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Perspective

The Overstated Case against the United States Patent System?

Theodore H. Davis Jr.

©2016. Published in Landslide, Vol. 8, No. 3, January/February 2016, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

Criticism of the United States patent system has become a veritable parlor game in recent years. For example, The Economist has issued a thinly veiled call for the abolition of utility patents altogether, subject only to “problems in terms of the ethics of property rights.”1 Apparently unrestrained by similar ethical constraints, a Federal Reserve Bank of St. Louis research paper concludes that “the best solution is to abolish patents entirely through strong constitutional measures and to find other legislative instruments, less open to lobbying and rent-seeking, to foster innovation whenever there is clear evidence that laissez-faire under-supplies it.”2 Much of this criticism targets non-practicing entities (NPEs), known more popularly as “patent trolls.”

At the same time, however, “[i]t is interesting to note that the most radical critics comprise a number of eminent theoretical economists with little specialized expertise in intellectual property.”3 Nor, for that matter, is criticism of the patent system uniform even within the academy: To the contrary, as a group of academic economists have advised Congress, “[t]hose bent on attacking ‘trolls’ have engendered an alarmist reaction that threatens to gut the patent system as it existed in the Twentieth Century, a period of tremendous innovation and economic growth.”4 Finally, although alleged runaway patent litigation is an article of faith among current critics of patent protection, “Americans, from the beginning of the colonial period, have always considered themselves to be exceptionally litigious and have been equally hyperbolic in decrying the consequences of this litigiousness.”5

In fact, rather than being a characteristic of today’s marketplace, “the per patent rate of litigation was highest in the era before the Civil War, and during the significant market expansion that started in the 1870’s and heralded a ‘second industrial revolution’ that dramatically improved living standards.”6 More recently, a 2014 follow-up study to one published in 1998 concluded that “[m]uch has changed about patent law, but the overall dynamics of patent litigation—in which patentees win at trial but not on summary judgment, and in which patentees win each individual issue but lose overall—remain remarkably similar to the patent litigation we studied twenty years ago.”7 And a notable NPE critic, Unified Patents, predicts that the number of utility patent infringement actions filed in 2015 will fall below the same number for 2013.8

Equally to the point, the numbers of new and pending infringement actions alone do not tell the entire tale. For one thing, “[l]itigation is a function of many factors, including changes in legal rules, uncertainty, conflicting interpretations of rights and obligations, defensive and aggressive measures, and the scale of the underlying market.”9 One such factor that may be inflating even the reduced number of new filings in recent years is the revised joinder rule enacted by the Leahy-Smith America Invents Act (AIA) in 2011: “For example, in 2010, while you could sue three defendants in one patent lawsuit in some venues, after the passage of the AIA, you may have to sue each defendant separately, resulting in three patent lawsuits.”10 Nor can the pendency of patent litigation be tied exclusively to the substantive law underlying that litigation, because “[a]s with the decision to institute patent litigation in the first place, the decision to settle is a complex one affected by countless factors, most of which are undiscoverable or at least unmeasurable.”11

More importantly, advocates of the abolition (or reduction) of patent protection offer no effective competing mechanism for incentivizing innovation. There is little doubt that stricter patentability requirements leave many potentially beneficial innovations on the sidelines: As one commentator has explained in the context of the pharmaceutical industry, those requirements “generate[] a policy that systematically targets the drugs created by medicinal chemists that appear most likely to be effective and bars them from patent protection.”12 Likewise, with respect to the most frequently pursued substitute, “the historical record shows that administered prize systems tend to be associated with the potential for bias or corruption, unpredictable methods of allocation and outcomes, and other deficiencies attendant on a nonmarket orientation.”13 The upshot is that, although any set of legal rules can be improved in some ways, United States patent law may be like democracy itself: The worst system . . . except for all the others.

Endnotes

1. A Question of Utility, The Economist, Aug. 8, 2015, at 50, 52.

2. Michele Boldrin & David K. Levine, The Case Against Patents, Working Paper 2012-035A, http://research.stlouisfed.org/wp/2012/2012-035.pdf (last visited Nov. 9, 2015).

3. Khan, B. Zorina, Trolls and Other Patent Inventions: Economic History and the Patent Controversy in the Twenty-First Century, 21 George Mason L. Rev. 825, 827 (2014).

4. Letter from Michael Abramowicz et al., to Hon. Chuck Grassley et al. (March 5, 2015), Article no longer available. (last visited Nov. 9, 2015).

5. Zorina, supra note 2, at 836.

6. Id.

7. John R. Allison, Mark A. Lemley & David L. Schwartz, Understanding the Realities of Modern Patent Litigation, 92 Tex. L. Rev. 1769, 1801 (2014).

8. Unified Patents, Q3 2015 Patent Dispute Report, http://unifiedpatents.com/q3-2015-patent-dispute-report/ (last visited on Nov. 9, 2015).

9. Zorina, supra note 2, at 836.

10. Christopher A. Cotropia, Jay P. Kesan & David L. Schwartz, Unpacking Patent Assertion Entities (PAEs), 99 Minn. L. Rev. 649, 662 (2014).

11. John R. Allison, Emerson H. Tiller & Samantha Zyontz, Patent Litigation and the Internet, 2012 Stan. Tech. L. Rev. 1, 55; see also Adam Shartzer, Patent Litigation 101: Empirical Support for the Patent Pilot Program’s Solution to Increase Judicial Experience in Patent Law, 18 Fed. Cir. B.J. 191, 230 (2009) (“A judge that does not like patent cases may more strongly encourage a settlement between the parties to avoid a lengthy and complicated litigation.”).

12. Benjamin N. Roin, Unpatentable Drugs and the Standards of Patentability, 87 Tex. L. Rev., 503, 542 (2009).

13. Zorina, supra note 2, at 856.

Theodore H. Davis Jr.

Theodore H. Davis Jr. is chair of the ABA Section of Intellectual Property Law. He is a partner at Kilpatrick Townsend & Stockton LLP in Atlanta, Georgia, where he divides his practice between client counseling and litigation in the fields of trademark, copyright, false advertising, and unfair competition law. He is also an adjunct professor at Emory University School of Law.