Politics and Patent Reform: The Baby is in Danger in this Bathwater

President Obama surprised many people by not mentioning patent reform in his 2015 State of the Union Address. His Administration has turned so-called “abusive” patent litigation into a major theme. The 2014 Address famously trumpeted the Administration’s goals to stop “abusive” patent assertions. In 2014, the Administration also strong-armed the USPTO to post a webpage giving “advice” to companies accused of patent infringement. The official United States Government position now includes stonewalling, even in the face of a valid assertion of infringement. Among the bullet points: “You may elect not to respond to the letter or any follow-up letters.” And what went missing from this advice? To investigate if the patentee was right. Investigating alleged infringement is, after all, what the law requires of accused infringers. The Administration’s positions made it seem obvious that the President’s 2015 Address would mention patent reform.

The Republican side of the aisle took note of the President omitting mention of patent reform. Judiciary Committee Chair Goodlatte immediately published his own response to the President’s Address, chastising the President for failing to mention it. The Chair promised swift action on the topic.

His threat is credible. Chair Goodlatte pushed through patent reform legislation in the House in 2014, a bill numbered H.R. 3309. In Congress’s Orwellian way, it named this bill the “Innovation Act.” But inventors know better. They hate H.R. 3309. To their relief, the Senate did not take up the bill in 2014. But relief may be only temporary. With all its flaws (and there are many), the current Congress will most certainly take up either the Innovation Act, or its near twin.

How did it all come to this? The Supreme Court and the Court of Appeals for the Federal Circuit have been clarifying patent law doctrines for years, with the net effect of making it harder for patentees to win, and devaluing patent rights for everyone. Isn’t respect for the sanctity of property rights part of the catechism of conservative ideology? Might campaign funding and interest politics have something to do with lawmakers turning their backs on inventors? After all, the community of infringers has power and political money. Start-ups and inventors do not. Organizing and lobbying are second-nature to West Coast tech companies. Not so for inventors.

While Congress wages war on inventors, some in the Academy have joined in. Almost on cue, just as Congressional work began on what became H.R. 3309, a pair of Boston law professors published a piece blaming abusive patent litigation for $29 billion in losses to the economy. The forces of copying rallied behind the message, and “$29 billion” became a slogan. Far less noticed was the follow-on critique by noted empiricist legal researchers, Jay Kesan and David Schwartz. Their responsive article shredded the “$29 billion” methodology. Among the most egregious mistakes that Kesan and Schwartz identified – the Boston paper counted actual payments to inventors as part of the “loss.” It is a fact of basic economics that payments to inventors are considered “transfers,” not “losses.” In the words of the Kesan & Schwartz essay at page 438, “[t]he transaction has resulted in money moving from one entity to another in exchange for intellectual property rights, and economists do not consider these costs.”

It might now be said that, in the United States, reward for innovation is another “loss” to be eliminated or minimized. Watch out inventors.

Nor have the media presented balanced views. If anyone is most responsible for winning the loyalty of the citizens of the United States over to infringers – a population previously reviled in the public imagination – it is National Public Radio’s “This American Life.” In 2011, it broadcast “When Patents Attack,” a radio show that offered as investigative journalism an extended ridicule of the business practices of a handful of patent licensing companies. The “patent troll” epithet thus reached a new audience (mainly a left-leaning one), where before it was just an irritating childish ad hominem tossed around by disgruntled litigants. Within the show, the investigating journalists seemed unaware of the social good that licensing companies bring to the economy. I have published on their need and economic utility in the technology ecosystem. Licensing companies (also called non-practicing entities, or NPEs) are essential in the overall commercialization, distribution and transfer of new ideas. Without them, consumer well being suffers, and inventors might not get paid when their ideas are used. But no sexy sound bite can get this across. And so liberals and conservatives alike now join hands in common cause against inventors and the companies who help them, chanting “patent troll,” as if trying to exorcize a demon by calling its name.

Rule number one when crafting new laws is to limit the cure to the disease. So whatever specific ugly behavior has disrupted society, the legislative cure should address only as much as needed to correct or regulate it. With perfect hindsight, we now know that only a very few companies engaged in what people later called abusive behavior. Any approach should be very focused on what they have done, and only if it deserves lawmakers’ attention. The practices of these entities upset enough people to move Congress to act against all inventors and start-ups. They included MPHJ Technology, Innovatio and Personal Audio. Each has its own unique history, and its own reasons causing people to get so angry. Sending 16,000 letters exclusively to small businesses in which at least some letters admit that the patentee has not studied infringement (MPHJ), seeking licensing payments from mom-and-pop coffee shops for installation of off-the-shelf WiFi (Innovatio), and accusing Adam Carolla’s podcast of infringing (Personal Audio), each is problematic in its own way. In their defense, whether a particular letter-target actually infringed should have been a question for the public and the media to ask. And legislation should not be used to target offensive conduct if it is already punished by existing law (as MPHJ might have learned when the FTC and several state attorneys general went after them).

Instead of address and study what should be done about supposedly offending actions, Congress stands ready to alter the rights embodied in all issued patents. The proverbial baby is in danger in this bathwater.

A call for legislative action cannot find support in a generalization that licensing companies who help inventors assert lower quality patents. Non-practicing entities (the companies who help inventors and small businesses monetize their patents) lose less often in court than do operating companies. Thus on average, their claims are more meritorious. But those who would manipulate policymaker and lawmaker perceptions understand that there is no simple comeback to the epithet “patent troll.”

Reality is always more complex than a slogan. Unfortunately slogans, not reality, drive the current legislation.