James Bessen Research on Innovation

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  • Does patent expansion induce more R&D? No Japan. No U.S. software. Does patent expansion induce more invention? No worldwide Lerner.
  • James Bessen Research on Innovation

    1. 1. James Bessen Research on Innovation BU Law Michael J. Meurer BU Law James Bessen and Michael J. Meurer, Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk, Princeton University Press www. researchoninnovation .org
    2. 2. Patent Lawsuits Filed in U.S. District Courts
    3. 3. Disrespect for Property? Piracy? Or something else?
    4. 4. Of Patents and Property <ul><li>Property rights encourage investment, transactions, and economic growth </li></ul><ul><li>Patents have a mixed record, current outlook is troubling </li></ul><ul><li>Patent law fails as a property rights system and imposes a tax on most innovators (outside of chemicals and pharmaceuticals) </li></ul>
    5. 5. Historical Evidence on Patents <ul><li>Cross-national late nineteenth century study: patent regimes no impact on World Fair important inventions Moser </li></ul><ul><li>Japan patent expansion no significant effect on R&D Branstetter & Sakakibara </li></ul><ul><li>U.S. software patent expansion no effect or negative effect on software R&D Bessen & Hunt </li></ul><ul><li>177 expansions in patent law in 60 countries over 150 years, no increase in invention Lerner </li></ul>
    6. 6. Patent benefits exceed costs in chem/pharma but …
    7. 7. Patent benefits exceed costs in chem/pharma but the reverse is true in other industries!
    8. 8. Why don’t patents work like property? <ul><li>Land </li></ul><ul><li>Registry, third party verification, deference to fact-finders </li></ul><ul><li>Physical possession </li></ul><ul><li>Low risk of invalidity, title insurance </li></ul><ul><li>Patents </li></ul><ul><li>Hidden claims, low quality opinion letters, little deference </li></ul><ul><li>Scope broader than embodiments; patents and claims are cheap </li></ul><ul><li>No insurance, relatively high risk of invalidity </li></ul>
    9. 9. ? An expensive mistake! The Notice Function of Property Law
    10. 10. Notice Function of Patent Law Kodak v. Polaroid <ul><li>Failed attempt to invent around </li></ul><ul><li>Patent review started seven years before product launched </li></ul><ul><li>250 patents reviewed, “67 written and countless oral opinions” </li></ul><ul><li>50 potential imaging chemistries reviewed </li></ul><ul><li>$900 million damages and interest (1980s) </li></ul>
    11. 11. Evidence Suggests Much Infringement Is Inadvertent <ul><li>Defendants are large, spend a lot on R&D, and obtain a lot of patents (not classic pirates) – only 4% are found to be copyist </li></ul><ul><li>Increasing R&D increase hazard of lawsuit </li></ul><ul><ul><li>Exposure effect </li></ul></ul>
    12. 12. Detailed Look at Notice Failure <ul><li>Fuzzy boundaries </li></ul><ul><li>Public access to boundary information </li></ul><ul><li>Property rights untethered to possession </li></ul><ul><li>Search cost </li></ul>
    13. 13. Detailed Look at Notice Failure <ul><li>Fuzzy boundaries </li></ul><ul><li>Public access to boundary information </li></ul><ul><li>Property rights untethered to possession </li></ul><ul><li>Search cost </li></ul>
    14. 14. Claims to chemicals offer clear notice <ul><li>Lipitor: Trans-6-[2-(3- or 4-carboxamido- substituted pyrrol-1-yl)alkyl]-4-hydroxypyran-2-ones </li></ul><ul><li>Olanzapine: </li></ul>
    15. 15. Detailed Look at Notice Failure <ul><li>Fuzzy boundaries </li></ul><ul><li>Public access to boundary information </li></ul><ul><li>Property rights untethered to possession </li></ul><ul><li>Search cost </li></ul>
    16. 16. Detailed Look at Notice Failure <ul><li>Fuzzy boundaries </li></ul><ul><li>Public access to boundary information </li></ul><ul><li>Property rights untethered to possession </li></ul><ul><li>Search cost </li></ul>
    17. 17. E-Data Lawsuits <ul><li>Freeny invented retail kiosk that would produce music recorded on cassette tapes </li></ul><ul><li>Patent claim language was abstract, possibly covered all sales over the internet </li></ul><ul><li>E-Data got the Freeny patent and asserted it against 75,000 e-commerce sites, licensed 139 companies, and filed 43 lawsuits </li></ul><ul><li>Poor notice because meaning of claim language was unstable </li></ul><ul><ul><ul><li>“ Material object” (1980: cassette tape, 2000: hard drive?) </li></ul></ul></ul><ul><ul><ul><li>“ Point-of-sale location” (1980: store, 2000: home?) </li></ul></ul></ul>
    18. 18. Detailed Look at Notice Failure <ul><li>Fuzzy boundaries </li></ul><ul><li>Public access to boundary information </li></ul><ul><li>Property rights untethered to possession </li></ul><ul><li>Search cost </li></ul>
    19. 19. Search Cost <ul><li>Flood </li></ul><ul><ul><li>E-commerce firm faces b/w 4000 – 11,000 patents </li></ul></ul><ul><ul><li>Semiconductor firm faces hundreds of patents </li></ul></ul><ul><ul><li>3G standard 7600 patents </li></ul></ul><ul><li>Perverse willfulness doctrine </li></ul><ul><li>“Distant” plaintiffs </li></ul>
    20. 21. Evidence on search <ul><li>Cockburn & Henderson survey: </li></ul><ul><ul><li>65% of firms do not conduct a patent search before initiating product development </li></ul></ul><ul><li>39% of applicants disclose zero prior art patents (research personnel told not to read patents) </li></ul>
    21. 22. Patent Lawsuits Filed in U.S. District Courts
    22. 23. Suits/R&D ($b): 1987: 1.7 1999: 2.9
    23. 24. Probability a Patent is in One or More Lawsuits within 4 years of issue
    24. 25. Technology Differences Suggest Notice Problems NA 6.67 13.7% BM 55 2.18 4.6% SW NA 2.37 3.2% Biotech 333 0.84 1.1% Chemical 78 1.00 2.0% All Value ($1,000) Claim Con-struction Probability suit/patent
    25. 26. Software Patents <ul><li>Distinguish SW Patents from SW Markets </li></ul><ul><ul><li>From 1994-2004 most sw market segments, 80-95% of incumbent firms have no patents related to that segment (Cockburn & MacGarvie) </li></ul></ul><ul><ul><li>Only 5% of sw patents obtained by sw industry (Bessen & Hunt) </li></ul></ul><ul><ul><li>SW patent thickets exist in computer and semiconductor markets </li></ul></ul><ul><li>Share of sw patents in litigation rising over time; in 2002 over 1/4 of patent lawsuits involved sw inventions </li></ul>
    26. 27. Patent Reform to Improve Notice <ul><li>Make property rights more transparent </li></ul><ul><ul><li>Continuation reform, better disclosure </li></ul></ul><ul><li>Better claim interpretation </li></ul><ul><ul><li>Specialized trial courts </li></ul></ul><ul><ul><li>Expand PTO claim construction activity </li></ul></ul><ul><ul><li>More deference to PTO and trial courts </li></ul></ul><ul><li>Robust definiteness requirement </li></ul><ul><li>Limit remedies against innocent infringers </li></ul>
    27. 28. Helpful Steps by Courts <ul><li>eBay -- increases bargaining power of defendants and reduces “patent tax” </li></ul><ul><li>Seagate -- decreases deterrent to patent clearance </li></ul><ul><li>Festo -- improves scope clarity </li></ul><ul><li>KSR, In re Fisher -- stem patent flood </li></ul><ul><li>In re Bilski -- decreases abstract claiming </li></ul>
    28. 29. My royalties go to the college savings fund for Quinn and Zach

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