Platt Perspective on Business and Technology

Considering a cost and benefits analysis of innovation 9: the two faces of patent protection

Posted in macroeconomics by Timothy Platt on September 6, 2014

This is my ninth installment in a series on the costs and benefits of innovation as it is tracked and measured through a complete innovation manufacturing cycle – as that is measured and understood from both the supply and demand sides (see Macroeconomics and Business, postings 162 and loosely following for Parts 1-8.)

I focused on proprietarily owned innovation and on licensing rights and agreements in Part 7 and on open source innovation in Part 8. Then in the second half of Part 8 I began turning this discussion in the direction of patent law. And I noted in that regard that while businesses can deploy and use patent protection to quite legitimately protect their intellectual property rights and the investments that they have made in developing innovation, these same patent law tools can be used to hinder and even block innovation. In that regard, I cited businesses that pursue court claims and the threat of costly legal defense as a business model through which they squeeze questionable licensing fees from innovation developers and users: businesses that operate as patent trolls. And together these two sides of patent law: the positive and legitimately protective and the innovation blocking make patent protection a more complex, two edged sword in its impact on innovation and from both the innovation developer and the innovation user perspective.

I said at the end of Part 8 that I would turn here in this installment to look more fully into the issues of patents and patent protection as they both encourage and limit innovation. And I at least begin that discussion with what might be considered the completely obvious:

• Patent law and its use and sometimes misuse, play out on an individual instance-by-individual instance basis with specific businesses seeking to claim and secure ownership rights over specific innovations (which might be narrowly or widely framed in their descriptions) and with specific businesses seeking to develop perhaps outside-developed innovation into their own products and services for their benefit.
• And this process is used at least in principle to defend legitimate innovation ownership rights, or to challenge the legitimacy of such claims where an argument is made that a patent was either improperly drafted or inapplicable in the specific case in hand. For the former of these challenge alternatives this could mean for example, arguing that an underlying patent was too broadly written to be valid, covering more than just whatever the patent owner could legitimately claim to hold proprietary rights to as a truly novel innovation. For the later of those two possible litigation paths, a patent rights violation claim might be contested on the grounds that part or even substantially all of a claimed innovation was already included in an earlier patent or already in the public domain. Or a patent-based innovation ownership claim might be challenged on the grounds that the patent in question simply does not apply in the case in hand as another business’ product or service does not in fact infringe.
• All of these possibilities hold one crucially important detail in common, and for both sides to any potential patent law litigation: a patent itself would be clearly written and the ownership of that patent would be registered and clearly known too, making meaningful due diligence at least possible and on both sides. This becomes centrally important in all that follows.

Up to here, I have only been looking at patent law from a case by case perspective. Patent law as a regulator of innovation ownership and use also has profound societal impact. That is the point of focus of this that I have been leading up to in this posting. And I begin this portion of my overall discussion by noting a fundamental consequence of frivolous patent law challenges, and particularly when systematically offered to the business community and marketplace through systematically organized active patent troll companies. Some of these businesses literally scoop up hundreds of thousands and even millions of patents that have never been pursued into active production and use, then use big data tools and approaches to mine their trove of potential tripwires for catching unwary businesses as they seek to innovate.

Patent law use and misuse of this type creates uncertainty and I add uncertainty at levels that are themselves all but impossible to anticipate in advance when a legitimate business seeks to innovate, as they cannot be certain when they will find themselves facing an expensive court challenge – or the requirement to cut their losses and simply pay up.

• Uncertainty in this sense creates friction in the overall innovative marketplace and for both supply and demand sides. An innovation developer can become a visible target here when it offers its innovations in its markets. A business that has made the financial commitments to buy at least use of this innovation becomes a visible target too, where its loss of investment and its need to protect itself from such loss to the greatest extent possible, creates opportunity for the trolls to move in upon.
• And this friction hinders the diffusion of new innovation into the marketplace and into use, and it hinders the development and evolution of innovation that makes it to market. These barriers in turn can and do reach back to reduce incentive to innovate for the marketplace at all, by reducing the chance that a return on investment, let alone a profit can be realized from that effort.

I write this at a time when patent law in the United States, and I add in other legal jurisdictions is coming under review with a goal of limiting the range and the permitted activity of businesses that would pursue a patent troll approach. But at the same time legal system updates are drafted and enacted that would attempt that goal, it is just as important that businesses that hold legitimate patent rights remain able to protect and enforce them. I cited the expression “the devil is in the details” earlier in this series and I do so again here.

This is not a story that can have a clear cut ending as the challenges faced in creating a fair and equitable, effective patent law system continue to change, and remediations proposed and tried will of necessity require ongoing updates. And with the law always playing catch-up and good law’s essentially always being reactive in nature, and with the nature of innovation and of the marketplace always evolving and quickly, that is all we can hope for.

I am going to finish this series here at this point, at least for now. Meanwhile, you can find this and related postings at Macroeconomics and Business.

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