Page 9 - Intellectual Property

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Intellectual Property | MONDAY, APRIL 4, 2016 | S9

perhaps more accurate to say that during channel for patents made it less rational to tions has made it attractive to break the law, patent strength places future investment

the years of strong patent rights, parties remain ignorant of the value a particular rendering consensual licensing an increas- in innovation at risk. It also places at risk
favored portfolio licensing over individual patent contributes to a license. This sales ingly uncommon outcome.
the next generation of innovators, who
patent licensing based on a calculus that channel inluenced patent valuations; pat- By all accounts, our country seems to are coming to market without effective
can be termed “Eficient Licensing.”
ent holders increasingly relied on market recognize the importance to its economic patent protection for their innovations.
Recently, various commentators have information in crafting their license agree- success of IP creation and licensing. In Recent studies indicate that 30 percent
examined the licensing behaviors of IT irms ments, and less on the rationally ignorant 2013, the U.S. Bureau of Economic Analy- of U.S. “unicorns” (start-ups with greater
under the currently prevailing regime of Eficient Licensing approach—this may be sis retroactively reclassiied the treatment than $1B in valuation) have no patents and
weakened patent rights. These commenta- thought of as a “Market-based Licensing” of R&D as an investment rather than an 62 percent have fewer than 10 patents.7
tors note that in this environment of weak- model.
expense, immediately raising U.S. GDP by Most of these irms provide software and

ened patent rights, irms are making a dif- While there has long been a market approximately 3 percent and setting the Internet commerce products and services.
ferent rational ignorance decision—namely, for buying and selling patents, it reached stage for future increases.3 The U.S. histori- They compete against entrenched incum-
they are opting to ignore licensing requests signiicant scale in the early 2000s when cally enjoys the largest positive balance of bents with huge balance sheets and patent
from patent holders, relying on the view speculators bought patents originally devel- payments for intellectual property licensing portfolios, many of which lobbied heavily
that most patent holders will not resort to oped by Internet-based companies that had of any country, as measured by the Inter- for weakened patent rights. But why would
litigation and that those claims resulting in been devastated by the dot-com bubble national Monetary Fund. For example, in these upstarts bother patenting their inno-
litigation can generally be dispatched inex- burst. Ironically, the same speculators, later 2014 the United States had a net income vations in a regime of Eficient Infringement,
pensively either via AIA trials or through labeled NPEs, that prompted responses of $88 billion based on gross receipts of where competitors will simply ignore their

motion practice in district courts. Commen- from the courts and Congress bringing on $130 billion. The next highest countries, property rights? It doesn’t take a crystal
tators label this form of rationally ignorant the Eficient Infringement regime were also the Netherlands and Japan, had net posi- ball to see how this trend will play out.
behavior “Eficient Infringement.”
the harbinger of greater market awareness tive balances of $10 billion and $16 billion The threat to U.S. innovation leadership,
Upon reflection, these behaviors are regarding patent value. They drove the respectively, both with gross receipts of with its attendant impact on jobs and our
unsurprising. It stands to reason that, market toward less rational ignorance and approximately $37 billion.4 But this leader- economy, deserves close attention to say
when patent rights are strong, irms will greater rational knowledge of patent value. ship position was based in signiicant part the least. The sad history of decline of past
err on the side of taking a license, and when But the actions of the NPEs were disrup- on a U.S. patent system that provided the great economies teaches us that a fall once
patent rights are weak they will be more tive in more than one way. While bringing world’s strongest rights for innovators. The commenced is dificult to check. “Eficient
likely to risk infringement. It is also unsur- about market-based valuation, their busi- policy shifts undergirding the move to an Infringement” is another way to say “it’s

prising that just as some opportunists will ness model threatened the status quo for Eficient Infringement market signiicantly okay to violate a constitutionally granted
abuse the patent system when rights are powerful stakeholders, who then lobbied alter that calculus. Indeed, there is evidence right.” That is no less an abuse of the pat-
strong, others will do so when rights are successfully to curtail the rights of all pat- that patent holders are seeking jurisdictions ent system than those practiced by NPEs.
weak. Abusive litigation arbitrage tactics ent holders. This shift has in turn largely
other than the United States to execute
Are we satisied with the direction in which
practiced by some NPEs under
“Eficient Infringement” points our country?
•the strong patent regime have
••••••••••••••••••••••••••••
been loudly decried, but equally
1. David Kappos, Richard Ludwin and Marc Erlich, egregious are the arbitrage tactics
“Your Patents: Is Ignorance Rational?” http://www.iam- practiced by Eficient Infringers
media.com/Magazine/Issue/70/Columns/Your-patents- is-ignorance-rational.
It stands to reason that, when patent rights are strong,
2. See, e.g., Pat Choate, “Patent Theft as a Business under the current weak patent
Model,” http://www.hufingtonpost.com/pat-choate/ regime. Given the importance of
irms will err on the side of taking a license, and
patent-theft-as-a-busines_b_508780.html; Gene Quinn, the U.S. patent system to innova-
when patent rights are weak they will be more likely
“Patent Reform Fuels Fears, Paralyzes U.S. Innova- tion, jobs and the economy, weak-
tion Market,” http://www.ipwatchdog.com/2015/06/15/ patent-reform-fuels-fear-paralyzes-innovaiton-market/ ening the patent system in order
to risk infringement. It is also unsurprising that just as
id=58743/; Joe Nocera, “The Patent Troll Smokescreen,” to trade one form of strategic
some opportunists will abuse the patent system when
http://www.nytimes.com/2015/10/24/opinion/the-pat- behavior for another represents
ent-troll-smokescreen.html?_r=0).
the assumption of tremendous
rights are strong, others will do so when rights are weak.
3. See Peter Coy, “The Rise of the Intangible Economy: U.S. GDP Counts R&D, Artistic Creation,” http://www.
bloomberg.com/news/articles/2013-07-18/the-rise-of-the- risk with the potential for no net
intangible-economy-u-dot-s-dot-gdp-counts-r-and-d-artis- gain. Is it prudent policy to erode
tic-creation.
patent rights to the point where
4. See http://data.worldbank.org/indicator/BX.GSR. it is eficient to infringe? Does a
ROYL.CD/countries.
5. See, e.g., Joff Wild, “US patent leadership may be patent market characterized by
over and the IP market is changing but opportuni- Efficient Infringement advance a desir- eliminated Market-based Licensing in favor their patent licensing deals and to obtain
ties abound,” http://www.iam-media.com/Blog/Detail. able U.S. position as the locus of global of Eficient Infringement. Indeed, given the legal redress for patent infringement.5
aspx?g=d2a23bb7-ed50-476c-b920-cc17481b5574; Quinn, innovation?
historic success of the U.S. economic sys- The recent degradation of the U.S. patent
“Patent Reform Fuels Fears,” supra note 2.
6. See, e.g., B. Zorina Khan and Kenneth L. Sokoloff, Our previous writing described the tem in employing market-based solutions, system will test the long history of econom-
“History Lessons: The Early Development of Intellectual
Property Institutions in the United States,” http://www. development of a robust secondary mar- it is surprising, and perhaps unfortunate, ic prosperity associated with strengthening,
jstor.org/stable/2696565?seq=1#page_scan_tab_con- ket in which patents were readily bought that the Market-based Licensing regime was rather than weakening, intellectual prop-
tents; “Patent Rights and Economic Growth: Evidence and sold. We explained how this second- so short-lived. As a nation we have trad- erty rights.6 Can we really become the irst
from Cross-Country Panels of Manufacturing Industries,” http://www.wipo.int/edocs/mdocs/mdocs/en/wipo_ip_ ary market made it less rational to ignore ed a Market-based Licensing system that country in history to increase innovation
econ_ge_5_10/wipo_ip_econ_ge_5_10_ref_huandpng.pdf.
the value of individual patents in a broad brought with it a measure of speculation, through weaker protection for innovation,
7. Efrat Kasznik and Lynn Dudinsky, “The Naked cross-license since patents that added lit- for an Eficient Infringement regime wherein or will we simply re-learn the age-old les-
Truth: 30% of U.S. Unicorns have No Patents,” http:// tle value to such an agreement might lose the low cost of ignoring patents covering son: You get what you incent? What we can
www.ipwatchdog.com/2015/11/03/the-naked-truth-30-of- us-unicorns-have-no-patents/id=62842/.
sale value if included. The enhanced sales
even truly innovative technological inven-
say conidently is that the rapid erosion of

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