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“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:
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