News Flash! "Inventors" Oppose Patent Reform!

December 10, 2007 1:56 PM by Stephan Kinsella (Archive)

From a patent lawyer list I'm on, I received a solicitation to sign a letter opposing patent reform. The letter is to be sent to Senators Reid and McConnell. My response to the letter is below (only contains excerpts from the letter). Needless to say, I've received basically no comments back from those pushing the letter. (The letter is similar in some ways to the one distributed by the Innovation Alliance, which my company was asked to sign; I refused. Something tells me I'm not endearing myself to my fellow patent lawyers lately.)

***

I have a few comments on the draft letter. I realize, my comments are normative and policy-oriented, and based on a particular understanding of economics and politics, so not really directly related to positive patent law--but then, the letter being pushed is not merely positive law either, it's a policy statement that rests on certain implicit political and economic views as well, so that opened the door.

"These changes [to be wrought by the Patent Reform Act of 2007, S.1145], we believe, will erode much of the value of U.S. patents, especially for independent inventors and small businesses, which currently create about 40% of the new inventions and jobs in America.

"Historically much of the innovation that has made America the most inventive place in the world has been the result of independent inventors and small innovative businesses that dared to try to make the world a better place, with the assurances granted by Constitutional mandate that they will have a limited time to profit from their ingenuity. By being awarded a patent, they agree to share their innovations with the world instead of operating by trade secret. If Congress now devalues U.S. patents by passing S.1145 in its current form, independent inventors and small businesses will have little incentive to share or even create new innovations, especially if the cost of acquiring and maintaining patents is significantly increased, which this bill will cause to happen. We believe the bill in its present form will do serious and long term damage to the future of American innovative efforts, and will detract from the ability of the U.S. economy to continue to prosper in a rapidly evolving global marketplace."

Does even the staunchest critic of the bill really believe that "If Congress now devalues U.S. patents by passing S.1145 in its current form, independent inventors and small businesses will have LITTLE incentive to share or even create new innovations"? I can see an argument that the incentive will be reduced a bit, but this implies it would be basically eliminated. Does anyone really believe patent filings would drop, to, say, 5% or 10% of its current levels after this bill is passed? This seems like a bit of hyperbole.

Also, all these pro-inventor, pro-innovation types seem to forget that the patent system has a cost, and the ostensible justification for the patent system is that it creates a net benefit to society--the value of the extra innovation induced, is greater than various costs of the system (attorneys' fees, innovation distortion or reduction in other areas, etc.). Now this patent reform, it seems to me, even if it reduces incentives to innovate, also reduces various costs of the patent system (even weakening patent rights reduces costs to some players in the market). The opponents of reform, it seems to me, should be arguing that the cost reduction of this bill are less than the innovation reductions that will result. For example, let's say, for sake of argument, that the reform act would cause $2 billion of marginal innovation to be lost annually; but results in $3 billion in reduction in cost. In this case, the reform act would be a net benefit of $1 billion annually, no?

Therefore, those who oppose the reform act implicitly believe that the cost savings are less than the value of the lost innovation. Why don't they make this explicit, and then support this contention? For example, what exactly are the numbers here? Does anyone really know? If you don't know, how can you know it's a net negative, or a net positive? ( I have written on this in There's No Such Thing as a Free Patent, for those interested.)

"First to File: If this portion is adopted, it will create a race to file at the USPTO, which will severely handicap smaller entities, due to their limited budgets."

But if faced with fewer or weaker patents of competitors, smaller entities would have lower costs, too; and if they file fewer patents, lower costs here, as well. How do you know the "cost" you point to above is greater than the savings they would also enjoy?

"Post Grant Review: This provision will allow literally anyone to challenge a granted patent for one year, and anyone with an economic interest to challenge a patent for its entire life, at a very low cost. Competitors can just keep filing inexpensive challenges until the inventor's finances are exhausted trying to defend their legitimately granted patent, forcing the inventors to abandon their honestly created inventions."

But wouldn't the big guys challenge each others' patents, too? Resulting in fewer patents being issued to the big guys? Thereby reducing the threat faced by small companies? This is an advantage, it seems to me. What is the net here? Does anyone know?

"It will create a scenario where the value of patents will be much less certain, which will severely impact the availability of private investment to help develop emerging technologies."

Side point: if this is true, then what about the uncertainty we are experiencing right now (with it being up in the air what patent rights will look like a year from now), which is a result of our system of making laws by legislature (which can just change its mind at any time)? I.e., we might as well oppose the existence of Congress, or the state's power to make law by legislation (as opposed to common law rules)--but in a system without legislation, there could be no patents in the first place. So the very precondition of there being a patent system also engenders uncertainty. (I've written on this in Legislation and the Discovery of Law in a Free Society, again, for those interested.)

"Apportionment of Damages: This provision will drastically reduce the damages that infringers will have to pay for willful infringement to a small fraction of what it is and has been for decades. Courts will be forced to try to determine what apportionment of damages should be awarded to the plaintiffs, which in many cases will reduce the penalties for infringement dramatically. The courts are ill equipped to determine these factors, in that it will require expert testimony as to how the damages should be apportioned, at great expense to the inventors attempting to defend their patents. Essentially a patent will become much less valuable to the inventor, due to insecurity about what the courts might decide is deemed an appropriate penalty for willful infringement."

But if patents are less valuable to the holder, they are less of a threat (cost) to others, no? How do we know which is greater?

Also, re the comment "The courts are ill equipped to determine these factors," apparently, according to the implicit logic of those who oppose Congress reforming the law, Congress itself is "ill equipped" to decide what patent law should be. But a precondition of there being a patent system is giving Congress -- ill equipped though it may be -- the authority to legislate in this area.

"18 - Month Publication: Since this will become mandatory for all, and the current patent pendency period is about 31 months, the rest of the world will have more than a year to copy almost all American inventions before a patent has even been granted, again creating uncertainty for private investments in new technologies. The publication of the patent application on the Internet long before the patent has been granted will allow nearly anyone to be able to design around the invention, and then file their own applications that anticipates all of the inventors claims, effectively destroying much of the value of the inventor's patent, once it is finally allowed by the USPTO."

This is a new one to me. I have never heard it suggested before that one of the rights an inventor should have, in addition to the traditional panoply of rights protected in the Patent Act, is the right not to have their invention designed around or for competitors to file for their own patents on their improvement-inventions.

"Applicant Quality Submission: This requirement would significantly increase the cost of obtaining a patent, which will cause many independent inventors to abandon valuable inventions."

Wouldn't this also reduce their patent filing costs, and also reduce the total number of patents out there that might be threats to them? Again, what is the net here? Apparently nobody knows, but they keep assuming it's a net negative (resulting from the act).