Two economists from Washington University in St. Louis, Michelle Boldrin and David Levine, ask “Whither the patent system?” in an opinion piece on the Congress Blog on The Hill website.  The opinion piece is a solid effort on Boldrin and Levine’s part to take the carnival barker mantle from Beesen and Meurer — it is otherwise devoid of any useful information or insight.    Perhaps there is a simple “follow the money explanation” for what appears to be otherwise credible academics associating their names with such drivel in a publication that is not exactly known for its editorial quality.

In any event we’ll be happy to answer them, as soon as we get over our shock that two people highly educated enough to both be “Distinguished” professors of economics can get so much wrong about patents in only 421 words. It’s quite an accomplishment!

The authors claim that

We report here the consensus among academic researchers of the patent system that the system as currently constituted is failing, serves to discourage rather than encourage innovation, and is in desperate need of reform.

The authors cite “two dozen empirical studies on patent litigation.” Perhaps there is a “consensus” among academic researchers that are sponsored by Google and other cheerleaders in the efficient infringer lobby, but a simple google search quickly demonstrates there is no consensus among independent academic researchers that the patent system discourages innovation or is in desperate need of reform.

We have previously pointed out how flawed many of those studies are; see “The Mythical $83 Billion/Year Damage to the Economy from Patent Trolls” and “More Bogus Patent Litigation Statistics” for a discussion of some the very highly flawed studies these ersatz scholars are relying on.

Let’s take on the key points made in their editorial one at a time:

The number of defendants in patent lawsuits filed in 2009 was five times the annual number during the 1980s.

The authors did not provide specific numbers or the source of their data, but we’ll accept their numbers. They sound about right. But that does NOT mean there has been an “explosion” in patent litigation.

As we pointed out in our post “Patent Litigation and NPEs 2015,” it’s relatively meaningless to look at the number of lawsuits in a vacuum. What’s important is the RATE of litigation per active patent.

Patents are a “right to exclude.” That means if someone is infringing your patent you have a right to sue them. Therefore, the more patents you have the more patent litigation you will have.

In 1980 there were 112,379 patent applications and 66,170 patent grants. In 2009 there were 482,871 patent applications and 191,927 patent grants (statistics courtesy of the USPTO). Not far off the “five times” increase the authors cite on the application side, and if you take into account the 20-year life span of most patents and the accumulative effect of a nearly continuous rate of increase in patent applications and grants, it’s clear there is no real increase in the rate of patent litigation.

Our above referenced article shows that the rate of patent litigation actually declined from 2010 to 2015 (after peaking in 2011). The “explosion” in patent litigation is a myth if you take into account the fact that there has been an “explosion” in the number of active patents.

It’s a good thing that there are more active patents: it means creative people are busy inventing new things that benefit all of us!

…the more R&D a firm performs, the more likely it is to be hit with a patent lawsuit, all else equal.

Well, duh! The more R&D a firm performs the more likely it is in an R&D intensive field. In any R&D intensive field there will be more patents. More patents = more patent lawsuits. The authors quoted, without attribution (sloppy for academicians?) data from the “mythical $83 billion” study mentioned above.

Another study associates lawsuits from PAEs with a decline of billions of dollars of venture capital investment;

The “study” was based on a flawed survey. Figures from PWC show that venture capital investment in the first quarter of 2009 was $3.8 billion, and in the first quarter of 2014 it was $9.5 billion. Does that sound like a decline in venture capital investment?

Many hundreds of invalid patents, many already involved in litigation, have been revoked.

Those patents were valid UNTIL they were revoked. Why were they revoked? Several reasons:

  1. We agree there are some patents that should not have been issued in the first place. That may be the only thing we agree with the authors on. The answer to that problem is to give the patent office the resources it needs to do a more thorough job of vetting patents before issuance. We’re all in favor of not issuing weak patents.
  2. The Supreme Court changed the rules of the game with its Alice v. CLS Bank Many patents that would have been considered valid prior to that decision became invalid overnight. See “Did the Supreme Court Intend to Kill Software Patents?” for more on the impact of Alice.
  3. A little too technical to go into detail here, but the new procedures for attacking patents at the patent office use a method for determining what’s covered by a patent that makes it much easier to invalidate patents than the method used in the court system.

The authors cite two “basic facts” that “need to be contended with” via legislation.

The first was the creation of a special patent court more than three decades ago. Not surprisingly this court – made up primarily of patent attorneys – loves patent litigation.

In the first place, this claim is somewhat inaccurate. There is no “special patent court.” Patent cases are heard in federal district courts all around the country. There is a special court of appeals that handles patent cases – the Court of Appeals for the Federal Circuit (CAFC). Are the authors claiming that somehow the existence of an appeals court that specializes in patents encourages patent litigation? Or that the decisions of the judges are somehow biased because they have expertise in the subject matter, patents? This is a totally nonsensical statement.  But for the minor potential Constitutional issue—we absolutely would support specialized patent courts in the US such as exist in other jurisdictions.

The second is the technique of carrying out patent litigation by selling patents to patent trolls. While real firms with real products have every incentive to collaborate and avoid mutual destruction through patent litigation, patent trolls have no such incentive.

The authors jump on the bandwagon that there’s something wrong with making money from patents in ways other than manufacturing products.

Not every great inventor is a great manufacturer. Not every patent owner (whether large or small) is great at licensing. Some choose to outsource this function, just as they outsource many other functions from manufacturing to logistics.

Patents are designed to protect inventions, not manufacturers. That, in fact, was one of the great revolutions of the American patent system. Compared with the British system that pre-dated it, the American system opened patents to “the little guy,” who could come up with an invention, and then license it to someone else to manufacture. Or, as they say in the software business, “that’s not a bug, it’s a feature!”

Thomas Edison licensed the vast majority of his patents. Does that make him a “patent troll?”

If you’re an individual inventor and Google decides to start infringing your patent, how do you stop them? Where do you get the millions of dollars it takes to pursue substantial patent litigation against a corporate giant that is stealing your intellectual property? Individual inventors and small companies generally have no alternative to working with a “Patent Assertion Entity,” a.k.a. “patent troll,” if they want to get paid for their inventions. Many big tech companies engage in “efficient infringement.” They knowingly infringe patents, maybe hoping they won’t get caught, or that the patent owner won’t have the resources to pursue the case. Try and ask them for a license and they basically say “No way. You don’t like it, sue me.”

Scholars are supposed to be objective. Why don’t the authors cite the study put out by the patent office itself that shows “Patents are Rocket Fuel for Startups?”

Because it doesn’t fit their biased, anti-patent agenda. Facts can be inconvenient at times.

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