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Patents consistently fail to promote investment in innovation because poorly written applications and approved patents fail to provide clear boundaries or notice of property rights.
Patents encourage innovation, right? Well, no.
The U.S. patent system actually discourages innovation at most large American companies. The exceptions are the pharmaceutical and chemical industries.
We make this argument in our new book Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk (Princeton University Press, March 3, 2008).
Unlike most commentary on patent reform, we base our criticism of the U.S. patent system on dozens of previous empirical studies as well as a substantial amount of original research. Our evidence shows that patents consistently fail to promote investment in innovation because poorly written applications and approved patents fail to provide clear boundaries or notice of property rights.
A glance at litigation statistics alerted us that the patent system was in trouble.
The annual number of patent lawsuits filed in the United States roughly tripled from 1970 to 2004. The number of lawsuits was more or less steady in the 1970s, climbed slowly in the 1980s and exploded in the 1990s and 2000s. Why?
Patent examiners approved applications with questionable claims — the part of the patent that bestows a property right. This was particularly true in fast-changing technology industries. Meanwhile, U.S. Patent and Trademark Office policies, federal laws and courts failed to impose order.
Optimists suggest that the upsurge in patent litigation follows “naturally” with the relatively recent fast growth of high-tech and other market innovations and the patents they generate.
This argument assumes that piracy of patented technology rises proportionally with innovations and patents, as more patent holders file infringement lawsuits.
We agree that the American economy has done a terrific job spurring innovation in recent years. However, we think this is true despite of – not because of – increased patenting and patent litigation.
There are two problems with the optimistic view of the litigation explosion.
First, the growing strategic use of patents by so-called trolls – those who obtain and sit on patents for the sole purpose of filing infringement lawsuits – shows a disconnect between patents and innovation. New patents may have outstripped the number of new innovations.
Second, most defendants in patent-infringement cases are innovators. Remarkably, the average patent-lawsuit defendant spends more on research and development and holds more patents than the average plaintiff who files the suit.
These findings cast doubt on the widely held view that defendants in patent-infringement cases are pirates who steal technology rather than doing their own research and development. In fact, our research shows that after controlling for other relevant variables, the more R&D a company conducts, the more likely it will be sued for patent infringement.
People looking to buy real estate have to observe neighboring property rights. Laws regulating real estate purchases provide good notice and a clear demarcation of boundaries. Poor patent notice and blurry boundaries prevent innovators from steering clear of previously patented technology. Poor notice also hinders the market for patent rights.
Reform to improve patents could help innovators obtain rights while they are still developing a technology, and thereby avoid litigation. Our book suggests a range of steps the courts, the USPTO and Congress could take to improve the patent system.
The application process should be more transparent.
The claims in all applications should be published and limits must be set on revisions of claims that occur long after the initial application.
Clarity should be enhanced by rejection of indefinite and overly abstract claims.
Finally, reform should stem the flood of patent applications and grants. This might be accomplished through a more rigorous patentability standard or by increasing the fees paid to maintain issued patents.
The laws and institutions that establish the bounds of patent rights have deteriorated in recent years and especially during the 1990s. Patents no longer perform well as intellectual property protection because it’s increasingly difficult to determine the boundaries created by the patents in force.
Innovators, particularly those in the information and communication technology industries, face a huge number of patents to review to ensure they’re not infringing. It’s often too costly to read them all.
Moreover, many granted patents contain claims that would be invalidated in litigation and most of them contain claims that are unclear to experts in the relevant technology and to patent lawyers.
Patents should reward risk-takers and protect the ideas of innovators. If patent-based property rights cannot be read and understood, then they cannot provide good protection. And if patents can’t provide proper protection, they can’t spur innovation.
James Bessen and Michael Meurer are professors at the Boston University School of Law.
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