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Labeling non-producing patent holders "patent trolls" may have gained popularity with Justice Kennedy's concurring opinion in eBay: “[a]n industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.” Kennedy showed how misdirection in patent policy discourse can only do harm. Consider patent holders that neither produce nor sell goods but focus on niche aspects of invention, ground breaking R&D and enhance the liquidity of the market for ideas: small-specialized firms, research universities, licensing firms. To label these entities patent trolls b/c they do not invest in manufacturing capability, to-market commercialization, nor integrated products is, essentially, criticizing them for not being vertically integrated like IBM and Microsoft.
While the term patent troll is a quasi pop culture-public policy construct, its assumptions may carry over to patent doctrine. Professor John Golden from Texas Law School has released new research on how deciding patent policy based on patent holders’ business model conflicts with the Supreme Court’s decision in eBay, and the goals of the patent system. Patent Trolls' and Patent Remedies, Texas Law Review, Vol. 85, p. 2111, 2007. Golden addresses the merits of “categorical denials of injunctive relief” to patent holders that do not produce inventions, and therefore do not compete against potential infringers or in markets in which they license patents. [in eBay] The unanimous Court provided… admonition against denying injunctions because of “a plaintiff’s willingness to license its patents and its lack of commercial activity in practicing the patents.” Despite the unanimous Court’s warning against “certain expansive principles suggesting that injunctive relief could not issue in a broad swath of cases,” district courts have responded in apparent lockstep to Justice Kennedy’s concerns about trolls. Any categorical rule segmenting patent holders into producing and non-producing entities runs against what economists cite as an efficient and beneficial aspect of the patent system; the ability for entities to license rather than partake in an integrated development and commercial business model (see here Chesbrough, Teece). Any patent policy doctrine that restricts legitimate business models would be injurious to essential sources of innovation.
Golden highlights the practical implications of per se legal segmentation of patent holders based on their development and business models: Effects on noncompeting patent holders could extend significantly beyond a mere devaluation of their patent rights. Small firms looking to establish themselves in the marketplace frequently use patents as levers for obtaining investment and carving out their own protected industry niche. For such companies, the actual provision of end products or services is often beyond the visible horizon, if even within contemplation at all. For the immediate future, their revenues must come from licensing, and their fundraising is often based on a sense that they have laid exclusive claim to a potentially valuable commercial technology. Use of the term patent trolls has increased with growing societal attention to problems with the patent system. Software patent critics, and those who use the term “patent trolls” generously (often the same folks), will argue the patent system is ill-suited for technological inventions. One argument has it that the patent system was meant for industries where single patents cover single inventions, and that patents for technology based inventions draw special concerns by raising transaction costs necessary to clear patent rights and increasing the likelihood of infringement. However, it is unlikely patents in the technology sector cause insurmountable problems, it is more likely issues w/ some kinds of patents may be more pronounced.
Golden points out that multiple patents covering single inventions is not a new concept to the patent system, and suggest that issues highlighted by some patent cases may not be novel or exceptional: As John Duffy points out, approval of the application of patent law to mere “improvements” of overall devices or processes… had been explicit since at least the late eighteenth century. ...In the newly formed US, the Patent Act of 1790 explicitly made broad provision for the patenting of “any improvement” of a “useful art, manufacture, engine, machine, or device.” Software patents did not create patent trolls, nor are patent trolls a sign that patents are unfit for technological inventions.
A patent system that facilitates innovation is one that protects diverse and flexible business models, lending to an industrial structure conducive to innovation (see JDelong). The optimal beneficiaries of a well-tuned patent system, especially in the technology sector, are small-specialized firms, research universities and patent dealers that help commercialize and diffuse important inventions. Although many will agree with these goals of the patent system, patent policy discourse can lose course and potentially harm the very parties it should serve.
posted by Noel Le @ 6:30 AM | Academia, Patents
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