Civil Debate is a Fair Request, But False Narratives are Harming U.S. Innovation

Yesterday, we published a response from Daniel Takash, the Regulatory Policy Fellow at the Niskanen Center’s Captured Economy Project, asking for a more civil IP debate. The response was itself responding to Lydia Malone’s critical view of the R Street panel on Capitol Hill that she attended, and which she felt took the position that patents are too strong. I, too, wrote an article in advance of the R Street presentation where I was highly critical of the motivations of R Street.

U.S. Patents are Too Weak—Not Too Strong

Mr. Takash suggests “[w]e should all do our best to live by Antonin Scalia’s maxim to ‘attack arguments, not people.’” That is perfectly reasonable. It is, however, also perfectly reasonable to question the motivations of those who are making claims that are unquestionably false. To be quite direct about it, the R Street supposition that patents are too strong is pure fantasy of the first order. Anyone with even fleeting familiarity with the subject matter who has at all been paying attention to the demise of the U.S. patent system over the last 12+ years knows that U.S. patents are not too strong. U.S. patents are too weak. So weak that for the first time in a decade the number of U.S. patent applications has decreased while patent applications worldwide surged forward by more than 5% during 2018. Moreover, U.S. applicants are not foregoing patent protection, they just aren’t filing as much in the United States. Indeed, U.S. applicants continue to be the hungriest for patents worldwide.

These facts—these inconvenient truths—are well known. Yet, R Street holds a panel discussion asking whether patents are too weak? And we are to take such a discussion seriously? And those of us that inquire about the motivations of those asking such outlandish questions are the problem because we are attacking the people and not their positions? No, Mr. Takash. I am attacking your position, demonstrating that everything from the premise forward is clearly wrong. Then I ask why otherwise well-educated people would make such silly statements with careless disregard for the truth and their professional credibility. This is a legitimate question, given the copious amounts of money that have been paid by certain corporations to academics and others under the guise of independent research and scholarship over the last decade.

Patents are Not Monopolies

And, as if it isn’t enough to ignore the facts all around that the U.S. patent system is in decline and patents are extraordinarily weak, you continue to push the myth that patents are a monopoly. No matter how many times it is said, no matter who has erroneously concluded that patents are a monopoly, it will never change the fact that patents do not and never will convey a monopoly. Simply put, just because a patent has been granted does not mean that there will ever be a market for the patented product or service.

Before we get ahead of ourselves, let’s define the term monopoly. “Monopoly: exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices.”

If there is no market, there can never be a monopoly.  A patent owner simply cannot be in exclusive control of a non-existent market and said patent owner cannot manipulate prices when no one is willing to buy what they are offering. Indeed, the truth is that the vast majority of patents, upwards of 90% of patents (perhaps as high as 98% of patents), will result in rights being granted to cover a product or service that will not be commercialized at all, or if commercialized will lose money because too few people are interested. That hardly sounds like a monopoly—because it simply doesn’t describe a monopoly.

It is also critical to remember that a patent only grants the patent owner the right to exclude others from making, using, selling and importing. A patent carries with it no expectation for market success, and it also grants the patent owner no authority to do anything affirmative. The right is exclusionary. Granted, if the product does have a market, a patent in theory could be a significant barrier to entry into that market, and in theory could insulate the patent owner from competition, but even with a strong patent system and a solid patent, the right does not itself guarantee business success.

The Reality of a Patent’s Lifecycle

Furthermore, in an ideal patent system, patents are both strong and simultaneously fragile. Let’s assume patents of today are strong like they were 40 years ago. If I invent the latest greatest widget that everyone wants and I can prevent anyone from encroaching upon my invention, that by specific design fosters others who are blocked to invent around and improve upon my widget. If they make incremental improvements and patent them, they can block me, creating an incentive for us to deal. If they create a paradigm shift, their Next-Gen widget might not block me, but no one will want mine moving forward. So, both from an economic standpoint and an innovation reality standpoint, it is fallacious to say a patent or even a portfolio of patents acts as a monopoly.

Of course, the world we live in today is not the world we lived in 40 years ago, and patents are not strong today. Aside from the legal realities that make patents weaker today than at any point in time over the last four decades, efficient infringement is rampant. It is practically malpractice for an attorney to recommend to an infringer or would-be infringer to take a license. What recourse does a patent owner have? Little to none. And that is the business reality. That business reality initially led to more infringement actions being filed because the only way any patent owners had any hope of getting paid was to sue, since arms-length deals evaporated. But now the number of patent infringement cases is in decline. Patent owners have given up and are moving to Europe and China.

What Survives the Market Will Die at the PTAB or Courts

For those patent owners that continue to try to exploit the U.S. marketplace, it is well known that every patent of commercial significance will be challenged at the Patent Trial and Appeal Board (PTAB). Not once, but those patents will be challenged multiple times by a multitude of defendants and groups fronting for those that should in any rational world be identified as real-parties-in-interest. And even if the patent survives the PTAB, it needs to survive an increasingly hostile Federal Circuit, which has functionally ruled that no diagnostic methods are patent eligible, continues to find increasing swaths of software patent ineligible, has even determined that wireless remote control devices are abstract and not patent eligible, and recently even determined that a method of manufacturing a drive shaft is itself unpatentable as being a natural law because it employs a natural law. If any claim that employs a natural law is itself patent ineligible as being a natural law, then there are no claims that could possibly satisfy the Federal Circuit’s newest patent ineligibility test.

Of course, if the patent owner successfully navigates the gauntlet of the PTAB, somehow miraculously draws exactly the right panel and survives the Federal Circuit, the patent owner will still need to go to federal district court and prevail at a patent infringement litigation. Then, after many years—perhaps five or more years of litigation in the federal district court—if the patent owner prevails, the winning patent owner will suddenly see their exclusive right turned into a compulsory license because, thanks to eBay v. MercExchange, the likelihood of a permanent injunction is extremely low. And rest assured, whatever damages are awarded by the district court to the patent owner will be reduced on appeal by the Federal Circuit.

A Fair Question, Not a Cheap Shot

Anyone at all familiar with the facts, the industry, and the Federal Circuit’s decisions knows the truth of everything stated here. So, I don’t know who exactly R Street and Mr. Takash are trying to fool, but it can’t be anyone who has been paying attention to the patent industry over the last 12+ years.

Patents are without question weaker in the United States today than they have been at any point since at least 1980. Why R Street is pushing a narrative that patents are too strong is a mystery. It is, however legitimate to ask why they are pushing a false narrative against the overwhelming weight of evidence to the contrary, even if it does hurt the feelings of some who feel it is a “cheap shot” to ask.

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