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Patent Failure

Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk

James Bessen
Michael J. Meurer
Copyright Date: 2008
Pages: 352
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  • Book Info
    Patent Failure
    Book Description:

    In recent years, business leaders, policymakers, and inventors have complained to the media and to Congress that today's patent system stifles innovation instead of fostering it. But like the infamous patent on the peanut butter and jelly sandwich, much of the cited evidence about the patent system is pure anecdote--making realistic policy formation difficult. Is the patent system fundamentally broken, or can it be fixed with a few modest reforms? Moving beyond rhetoric,Patent Failureprovides the first authoritative and comprehensive look at the economic performance of patents in forty years. James Bessen and Michael Meurer ask whether patents work well as property rights, and, if not, what institutional and legal reforms are necessary to make the patent system more effective.

    Patent Failurepresents a wide range of empirical evidence from history, law, and economics. The book's findings are stark and conclusive. While patents do provide incentives to invest in research, development, and commercialization, for most businesses today, patents fail to provide predictable property rights. Instead, they produce costly disputes and excessive litigation that outweigh positive incentives. Only in some sectors, such as the pharmaceutical industry, do patents act as advertised, with their benefits outweighing the related costs.

    By showing how the patent system has fallen short in providing predictable legal boundaries,Patent Failureserves as a call for change in institutions and laws. There are no simple solutions, but Bessen and Meurer's reform proposals need to be heard. The health and competitiveness of the nation's economy depend on it.

    eISBN: 978-1-4008-2869-2
    Subjects: Law

Table of Contents

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  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Preface
    (pp. ix-xiv)
  4. 1 The Argument in Brief
    (pp. 1-28)

    Zimbabwe, a country once considered the “breadbasket of Africa,” now suffers widespread starvation. Much of this decline can be attributed to the tyrannical policies of President Robert Mugabe—in particular, his disregard for property. In 2000, Mugabe’s followers seized land on over one thousand farms owned by white farmers. But when Zimbabwe’s Supreme Court ordered the squatters evicted, Mugabe forced the chief justice to resign and physically threatened the remaining justices, who relented. Owners abandoned their property, severely disrupting agricultural production, and within a few years Zimbabwe was wracked by famine.¹ Even with the rule of law, property systems can...

  5. 2 Why Property Rights Work, How Property Rights Fail
    (pp. 29-45)

    Most people understand patents to be a type of property. The notion that inventors should reap the benefit from their inventions has great intuitive appeal. There is a complementary sense of outrage when the interests of inventors are trampled, especially when the villains are big corporations. Many scholars share these sentiments.¹ Economists routinely treat patents as property rights. Even most lawyers who do not specialize in intellectual property readily accept the characterization of patents as property. It is curious, then, that scholars in intellectual property law are not completely comfortable applying the property label to patents.

    Scholars critical of the...

  6. 3 If You Can’t Tell the Boundaries, Then It Ain’t Property
    (pp. 46-72)

    A successful property system establishes clear, easily determined rights. Clarity promotes efficiency because “strangers” to a property can avoid trespass and other violations of property rights, and, when desirable, negotiate permission to use the property. The concepts in the last sentence are critical to understanding the performance of the patent system. As we shall see, increasingly, patents fail to provideclear noticeof the scope of patent rights. Thus, innovators find it increasingly difficult to determine whether a technology will infringe upon anyone’s patents, giving rise to inadvertent infringement. Similarly, they find it increasingly costly to find and negotiate the...

  7. 4 Survey of Empirical Research: Do Patents Perform Like Property?
    (pp. 73-94)

    Perhaps one of the clearest lessons of the Cold War was that private-property and market economies can be powerful engines of economic growth and innovation. While centralized economies have mustered impressive economic efforts, especially during times of war, they have generally failed to provide a high and rapidly growing standard of living. Moreover, what they have achieved has sometimes come at a horrible human cost.

    The experience of the Cold War seems to lend force to arguments that intellectual property, too, promotes economic growth and innovation. Indeed, it is now often argued that the institutions responsible for the success of...

  8. 5 What Are U.S. Patents Worth to Their Owners?
    (pp. 95-119)

    A common argument one hears, especially from patent lawyers, is that they know that the patent system works because they regularly see people who benefit from it. For example, Dennis Crouch, a patent attorney and law professor, made this argument in his popularPatently-Oweblog. Responding to aWall Street Journaleditorial calling for an overhaul of the patent system, he wrote,

    I had two companies approach me this week about patent work. They are both small businesses who want to go global. They believe that they have great innovations, but the only way that they will have [to] get...

  9. 6 The Cost of Disputes
    (pp. 120-146)

    The private value of patents represents the incremental reward that inventors receive via patents. Innovators invest in research, development, and commercialization and their patents provide them rents either directly, if they market a product using or made with patented technology, or indirectly, if they license or sell the patents to others who use the patents to obtain rents in the marketplace. But every dollar an inventor or innovator invests in research, development, or commercialization can increase the risk of infringing upon someone else’s patent. This risk—the expected cost of patent disputes—acts to reduce the profits inventors or innovators...

  10. 7 How Important Is the Failure of Patent Notice?
    (pp. 147-164)

    Chapter 3 shows that numerous legal and institutional features of the patent system undermine the notice function of property: the boundaries created by patents are hidden, unclear, or too costly to determine. This prevents patents from functioning efficiently as property. But how significant are these shortcomings? Are these minor failings or do they, in fact, explain much of the “tax” on R&D investment that we found in chapter 6?

    This chapter links the tax created by patent litigation to inadvertent infringement caused by inadequate patent notice. We look at the quantitative evidence for clues about the cause of the surge...

  11. 8 Small Inventors
    (pp. 165-186)

    In Chapter 6 we saw that today’s patent system provides negative incentives for most public firms. It is true that the smallest public firms earn positive net rewards from the patent system and that this is also likely true for small, nonpublic companies, individuals, and other inventors not included in our analysis. Nevertheless, since our analysis covers those firms that perform the lion’s share of R&D, our results do indicate that the patent system does not provide positive incentives for R&D in most industries.

    But some would argue, among other things, that we have used the wrong yardstick. Further, some...

  12. 9 Abstract Patents and Software
    (pp. 187-214)

    In Chapter 7 we noted that patents on software, and especially patents on business methods (which are largely software patents), stood out as being particularly problematic. These patents had high rates of litigation and high rates of claim-construction review on appeal. This chapter explores whether there really is something particularly awry with software patents and, if so, what it is.

    We argue that there is, in fact, something crucially different about software: software is anabstracttechnology. This is a problem because at least since the eighteenth century, patent law has had difficulty dealing with patents that claimed abstract ideas...

  13. 10 Making Patents Work as Property
    (pp. 215-234)

    In 2002, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) held joint hearings on the patent system and its relationship to competition policy. According to the FTC/DOJ report, “The hearings took place over 24 days, and involved more than 300 panelists, including business representatives from large and small firms, and the independent inventor community; leading patent and antitrust organizations; leading antitrust and patent practitioners; and leading scholars in economics and antitrust and patent law.” Based on these extensive hearings, the FTC/DOJ concluded that “questionable patents are a significant competitive concern and can harm innovation”; they recommended a...

  14. 11 Reforms to Improve Notice
    (pp. 235-253)

    In chapter 3 we identified the factors that impair the notice function of patent law. Here we suggest reforms that address these factors. We do not present these ideas as a definite prescription for fixing the patent system in “a few easy steps.” Rather, we just want to put forth policy suggestions that might improve notice, since reforms are rarely discussed from this perspective. We are sure reform is needed but it is hard to say how effective any one of these reforms will be or how successful they would be together at fixing the patent system. The kind of...

  15. 12 A Glance Forward
    (pp. 254-260)

    In various guises, abstraction has been a recurring theme in this book. First, in keeping with our empirical focus, we stressed the need to distinguish the real operation of the patent system from the abstract ideal of a property rights system. Although patents are similar to rights in tangible property, there are important differences in implementation. Moreover, the realities of neither entirely fit the stylized version of property often found in abstract economic models. Economic models understandably make simplifying assumptions, but the actual operation of property systems might diverge significantly from those assumptions. We have shown, for patents in particular,...

  16. Notes
    (pp. 261-294)
  17. References
    (pp. 295-314)
  18. Index
    (pp. 315-331)