CONVERSABLE ECONOMIST: Lemley on Fixing the U.S. Patent ...

Mark Lemley has written "Fixing the Patent Office" for SIEPR, the Stanford Institute for Economic Policy Research (Discussion Paper No. 11-014, published May 21, 2012).? Lemley has an interesting starting point for thinking about the U.S. patent system. He writes (footnotes omitted):

"Most patents don?t matter. They claim technologies that ultimately failed in the marketplace. They protect a firm from competitors who for other reasons failed to materialize. They were acquired merely to signal investors that the relevant firm has intellectual assets. Or they were lottery tickets filed on the speculation that a given industry or invention would take off. Those patents will never be licensed, never be asserted in negotiation or litigation, and thus spending additional resources to examine them would yield few benefits."

"Some bad patents, however, are more pernicious. They award legal rights that are far broader than what their relevant inventors actually invented, and they do so with respect to technologies that turn out to be economically significant. Many Internet patents fall into this category. Rarely a month goes by that some unknown patent holder does not surface and claim to be the true inventor of eBay or the first to come up with now?familiar concepts like hyperlinking and e?commerce. While some such Internet patents may be valid--someone did invent those things, after all--more often the people asserting the patents actually invented something much more modest. But they persuaded the Patent Office to give them rights that are broader than what they actually invented, imposing an implicit tax on consumers and thwarting truly innovative companies who do or would pioneer those fields.

"Compounding the problem, bad patents are too hard to overturn. Courts require a defendant to provide ?clear and convincing evidence? to invalidate an issued patent. In essence, courts presume that the Patent Office has already done a good job of screening out bad patents. Given what we know about patents in force today, that is almost certainly a bad? assumption."

"The problem, then, is not that the Patent Office issues a large number of bad patents. Rather, it is that the Patent Office issues a small but worrisome number of economically significant bad patents and those patents enjoy a strong, but undeserved, presumption of validity."

Long-time devotees of my own Journal of Economic Perspectives may recognize this argument, because it is similar to what Lemley argued with co-author Carl Shapiro in "Probabilistic Patents" in the Spring 2005 issue. (JEP articles are freely available to all courtesy of the American Economic Association.) As Lemley argues, the problems of the patent system aren't as simple as taking longer to examine patent applications, hiring more patent examiners, or being more stingy in granting patents. Instead, the goal should be to give greater the question attention to patents that are likely to end up being more important. How might this be done?

One approach is to give patent applicants a method of signalling whether they believe the patent will be important. The idea here is that patent applicants can apply under the current system, in which case their patent would have only the usual legal presumption in its favor if challenged in court, or they can pay a substantial amount extra for a more exhaustive patent examination, which would have a much stronger presumption in its favor if challenged in court. Lemley writes:

"[A]pplicants should be allowed to ?gold plate? their patents by paying for the kind of searching review that would merit a strong presumption of validity. An applicant who chooses not to pay could still get a patent. That patent, however, would be subject to serious?maybe even de novo?review in the event of litigation. Most likely, applicants would pay for serious review with respect to their most important patents but conserve resources on their more speculative entries. That would allow the Patent Office to focus its resources on those self-selected patents, thus benefiting from the signal given by the applicant?s own self?interested choice. The Obama campaign proposed this sort of tiered review, and the PTO [Patent and Trademark Office] has recently implemented a scaled?down version, in which applicants can choose the speed but not the intensity of review.Adoption has been significant but modest ... [I]t appears to be performing its intended function of distinguishing some urgent applications from the rest of the pack."

Another approach would be to allow other parties to pay a substantial fee to the Patent Office? to re-examine the grounds for a recently granted patent. Lemley again:

"Post?grant opposition is a process by which parties other than the applicant have the opportunity to request and fund a thorough examination of a recently issued patent. A patent that survives collateral attack should earn a presumption of validity ... [P]ost?grant opposition is attractive because it harnesses private information; this time, information in the hands of competitors. It thus helps the PTO to identify patents that warrant serious review, and it also makes that review less expensive by creating a mechanism by which competitors can share critical information directly with the PTO. A post?grant opposition system is part of the new America Invents Act, but it won?t begin to apply for another several years,? and the new system will be unavailable to many competitors because of the short time limits for filing an opposition. ... But the evidence from operation of similar systems in Europe is encouraging."

Finally, the traditional way to focus on the 1-2% of patents that really matter, and where the parties can't agree, is to litigate. Lemley argues that such litigation will continue to be quite important, and that the underlying legal doctrine should acknowledge that many patents do not deserve a strong presumption of validity--unless is has been earned through an especially exhaustive process at the Patent and Trademark Office. Lemley one more time:

"[W]e will continue to rely on litigation for the foreseeable future as a primary means for weeding out bad patents. Litigation elicits information from both patentees and competitors through the adversarial process, which is far superior to even the best?intentioned government bureaucracy as a mechanism for finding truth. More important, litigation is focused on the very few patents (1-2 percent) that turn out to be important and about which parties cannot agree in a business transaction. Litigation can be abused, and examples of patent litigation abuse have been rampant in the last two decades. But a variety of reforms have started to bring that problem under control,
and the courts have the means to continue that process.? ... Courts could modulate the presumption of validity for issued patents. A presumption like that embraced by the current ?clear and convincing? standard must be earned, and under current rules patent applicants do not earn it. ... The current presumption is so wooden that courts today assume a patent is valid even against evidence that the patent examiner never saw, much less considered, a rule that makes no sense."

?None of this is to say that doesn't make sense to rethink training and expectations for patent examiners themselves, and Lemley has some interesting evidence about how patent examiners tend to turn down fewer patents the longer they are on the job, and how they often rely on the background that they personally gather,rather than on background collected by others--including others in the patent office itself. But the idea that patent reform shouldn't focus on trying to review every application exhaustively, but instead on how to give greater attention to the applications that have real-world importance, seems to me a highly useful insight.?

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