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The WSJ may be spouting patent nonsense, but ask yourself why

The Patent Prospector blog is typically forthright in its condemnation of a recent Wall Street Journal opinion piece entitled “Patent Gridlock Suppresses Innovation”. And while many of us may find the way in which PP expresses itself regretable, it is still possible to have sympathy with the frustration that underlies what the blog’s authors are saying.

For what it’s worth, here are my observations on that WSJ piece:

• It seems to me that the author completely misses the point of AST. Who does he think that it will buy patents from if it is not the innovators that secured them in the first place? By buying patents from innovators, you are rewarding them for the work they have done, not holding them back; and you are incentivising them to do more innovation. The more people there are in a market seeking to buy patents, the higher the price these patents will fetch and the more reward innovators will receive.

• For some reason, the author sees RIM as the victim in the BlackBerry litigation. But is this really the case? RIM had countless opportunities to settle its dispute with NTP at a far lower price than the $600 million it eventually paid. As far as I am aware, the way it presented its case in court was also highly questionable. And we have never really been told how aware of the NTP patents RIM was before it started to develop the BlackBerry. This was not a case of having to wade through 4,000 different patents owned by hundreds of different parties, it was a case of potentially infringing one portfolio owned by one organisation. Is it unreasonable to expect RIM’s management to have been aware of this?

• There is absolutely no evidence to suggest that litigation costs in the US outweigh the value of technology-related patents. Instead, the book Patent Failure argues that if you combine the direct costs of litigation with the time that key workers inside litigating companies have to spend on the dispute and you then throw in falls in share prices when results go the wrong way, then you may be able to argue that patents cost more than the direct income they generate. However, this view is far from universally accepted and, as far as I understand it, does not take into account the fact that many technology companies’ share prices may be at the level they are because they own patent portfolios in the first place. To understand accurately what patents do to share prices, you need to work out how much companies would be worth without the patents they own. I don’t think Patent Failure does this.

• Patent litigation in the US over recent years has remained pretty static. Awards and settlements are either stabilising or going down. The vast majority of patents in the US are never litigated.

As this blog discussed only recently, the quality of the patents being issued by the USPTO over the last five years seems to have gone up rather than down, while – as the 271 Patent Blog points out – the same research we looked at also seems to indicate that although pendency times are relatively long, they are not at historical highs.

According to the World Economic Forum, the United States remains the world’s most innovative and competitive country.

However, let’s ask ourselves why the author of the WSJ article reached the conclusions he did in the first place. I would be surprised if it was because he was instinctively anti-patent. More likely, I think, it is because those who oppose the US patent system in its current form are very good at making their arguments interesting and accessible to non-patent specialists. In addition, they are working under the very considerable advantage of not having anyone put the opposite case in equally as cogent a way.

In the US what seems to be developing is something that we have had in Europe for quite a while now – a distorted argument in which one side of the debate is far more willing to put across its point of view than the other side, and to back its arguments up with facts and figures, however dubious these may be. And, as in Europe, they are helped by the fact that different members of the patent-owning community are pretty sharply divided among themselves.


Joff Wild
IAM Magazine
16 July 2008

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RE: The WSJ may be spouting patent nonsense, but ask yourself why

The WSJ opinion piece smells like a brain fart. The title "Patent Gridlock" reads like an unconscious allusion to the much better book that came out recently, "Gridlock Economy," by Michael Heller (who originated the idea of the "anticommons").

Read the review by Prof. Tim Wu of Heller's book in Slate: http://www.slate.com/id/2195158/

The upshot is the fuzziness of property rights is a problem, which Coase called transactions costs. And there are ways to solve it. Abolishing (or even weakening) patent rights is the best way to ensure that no good ideas will be generated in a jurisdiction.

Michael F Martin, Venetian Capital Management on 16 Jul 2008

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