Limits on Patent Damages Would Harm US Economy

Those familiar with the trials and tribulations surrounding recent attempts to get Congress to enact patent reform know that there were a number of controversial proposals that caused the demise of patent reform efforts in 2008.  One of the more controversial proposals was the proposal that would have significantly limited the amount of patent infringement damages awarded to successful patent plaintiffs.  This measure was supported by the usual technology suspects, who also rail against patent trolls and want to even characterize universities as patent trolls.  Rather than acknowledging that a patent is valid and that they have engaged in tortious activities associated with infringing, it is apparently more expedient to vilify the owner of the rights that were taken without permission.  Don’t get me wrong, I know there are bad actors out there, but lets not lose sight of the fact that a patent judgment for the plaintiff means that there was activity on the part of the defendant that is prohibited by the law. 

Within the last two weeks a damages study was released that details just how bad it would be for US companies and the US economy for there to be artificial limits on the amount of patent infringement damages that can be awarded to successful patent owners.  According to a this study by Case Western Reserve Economics Professor Scott Shane, Ph.D., proposals to reduce patent infringement penalties would have significant adverse competitive impacts on U.S. companies, jeopardizing R&D investment and manufacturing jobs.  Call me crazy, but with the daily news worsening for our economy, and with 55,000 job cuts announced yesterday alone, doing anything that in any way could even possibly harm or further weaken our economy is nothing short of recklessly stupid.  I just hope Congress understands this reality.

The proposal, aimed at cutting the damages some companies pay for infringing the patents of others, was considered in Congress last year and some expect it to be soon on the table again.  The Manufacturers Alliance on Patent Policy, released the finding of Professor Shane and are voicing concerns that apportionment of damages legislation will cause economic damage to their sector, which receives some 60 percent of U.S. patents.  The coalition is urging policy makers to work toward consensus patent reform measures, such as increasing resources for the U.S. Patent and Trademark Office.  Personally, I am all for increasing resources for the USPTO, and done appropriately this could address our enormous backlog of pending patent applications and actually provide real economic stimulus, but merely saying the USPTO needs more resources is not the type of answer that will meaningfully assist Congress in making the right decision, or at least in not making any more wrong decisions.  In the coming days I will provide my Patent Stimulus Package with some particulars.

Returning to Professor Shane’s research, he surveyed patent attorneys across the United States to determine their predictions for changes that would come from an apportionment-centric system of damages. Results of the survey formed the basis for estimating the impact on patent value, R&D investment, company value and manufacturing employment.  Highlights from the research include:

  • Lower patent value: Reduced patent damages will reduced patent value by between $34.4 billion and $85.3 billion
  • Reduced R&D: Reduced damages will lead to reduced R&D spending of between $33.9 billion and $66 billion
  • Decline in Corporate Value: Decreased value of intellectual property will cut $38.4 billion to $225.4 billion of US public company value 
  • Jobs Jeopardized: Lower company value will jeopardize 51,000 to 298,000 U.S. manufacturing jobs 
  • Minority Favored over Majority: Making it “cheaper to cheat” will benefit industries with fewer US workers at expense of those with more. 

According to Stan Fendley, Director of Legislative and Regulatory Policy for Corning Incorporated, “[t]his is the first significant survey of patent experts concerning the impact of proposed apportionment legislation, and the results are alarming.  Policy makers must understand that reducing penalties for patent infringement will reduce investment and employment among manufacturers and in the broader economy. At a time when our economy is facing unprecedented challenges, this proposal would exacerbate an already severe recession. “

I know that there will be many that are going to question Shane’s research, and the first attack by many is going to be that he surveyed patent attorneys, and what do patent attorneys know?  For example, Tech Dirt on Monday said that they like the idea about federal judges being given instruction on patent law, just so long as patent attorneys are not the ones who are teaching them.  Who is supposed to be teaching judges about patent law if patent law experts shouldn’t?  Those who have an anti-patent agenda I suppose.  This type of misguided approach is just not helpful at all.  Tech Dirt and many others would rather have judges ignore the law and legislate from the bench.  They should consider the anti-competitive effect of patents and whether patents should exist at all.  That is not the role of judges.  If anyone is going to destroy the patent system it needs to be Congress!  But even anti-patent advocates know that Congress would never destroy the patent system.  Congress is to interested in raising campaign funds and getting re-elected, and if they wage an assault on Corporate America on that magnitude is would be a recipe for raising no money and not being re-elected.  Even Congress understands that point.

Then today Tech Dirt says:

Michael Geist points us to a recent survey of scientists who say that IP protection has a negative impact on their research. It’s greatly slowed down the ability to do research, as universities (thanks to the dreadful and damaging Bayh-Dole Act — which has significantly hurt progress in scientific research) are trying to hoard anything that can be patented for the sake of profit, rather than scientific advancement. Of course, advancement doesn’t work that way. It works through collaboration and sharing ideas — and what patents do is add a huge bureaucracy to the process, encouraging secrecy, not sharing and hoarding, not collaboration. Once again, we’re seeing that about the only folks who really truly benefit from patents are the lawyers.

I don’t begrudge anyone from having an opinion, but it would be helpful if the opinion were actually informed.  Asking scientists what patent law does and does not do is like asking Tiger Woods how to design a solar powered golf cart.  Just because he is a professional golfer and may use a golf cart from time to time doesn’t mean that his opinion on the engineering is valid and informed.  Similarly, just because scientists invent and then use the patent system to protect their inventions does not make them patent experts.  In fact, it is pure nonsense to think scientists are patent experts.  Having spoken with many scientists over the years the misconceptions they have about patent law could fill book after book.  This is not to disparage them in any way, or to suggest they shouldn’t articulate their opinions.  I am just saying that reality should matter and misconceptions simply cannot be the basis for policy.

The true reality is that those who think patents hamper innovation or harm research simply are misinformed and do not understand patent law.  I am always amazed at how those who claim to understand patents and say they harm innovation and research do not even understand that in order for infringement to exist all of the elements recited in a claim must be present in the allegedly infringing device.  That simple reality is always news because so many just assume that if it is written in a patent then it is off limits.  Why inform yourself of the facts when you can just assume, and we all know what happens when you ASS U ME, right?

The trouble with the patent system is that everyone thinks they understand it, but few actually do.  Until Congress and the Patent Office are actually willing to listen to patent attorneys there is very little hope that our patent system will do anything but continue to spiral downward and ultimately crash, much like our economy.  Patent attorneys are not the enemy of the system.  It is those who blame patent attorneys and choose to listen to the uniformed that are the real problem.  Basing any decisions on misconceptions is hardly scientific, and calculated to make things worse, not better.  We simply do not have the luxury of making things worse at the moment, so I hope those who matter are listening. 

About the Author

Eugene R. Quinn, Jr.
President & Founder of IPWatchdog, Inc.
US Patent Attorney (Reg. No. 44,294)

B.S. in Electrical Engineering, Rutgers University
J.D., Franklin Pierce Law Center
L.L.M. in Intellectual Property, Franklin Pierce Law Center
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Gene is a US Patent Attorney, Law Professor and the founder of He teaches patent bar review courses and is a member of the Board of Directors of the United Inventors Association. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, CNN Money and various other newspapers and magazines worldwide


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