James Bessen Research on Innovation
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Transcript of James Bessen Research on Innovation
Patent Failure 1
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James BessenResearch on InnovationBU Law
Michael J. MeurerBU Law
James Bessen and Michael J. Meurer, Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk, Princeton University Presswww.researchoninnovation.org
Patent Failure 2
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Patent Lawsuits Filed in U.S. District Courts
Patent Failure 3
Disrespect for Property?
Piracy?
Or something else?
Patent Failure 4
Of Patents and Property
• Property rights encourage investment, transactions, and economic growth
• Patents have a mixed record, current outlook is troubling
• Patent law fails as a property rights system and imposes a tax on most innovators (outside of chemicals and pharmaceuticals)
Patent Failure 5
Historical Evidence on Patents
• Cross-national late nineteenth century study: patent regimes no impact on World Fair important inventions Moser
• Japan patent expansion no significant effect on R&D Branstetter & Sakakibara
• U.S. software patent expansion no effect or negative effect on software R&D Bessen & Hunt
• 177 expansions in patent law in 60 countries over 150 years, no increase in invention Lerner
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Billi
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Profits from associated w orldw ide patents
Aggregate US litigation costs to alleged infringer
A. Chemical and pharmaceutical f irms
Patent benefits exceed costs in chem/pharma but …
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B. Firms in other industries
Patent benefits exceed costs in chem/pharma but the reverse is true in other industries!
Patent Failure 8
Why don’t patents work like property?
Land• Registry, third party
verification, deference to fact-finders
• Physical possession
• Low risk of invalidity, title insurance
Patents• Hidden claims, low
quality opinion letters, little deference
• Scope broader than embodiments; patents and claims are cheap
• No insurance, relatively high risk of invalidity
Patent Failure 9
?
An expensive mistake!
The Notice Function of Property Law
Patent Failure 10
Notice Function of Patent LawKodak v. Polaroid
• Failed attempt to invent around
• Patent review started seven years before product launched
• 250 patents reviewed, “67 written and countless oral opinions”
• 50 potential imaging chemistries reviewed
• $900 million damages and interest (1980s)
Patent Failure 11
Evidence Suggests Much Infringement Is Inadvertent
• Defendants are large, spend a lot on R&D, and obtain a lot of patents (not classic pirates) – only 4% are found to be copyist
• Increasing R&D increase hazard of lawsuit– Exposure effect
Patent Failure 12
Detailed Look at Notice Failure
• Fuzzy boundaries
• Public access to boundary information
• Property rights untethered to possession
• Search cost
Patent Failure 13
Detailed Look at Notice Failure
• Fuzzy boundaries
• Public access to boundary information
• Property rights untethered to possession
• Search cost
Patent Failure 14
Claims to chemicals offer clear notice
• Lipitor: Trans-6-[2-(3- or 4-carboxamido- substituted pyrrol-1-yl)alkyl]-4-hydroxypyran-2-ones
• Olanzapine:
Patent Failure 15
Detailed Look at Notice Failure
• Fuzzy boundaries
• Public access to boundary information
• Property rights untethered to possession
• Search cost
Patent Failure 16
Detailed Look at Notice Failure
• Fuzzy boundaries
• Public access to boundary information
• Property rights untethered to possession
• Search cost
Patent Failure 17
E-Data Lawsuits• Freeny invented retail kiosk that would produce
music recorded on cassette tapes• Patent claim language was abstract, possibly
covered all sales over the internet• E-Data got the Freeny patent and asserted it
against 75,000 e-commerce sites, licensed 139 companies, and filed 43 lawsuits
• Poor notice because meaning of claim language was unstable
• “Material object” (1980: cassette tape, 2000: hard drive?)• “Point-of-sale location” (1980: store, 2000: home?)
Patent Failure 18
Detailed Look at Notice Failure
• Fuzzy boundaries
• Public access to boundary information
• Property rights untethered to possession
• Search cost
Patent Failure 19
Search Cost
• Flood– E-commerce firm faces b/w 4000 – 11,000
patents– Semiconductor firm faces hundreds of patents– 3G standard 7600 patents
• Perverse willfulness doctrine
• “Distant” plaintiffs
Patent Failure 20
Parties to Lawsuit
No industry overlap28%
Weakly overlapping industries
43%
Same primary industry29%
Patent Failure 21
Evidence on search
• Cockburn & Henderson survey: – 65% of firms do not conduct a patent search
before initiating product development
• 39% of applicants disclose zero prior art patents (research personnel told not to read patents)
Patent Failure 22
0
500
1,000
1,500
2,000
2,500
3,000
3,50019
70
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Patent Lawsuits Filed in U.S. District Courts
Patent Failure 23
Suits/R&D ($b):
1987: 1.7
1999: 2.9
Patent Failure 24
Probability a Patent is in One or More Lawsuits within 4 years of issue
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 20000.0%
0.5%
1.0%
1.5%
2.0%
Software patents
All patents
Patent Issue Year
Patent Failure 25
Technology Differences Suggest Notice ProblemsProbability
suit/patent
Claim Con-struction
Value
($1,000)
All 2.0% 1.00 78
Chemical 1.1% 0.84 333
Biotech 3.2% 2.37 NA
SW 4.6% 2.18 55
BM 13.7% 6.67 NA
Patent Failure 26
Software Patents
• Distinguish SW Patents from SW Markets– From 1994-2004 most sw market segments, 80-95% of
incumbent firms have no patents related to that segment (Cockburn & MacGarvie)
– Only 5% of sw patents obtained by sw industry (Bessen & Hunt)
– SW patent thickets exist in computer and semiconductor markets
• Share of sw patents in litigation rising over time; in 2002 over 1/4 of patent lawsuits involved sw inventions
Patent Failure 27
Patent Reform to Improve Notice
• Make property rights more transparent– Continuation reform, better disclosure
• Better claim interpretation– Specialized trial courts– Expand PTO claim construction activity– More deference to PTO and trial courts
• Robust definiteness requirement• Limit remedies against innocent infringers
Patent Failure 28
Helpful Steps by Courts
• eBay -- increases bargaining power of defendants and reduces “patent tax”
• Seagate -- decreases deterrent to patent clearance
• Festo -- improves scope clarity
• KSR, In re Fisher -- stem patent flood
• In re Bilski -- decreases abstract claiming
Patent Failure 29
My royalties go to the
college savings fund
for Quinn and Zach