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Solveig's new article, Solutions for Software Patents, makes a fundamental insight on software patents in the modern innovation economy. It should be read as a prelude to PFF's filings in the KSR v Teleflex case (see HERE and HERE) arguing against aspects of the patent system that lead to bad patents and undue costs in litigation. The main problem that (patent law and economics) studies point to... is litigation costs, rather than problems with entry or product development... nothing in the studies suggests that software patents are inherently problematic; rather, the problems can be traced to the way patents are now administered. This points us towards prioritizing solutions focused on fixing litigation problems, rather than towards... more sweeping solutions such as creating a sector-specific patent regime for software, or deciding that software should receive only copyright protection. Prominent criticisms of software patents; that they impose undue burdens on non-proprietary forms of technological development, can prevent important technological break-throughs, and give terms like "Trolls" a central place in serious policy discourse, support Solveig's point of the need to fix the administration and enforcement of patents in order to ameliorate undue costs on the patent system. This has been the contention of influential scholars like Kenneth Dam and Robert Merges, that figuring the contours of software patent doctrine should be the policy priorities rather than the Section 101 patentable subject matter question.
Related to the issue of patent litigation is that of uncertainty over software patents. Some additional commentary on how uncertainty can pose costs on the patent-innovation ecosystem may be appropriate.
Alan Marco from the Vassar Economics Dept. investigated stock market reactions to US patent litigation and has important findings comparing the value of resolved legal uncertainty to the initial property right grant. Alan Marco, The Value of Certainty in Intellectual Property Rights: Stock Market Reactions to Patent Litigation. (November 2005).
The main conclusion by Marco is that uncertainty can be on par with the value of the initial grant of a patent. The implication of Marco's work is that uncertainty in the patent system caused by unsound practices in patent administration and enforcement surrounding litigation can diminish the value of patents for innovation.: ...market response to patent litigation tends to on par with the market response to the patent grant itself. That is, the resolution of uncertainty about validity or infringement is worth as much as the initial patent right on average, indicating the presence of significant legal uncertainty. Marco makes other key insights.
First, one value of patents arises from the right to exclude others from distributing infringing copies. The ability to exclude is valuable because it confers "the right to sue with some probability of success." Such an "option," according to Marco, need not be exercised to be valuable, but can be worth more than the initial grant of the patent. These arguments imply the value of a patent can rise after its grant, and that institutional and litigation reforms, as Solveig suggests, should allow owners of legitimate and quality patents to enjoy the rewards of their patents, while deterring patent trolls, whose potential royalty extraction far exceeds their original investments.
Second, Marco argues there is a significant amount of uncertainty created by the patent system. Because the study's sample is drawn from litigation data spanning 1977-1997, software patents probably did not comprise a significant portion of the population. Thus, uncertainty in the patent system is not unique to software patents, although, as Solveig points out, the problems may be more pronounced.
Third, the study finds differentiation between stock market decisions pre/post the establishment of the CAFC. Compared to analysis of cases after formation of the CAFC, with pre-CAFC cases, a valid or infringed patent has "negligible market reaction" and loss of an infringement claim caused significantly negative reaction, indicating most "very strong patents... believed to be likely to win... were being litigated because the response to the upside was small, and the response to the downside was large;" suggesting that recent patent litigations have involved at least some dubious patents.
While the discourse over software patents finds disagreement from parties with varying commercial poicy interests, issues such as litigation costs, the non-obviousness standards, and general need to have current patent policies reflect modern innovation can bring divergent parties together. Thus, the issue is not whether but how the patent system can perform its role to promote innovation.
posted by Noel Le @ 8:00 AM | Academia, Patents
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