Conservatives wrong to oppose patent reform

The Innovation Act (H.R. 9), now before Congress, would reform America’s economically stifling patent system, but two dozen prominent conservative organizations oppose it. The groups complain in a recent letter to congressional leadership that this “cleaver” approach to reform would weaken intellectual-property protection for independent inventors. They call for a more narrow “scalpel” approach instead.

So what does the Innovation Act propose?  Very modest changes, actually. It would require plaintiffs charging patent infringement to make their claims highly specific, limit discovery, make it easier for interested parties to join in litigation, shift litigation costs to losing plaintiffs if the underlying claims were questionable, and require disclosure to the U.S. Patent and Trademark Office (PTO) of individuals with an interest in allegedly infringed patents. The bill would also allow an innocent customer of an alleged infringing manufacturer to stay the proceedings against him rather than be drawn into protracted and expensive litigation.

{mosads}Unfortunately, conservative opponents of the bill seem clueless about the damage so-called non-practicing entities — better known as patent trolls — inflict on us economically.

Our 21st-century economy depends on innovation, which patents were supposed to encourage.  But trolls obtain patents not to produce anything, but solely to license and enforce the patents. Trolls seek broad patents likely to be infringed in a particular industry—especially the software and computer industries—and scour the country for older patents relating to technology still be used in modern products. Favorite haunts are bankruptcy auctions, where patents of failed technology companies are for sale.

In other words, the trolls’ business model undermines our national policy of patent protection because they are allowed to enjoy all the rights attached to patents without benefitting society by increasing its knowledge.

Many trolls employ no workforce (except trial lawyers), have no physical facilities that produce things of value, and have little invested in the patents themselves. Trolls exist simply to shakedown companies that engage in productive activities.  Researchers at the Boston University School of Law calculate that from 1990 through late 2010, troll lawsuits cost the economy over half a trillion dollars (2010 dollars) in lost wealth.

While the Innovation Act is a nice start, it does not go far enough in taming the trolls.  Although they menace many industries, trolls disproportionally harm the software industry. Software differs from other products whose manufacturing and development costs make a long period of patent protection reasonable.  The period of protection is now 20 years, but software has a short lifespan. So a long patent term encourages trolls to purchase older patents for programs and then to assert that a new program infringes those patents.

George Mason University economist Alexander Tabarrok emphasizes, “maximizing innovation requires treating different industries differently.”  Unlike, say, the pharmaceutical industry, the software industry does not have high “innovation-to-imitation costs,” Tabarrok points out, and thus long patent terms do not promote software innovation, but rather result in stagnation.  Rather than 20 years for software patents, Congress should consider a shorter period, perhaps five years. That would allow inventors to reap profits from their work while denying trolls the use of older patents to shake down new inventors and hamper progress.

Congress should also consider stricter standards for issuing patents. Trolls are a much smaller problem in Europe because the European Patent Office does not grant patents for such things as mathematical methods, scientific theories, computer programs, or business methods.  These areas are more susceptible to the broad or vague claims on which patent trolls thrive.

Technically, abstract ideas are still unpatentable in the United States, but if one can connect an abstract idea to a new and useful end, the PTO will issue a patent. That standard opens the door to patent abuse. As we explore ways to restore order to the U.S. patent system, we should consider adopting Europe’s limits on patentability.

The Innovation Act would move the United States in the right direction. But contrary to conservative critics, we need to do more. Unless we address the problems connected with the software industry and basic standards for patentability, the trolls will remain a substantial obstacle to American innovation.   

Watkins is a research fellow at The Independent Institute in Oakland, California and author of Patent Trolls: Predatory Litigation and the Smothering of Innovation.