Patent trolls hurt R&D say scholars in letter to Congress

13 Comments

“Be careful about changing patent law — it could harm innovation,” is a favorite talking point for those who oppose plans to reform to America’s troubled patent system. But what if the opposite is true? What if it’s the status quo, in which patent trolls sock productive companies with abusive lawsuits, that is hurting innovation?

That’s the position of more than 50 law professors and economists, who submitted a letter to Congress, encouraging elected officials to do something about the current mess. In one striking passage, the academics suggest patent trolls (also known as PAE’s) are wreaking havoc on both R&D and venture capital investing:

“An econometric analysis finds that the more R&D a firm performs, the more likely it is to be hit with a patent lawsuit, all else equal. Another study associates lawsuits from PAEs with a decline of billions of dollars of venture capital investment; another found that extensive lawsuits caused small firms to sharply reduce R&D spending; and yet another found that costly lawsuits caused publicly listed defendant firms to substantially curtail R&D spending,” said the letter (the cited studies can be found in the letter below).

Such a finding stands in sharp contrast to the patent troll lobby, which argues that the current system is effective for promoting innovation. That system often involves investors and lawyers teaming up to create shell companies that acquire old patents, and then threatening lawsuits against hundreds or thousands against businesses.

This model is effective because patent trolls exploit an economic asymmetry in which patent lawsuits are relatively cheap to file, but extremely expensive to defend, which prompts companies to simply pay the trolls to go away.

The trolls can also strike it rich by seeking out favorable jurisdictions like East Texas, where juries last month granted a $533 million verdict against Apple, and another for $16 million to a troll who claims to own Bluetooth.

The scholars’ letter calls the wisdom of this system into further question. Its signatories include economists and some of the country’s most prominent intellectual property scholars, including Mark Lemley of Stanford University, Pamela Samuelson of University of California, Berkeley and Robert Cook-Deegan of Duke University.

The letter comes at a time when Congress is attempting patent reform for the third time in five years. The previous two attempts floundered, despite bipartisan support, after trial lawyers and other special interest groups pressured former Senate Majority Leader Harry Reid (D-Nv) to scuttle key bills.

Supporters of the measure are optimistic that the third time will be the charm. A source familiar with the process predicts reform will gain momentum if Sen. Chuck Schumer (D-NY), a long-time patent troll opponent, supports a reform bill that is expected to be introduced this month by Sen. John Cornyn (R-Tx). Rep. Bob Goodlatte (R-Va) already introduced such a bill in the House of Representatives in February. The White House is in favor of patent reform as well.

Here’s the letter from the scholars, which was circulated by Jim Bessen and Mike Meurer of Boston University, and Brian Love of Santa Clara, in order to refute suggestions there is no empirical evidence about flaws in the patent system:

IP Scholars’ Letter to Congress

13 Comments

mike

A summary of the STRONG Patents Act of 2015 as introduced by Senator Chris Coons can be found here: http://www.coons.senate.gov/patents

It appears that this legislation is designed to reform the patent system without throwing small inventors under the bus. Small inventors: the bedrock of the innovative spirit of the United States!

Dave

Jeff John Roberts,

Was wondering how much does Google Pay you or Gigam Om from their Patent Refom PR / Lobbying fund to write these articles every week ?

I always see same 6-7 guys writing all the Google Patent Reform Talking points for every patent litigation news story that crosses the wire.

That pay check must be nice .. but have you ever thought about ruining the 250 year old Patent System based on individual property rights, that has made this country great the innovation center.

I bet Google guys would like US to be more like China/Russia/India where you can copy anything and everything with no recourse for the inventor.

Show some professional ethics and write both sides of the story … or at least pretend ! :)

Writing everything one side for the Google PR pay check may not be good for you in the long run professionally.

You can still have a Google Bias just me more subtle …and pretend you care about the Inventor … May be folks will take you more seriously ….

Try to be a better con man Jeff .. that all I am saying.

Jeff John Roberts

Dave, that’s an absurd comment. It would be both unethical (and possibly illegal under FTC regulations) for me to take money from Google or whoever to spin the debate without disclosing it. So please stop spouting rhetoric, and address any specific points in the article with which you disagree.

Dave

Jeff,

Who are you kidding, you readers are not in 7th grade.
Pay-for-Play PR is the norm in the Silicon Valley Blog industry. (Everyone who has run a startup knows that, disputing that would be disingenuous for you guys or other tech /VC blogs)

We all know GigaOm main source of money is “Industry Events” and the “Sponsorships” come from “Google” and the likes who want to destroy US patent system. If Google/large tech did not Sponsor Millions of Dollars for each GigaOm event, GigaOm will be hurting a lot financially. We all know the Ads on the GigaOm web pages don’t pay for your Salary.

At this Point in the patent reform debate, everyone knows it is Google PR /Lobby effort to dismantle our 250 year old patent system.

I am not sure how why you are pretending that money is not flowing to GigaOm/ or your paycheck from Google.

If you still insist that you don’t know that already, go have a weekly/monthly One-on-One with your boss who writes your pay check and ask him why you have to write one sided talking point ridden Patent Reform article every week to pay your mortgage.

Ask him can you be critical of any Google talking points and how soon will you be fired if you wrote about the Inventor!!

Here is an alternative to the Google troll PR talking points. That may be good for the Inventors.

http://recode.net/2015/03/02/we-need-a-patent-system-that-works-for-all-innovators/

Talk to your boss or wait for the Google PR talking points against the new bill. Before you write something.

I will give it 3 days for Google internal meetings to finish for your new talking point to arrive in your inbox, so you can write and warn us about the dangers of this new bill.

jjj

Actually “patent troll”is wrongly defined.
Some of the biggest trolls in the US are Apple and Qualcomm ,yet they don’t qualify as trolls because they make products with the technology. But that makes it worse. Not only they make lots of money from those patents already but they terrorize others with them.
Also by the current definition small individual inventors that just don’t have the means to use their inventions in actual products get screwed , in favor of multi-billion corporations that are abusive as it is.
The reform needed is far broader and the main targets should be slightly different.
Patents should not be awarded for just about anything , should last a lot less (and even less when they produce profits) , ridiculous licensing terms should be allowed and so on.
The current push is very poorly thought out, favors the rich over the poor and it is likely to actually harm innovation.
Some of the nastiest corporations in America managed to just highlight big patent only entities and pretend it’s just about that ,fooling most to joining their side without thinking a minute about it.
As it is the bigger the entity ,the harder it is for someone small to get anything no matter where justice sits. This would make it so much worse with the actual targets being the small inventors.
A radical patent reform is much needed but nobody talks about an actual reform, the current goal of some tech giants is quite the opposite and they are about to get what they want. People really need to think about the difference between what is needed and what is being pushed as a reform.
http://www.becker-posner-blog.com/2013/07/on-reforming-the-patent-system-becker.html

jjj

ridiculous licensing terms shouldn’t be allowed* – was too lazy to check what i posted , the tiny comment window makes it rather annoying to post long comments.

mhszymczyk

Here we go again…with the Jeff John Roberts weekly one-sided reporting on the Innovation Act. I’m glad to see your tech corporate overlords are keeping you busy. Why not try to be a bit objective and include other news that has also come out recently:

DANA ROHRABACHER: Patent ‘reform’ is killing the right to invent – Washington Times: http://www.washingtontimes.com/news/2015/mar/1/dana-rohrabacher-patent-reform-is-killing-the-righ/

The Innovation Act’s Joinder Provision Will Impact Universities & Start-Ups Far More than Patent Trolls – http://www.primaryopinion.com/articles/innovation-acts-joinder-provision-will-impact-universities-and-start-ups-far-more-companies

Proposed Senate bill could provide valuable counterpoint to Goodlatte’s Innovation Act – http://www.iam-magazine.com/blog/Detail.aspx?g=e7858d7a-64f7-4b5f-8f03-3674829d4632

Jeff John Roberts

Thanks for you the comment, mhszymczyk. You’re welcome to your opinion, but these “news sources” are all patent shills or, in the case of IAM, the trade magazine for the troll industry.

And… if you don’t me asking, are you willing to disclose your identity? (Believe it or not, we’ve caught patent troll staff (including a VP at Interdigital) astro-turfing our blog..

mhszymczyk

Sure…I don’t have a problem with it. I’m not trying to hide my identity. You can read VentureBeat OpEd I posted in your previous anti-patent column to know who I am.

I’m not shilling for a ‘patent troll’ but I am concerned by what is happening with the Innovation Act as it pertains to legitimate IP for startups. I also don’t agree with the ‘patent troll’ designation that is basically put upon any company trying to enforce it’s IP rights. Unfortunately, most small businesses, startups and inventors can only enforce their IP now through a PAE so I think the ‘patent troll’ narrative driven by larger tech companies is a bunch of bs. There’s definitely bad actors out there but there’s bad actors and abuses in every form of litigation.

On another note, what you’re constantly pumping out on this site are pro-patent reform shills news (i.e. larger tech companies narrative). I don’t have a problem if you post it but you continually posit this issue as a one-sided ‘enforcing your patents is a bad thing’ narrative. All I ask is that you be a bit more objective and include the counterpoints to the obvious tech/corporate driven ‘studies’ you keep blogging about. I would also hardly call an OpEd I included above by a Republican Congressman a ‘patent shill news source’….and here’s another from Congressman Massie who also is against the Innovation Act (as he’s an inventor with patents):

Congress should protect patent system, not weaken it – http://www.courier-journal.com/story/opinion/contributors/2015/02/05/congress-protect-patent-system-weaken/22919533/

This isn’t the one-sided issue you keep making it out to be….the Innovation Act will basically create IP inequality where only the large tech companies will have the means and resources to enforce their IP…

Jeff John Roberts

Well, I appreciate your candor, but I think as a patent litigator, you’re hardly disinterested. And while no issue is one-sided (even that of vaccination, alas!), you have to consider the evidence.

I think Lemley et al make a persuasive case that many of the conventional justifications for the patent system — disclosure, inducement, etc — just don’t stand up. And I’m not sure anyone can say with a straight face that what’s taking place in towns like Marshal and Tyler, Texas is promoting innovation. (Do you?)

I also feel that some people who defending the trolls (including you) might be speaking in good faith but are nonetheless conflating patents with innovation. While the attorney, consultants, brokers and the judges of the Federal Circuit have can argue the system is working, it’s hard for the rest of us not to see a coterie of special interest groups exploiting a broken regulatory system.

I think it’s high time that onus of proof is reversed, and for patent holders to provide evidence that the system is working — rather than just attempting to bamboozle the public and politicians with rhetoric about innovation.

mhszymczyk

First, we’re not a patent litigator…we’re a startup with products and patents. I look at both sides of the patent reform issue to reach an informed opinion as it impacts us in different ways.

Second, I was initially on the side of pro-patent reform until we started looking at the options we had to enforce after we saw a few larger tech companies replicate both our technology and patent. Many of these companies we actually met with, signed NDA’s, etc. etc. This isn’t unique to us as it happens to quite a few smaller startups and inventors. The fact is, you don’t hear this end of the story because the larger tech company narrative drowns it out.

I personally became even more against the Innovation Act when I read a mark-up draft with comments by some larger tech companies. This entire Act is not about protecting startups at all, it’s about protecting the interests of entrenched tech companies. The tech companies don’t like ‘patent troll’ activity because they can’t sue back – and that’s the general defense tactic of any larger infringer that can A) Drown the smaller company in litigation costs or B) counter sue with their existing patents to push for a cross-licensing deal (and continue to infringe and gain market share). What’s amazing to me is how sensible people aren’t seeing the forest for the trees with regards to this matter.

Sure, Lemley et al make a persuasive case, but so do Kesan and Schwartz when they tear to shreds the methodology used by Bessen and Meurer that found patent trolls cost the economy $29 billion. This is number most often used by pro-patent reformers even though it’s been debunked. Where’s your coverage on that issue? Here’s the link if you want to read it – it’s from Cornell so shouldn’t set off your patent troll shill alarm – http://cornelllawreview.org/files/2014/01/99CLR425.pdf

I can’t comment on what’s happening in Texas as I haven’t read the suits in their entirety. However, I wouldn’t be surprised to see a general theme that plaintiffs approached the defendants (large tech companies) about licensing and didn’t receive a response. That’s par for the course these days and is likely having the greatest impact on number of infringement lawsuits. You can’t even have a normal discussion about licensing/infringement nowadays. You have to litigate first and ask questions later. What’s really needed is declaratory judgment reform to cut down on the number of lawsuits.

And I’m not defending trolls – I’m defending PAE’s. If you define all PAE’s as trolls (even PAE’s who startups or inventors have to use) then that’s ridiculous and you’ve never invented something before and had to watch someone else rip it off and realize there’s next to nothing you can do to stop it. Innovation doesn’t happen from the top down – it happens from the bottom up. But the larger tech companies like to keep pumping the narrative that only they innovate because they make products. I guess you can rule out any universities as innovative as they then too are patent trolls by your definition…

And finally, I agree that it’s time the onus of proof is reversed – but for larger tech companies to prove that they are not continually infringing or stepping on the rights of legitimate patent holders.

mike

mhszymczyk makes some fantastic points, Jeff John Roberts, and you would be doing a disservice to your readership to not address them.

Notwithstanding those,

1. Regarding your citing mhszymczyk’s news sources as “patent shills”, who is it that pays you to write your articles Jeff John Roberts? Care to disclose that information? Also, you might want to write objectively and introduce that “no shills” Analysis by Schwartz and Kesan that mhszymczyk referenced, specifically where they suggest the PAE debate should actually lie: “… we argue that the study asks the wrong question. The debate should be reframed to focus on the merits of the lawsuits, including patent system changes focusing on reducing transaction costs (e.g., lawyers’ fees) in patent litigation, instead of focusing solely on whether the patent holder is a non-practicing entity.”

2. Regarding your statement “I’m not sure anyone can say with a straight face that what’s taking place in towns like Marshal [sic] and Tyler, Texas is promoting innovation,” and your feelings that “that some people who [defend] the trolls might be speaking in good faith but are nonetheless conflating patents with innovation”, why are you conflating court cases initiated by legitimate patent holders with exploitation? I sure don’t conflate patents with innovation. Patents are a form of protection over innovation. Everyone knows that. What seems “innovative” to me is the false narrative the larger tech companies seem to be spreading that taking someone to court to protect your rights is evil. And you seem to fall into that group with your one-sided articles.

Again, I argue that the problem is not PAEs, but the problem is with infringement, echoing what mhszymczyk says in that the onus of proof is on the larger tech companies to prove that they are not infringing on the rights of these legitimate patent holders. Why? Because no infringement = no basis for a lawsuit, and we wouldn’t even be having this conversation. But, like mhszymczyk points out, no one would be surprised if, by looking at these court cases and the negotiations of the parties at hand, one would most likely find a general theme that plaintiffs representing legitimate patent holders approached the defendants (large tech companies) about licensing and didn’t receive a response. Which then forces them to go to court if they actually do want to protect their intellectual property.

So which came first? The infringement or the law suit? I assure you the infringement did, so don’t penalize those with legitimate patents because they are simply bringing their matters to court to enforce their rights. Because even before the infringement came first the patent, and it is the infringement of patents that is the real problem, and it is the infringement that screws up everything and forces the hand of patent holders to respond appropriately.

As such, what is happening in towns like Marshall and Tyler doesn’t pertain to promoting innovation at all simply because once it reaches the point of going to court, innovation is not what’s at stake. What’s at stake is PROTECTING THE RIGHTS OF INVENTORS who ALREADY HAVE BEEN ENDOWED protection and the freedom to innovate, and are NOW HAVING THEIR PATENT RIGHTS INFRINGED and must bring their matters to court. So get to the root of the issue here Roberts, because you are way off base if you begin conflating a law suit with prohibiting innovation. Rather, an infringement law suit is brought in order to enforce a patent holder’s rights. And that right to seek legal protection over something rightfully yours is a cornerstone of the free market.

Rohrabacher agrees: “But the term ‘patent troll,’ directed against such bad actors, has been transmogrified by corporate marketers to include legitimate small inventors — many of them minorities, which is why my Black Caucus friends sized up the issue astutely — who are outgunned and outspent when they try to protect their intellectual property. Almost all infringement cases are brought by people who own a patent legitimately. If not, such cases should be decided in court. There is nothing wrong with bringing such matters to court — a cornerstone, not of crony capitalism, but of the free market itself.”

3. Due to the fact that your writing on GigaOm is indeed sponsored, wouldn’t you fall into the ‘corporate marketers’ category that Rohrabacher mentions?

4. Do you think it is right to throw out the baby with the bathwater, as HR 9 is set out to do?

So, who am I to write these things? I am a small inventor, and the patent system protects my inventions, my products, and my business from theft.

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