Understanding IP Matters: When IP Rights Lose Their Property-Like Function Innovation Suffers

Some of the largest companies have invested substantial resources to change the rules of the game that govern bargaining over IP assets . This drives downward value of for all IP assets and content in tech markets and endangers innovation, creative expression and society.

On the current episode of Understanding IP Matters (UIPM), Jonathan Barnett, a legal scholar focusing on the weaknesses and strengths of the U.S. intellectual property (IP) system, discusses potential ways to repair it. The shift created by companies that underpin these weaknesses is “hard to overstate,” he explains, and has largely been underappreciated.

Barnett is director of USC Gould School of Law’s Media, Entertainment and Technology Law Program and the author of The Big Steal: Ideology, Interest, and the Undoing of Intellectual Property (Oxford University Press 2024). He specializes in antitrust, intellectual property, and corporate and business law, with a focus on innovation policy and strategy in technology markets. Barnett has published in the Harvard Law Review, Harvard Journal of Law & Technology, Yale Law Journal, Journal of Legal Studies, Jurimetrics, Review of Law & Economics, and other scholarly journals.

In this episode of UIPM, Barnett and host Bruce Berman discuss:

• Why a common sense IP policy should be based on the strength of protecting these intangible goods, and that “at the end of the day, you need to have some form of property rights, some form of exclusivity, so that creators, innovators, all of the entities that assist the creators and innovators—and there are many of them—that they are all paid an amount that reflects their contribution to the ecosystem.”
• How there are two communities that are deeply skeptical of IP rights, to the detriment of the market. Those communities are “the legal academic and some of the economics departments in the country” and “platform-based tech companies”.
• The danger of a decline in total innovation investment, since “we have preliminary evidence that the market is aware that the patent system is becoming weaker, and so what we see is that VC investment starts to move away from patent dependent sectors and into areas that are less patent dependent.”
• Why some of the largest tech companies in the world that have thousands of patents don’t like patent certainty. Barnett says this is their logical business model: “They don’t like patents because, in many cases, they are a net user of technology, they’re an integrator, they’re an aggregator, they’re not the originator of that technology.”
• Why those skeptical of IP rights assume that IP rights are always a monopoly, but “in fact, the evidence tells us that they’re almost always not a monopoly. They’re simply something like a property right over your home. So, do you have a monopoly over your home? Yes, you do. Do you have pricing power in the real estate market? No, you don’t. And that’s pretty much, most of the time, the way an IP right works.”
• “An injunction is almost impossible to secure. Once you do that, you have unleveled the playing field by favoring the largest firms who can simply take the tech that they want and induce a litigation. The litigation is either impossible for the small firm innovator [to sustain], or they will be forced to settle at a price that does not reflect the value of that technology.”

Key Responses 

Why is achieving IP success so much more difficult today?

Barnett: “IP rights level the playing field. And let’s boil this down. Why is that the case? If you’re an individual inventor, if you’re a small firm inventor, your asset is the idea, right?” “What the IP right enables is that playing field to be leveled in a way that gives that small firm inventor a chance. If you cut through all of the economics, if you go back to the history of the U.S. patent system, and the same is actually true on the copyright side, the theme of the individual inventor, the historical importance of the individual inventor; it’s a driving motif, a driving theme behind the system. It not only makes sense in terms of history, it makes sense in terms of American values.”

Is the myth of the patent troll as a threat to innovation orchestrated by those who benefit from that perpetuation of that idea?

Barnett: “I describe in the book a series of what I call ‘patent horribles,’ and the patent horribles are things like patent thickets and patent trolls and patent holdup and junk patents. So, what do they have in common? Well, they usually have kind of a catchy slogan, and they’re often grounded in a preliminary empirical result or a theoretical conjecture that then snowballs through advocacy or lobbying activity into a generalization that is exaggerated, often significantly beyond the empirical basis or often simply ignores later empirical studies that show that the original findings either overstated or in fact were incorrect.”

As a large tech company, what is the business strategy of both amassing patents and also lobbying vehemently to maintain patent uncertainty?

Barnett: “I’m going to use that technology and I’m not going to pay you for it. I’m going to invite you to litigate me for years and years in court, and I’m perfectly capable of doing this because I will enjoy profits from your technology, I will be able to fund litigation indefinitely, and the worst case scenario at the end of the day, because there’s no injunction [under U.S. case law], I will be compelled to pay you a reasonable royalty damages that is the same as I would have paid if I had negotiated for you up front, but I’m better off now because I just had the opportunity to potentially push down that rate, either through the rate determined by a court or a lower rate that you as the innovator agree to in order to cut off the litigation and save on the litigation costs.”