to the point I made above, Personal Audio, with its podcasting patent, is initially assigned to….Personal Audio. Sorry folks, this is not the SHIELD you are looking for.

Furthermore, to avoid this issue, NPEs can simply buy shell companies that continue to hold the patents, while the original owner, if still active, can spin off any business to a new entity. I think Acacia does a fair amount of this already, and will surely do more. The more I think about it, the more I think that this rule, intended to protect “real” inventors, will instead render the much of the act toothless.

7. Finally, the original inventor can always sue. This leaves me scratching my head on both ends of the spectrum. On the large company end, I cannot comprehend why fee shifting is a bad thing if BigCo enforces patents, but a good thing if BigCo creates BigCoIPSubsidiary to enforce its patents. Are these two worlds really that different? Perhaps it is to those BigCo supporters of the bill that enforce their own patents. I should add that I’m told, but have not verified, that the tax code rewards companies that spin out their patents. The law gives with one hand and takes away with the other. Perhaps a better solution would be to get rid of the tax benefits, but I won’t hold my breath.

On the small side, I see the SHIELD Act as changing the way NPEs enforce patents. Original inventors aren’t covered, so perhaps the original inventor should be a nominal plaintiff and just get funded by the NPE. That’s a great incentive at a time when people are clamoring for more transparency in the system.

One more point: Individuals are a primary source of NPE patents. Small businesses have always held their own as patent plaintiffs in the system and continue to do so. But the number of patents represented by individual inventors is double with NPE participation. It’s easy to see why: it costs a lot to enforce a patent, or even to license it, and NPEs have skill and finances that individuals lack.

And so when we discuss the SHIELD Act, we should be crystal clear about what we are talking about: a system that favors big companies over individuals. I’m not making a value statement; there may be good reasons why we want fewer patents by individuals enforced. For example, individuals invent a lot of software, and a lot of software patents are really bad. But are individual software patents worse than everyone else’s? I’ve read thousands of software patents, and my belief is that big companies can write crappy patents just like everyone else. My point is that we should be truthful about what is at stake, what the impacts will be, and whether those are the results we want. Then, given that truth, we should look at some evidence to decide what to do.

Update A comment below notes that the podcasting patent might indeed fall under SHIELD because it was assigned by a family trust of one of the inventors instead of the inventor. This highlights another problem with the bill that I hadn’t even thought about. I noted issues with purchases of companies above.

But if we also say that a wholly owned and controlled intermediary cannot assign the patent on behalf of the original inventor, then SHIELD has the potential to throw a wrench into the works of corporate financing and restructuring. Every day of the week, companies reform through mergers or financing, often creating “NewCo” shell companies that will serve as intermediate owners of assets or will take on new names post financing. I have known lawyers who have such companies already formed so they can use them on a moments notice.

If we say that the intermediary trust excludes the next assignee from being the “original inventor,” then many restructured startup, merged, and financed companies may be in for a rude surprise when the attempt to enforce their patent portfolios. Now, if you dislike patents generally, this realization would lead to rejoicing. I doubt that’s how this act was intended, though.