Patent Failure: How The Patent System Fails Innovators

By Dave Wieneke | in Highlights, Patent law | 8 Sep 2008 | No Comments

There are lots of signs that the patent system needs reform. Have you noticed that some IP lawyers are now filing their own patents, and forming shell companies which exist only to generate lawsuits? Many writers have alarming stories about why IP law reform is needed. However, here is an eminently readable macro-analysis of issues facing the patent system and their real costs to innovators.

Economist and entrepreneur James Bessen has authored this analysis of the current state of the patent system with law academic Michael Meuer. Both are faculty members at Boston University, and their book Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk has drawn praise for its economic analysis of our patent system.

Nobel Laureate in Economics Eric Maskin calls the book “a pioneering and heroic effort to quantify the ways in which our patent system has failed to live up to its raison d’être: promoting innovation.” You can hear Michael Meuer discuss the book for about an hour on Stanford University’s Hearsay Culture Show, or view a sample chapter.

What’s impressive is that they go beyond providing examples of erroneous patents, or costs on individual innovators, to provide an economic and legal analysis of the system. They marshal data from decades of filings by publicly traded companies to compare the costs and benefits of the patent system.

Their fundamental conclusion is that in most industries, the hard cost on innovators defending against patent suits outstrips the financial benefit they gain through licensing. They compare the patent system’s conventions to those used to assign real estate property.

The property system provides very crisp boundaries and an efficient system for determining who, if anyone, has a claim on specific real estate. In contrast, the patent system often fails to provide good public boundaries and notice of where patent-based rights are situated, and to define their extent. This results in the potential for inadvertent infringement, particularly as patented ideas may be difficult to identify through searching.

This uncertainty allows certain patent holders to capitalize on relatively weak patents that could arguably have a broad scope, and then use this lack of clear definition to extract settlement payments from true innovators.

Notably, their analysis suggests that life sciences and chemistry patents hold the greatest benefit for their holders. The structure of these particular patents tend to provide clearer boundaries of scope, and also allow for better notice by being more easily identifiable through standard search processes. So this trend is confirms their thesis of the need for greater definition of boundary and notice.

The book provides a sedate, scholarly, and reasoned discussion of the history of patent law, explores what we mean by innovation, and presents original empirical research to determine what value and costs patent law brings to inventors. Since they don’t calculate the cost of “patenting around” existing patents, their calculations of cost are likely on the restrained side. Readers of Larry Lessig and Richard Posner will feel right at home, as their analysis draws broadly from economic and public policy.

It’s well worth a free look or listen (see the links above), and it’s a satisfying read if you decide to take the time. If you’re reading this blog, you’d likely really enjoy Patent Failure.