Following on from my weekend post about their book Patent Failure, authors James Bessen and Michael Meurer have been in touch to counter some of the points I made. This is what they have to say:

In his recent blog post, based on a post in the Patently-O blog, Joff Wild asserts that our book, Patent Failure, fails to ask the rights questions, makes implausibly low estimates of patent value, and is "pretty disingenuous" because we (he claims) ignore independent and university inventors. We strongly urge Joff to read the book because it does, in fact, address these questions that could not be addressed in a short blog post.

First, Joff asserts that our estimates of profits from patents are too low "given that one company – IBM – was generating over $1 billion a year from licensing its patents." As we discuss in the book, p. 117, our estimates correspond well with IBM's actual performance. In fact, the "over $1 billion a year from licensing its patents" is an "urban legend" promoted by patent boosters; the actual figure is between $100 and $200 million and that is gross of the costs of IBM's several hundred lawyers.

Joff argues that even if we are right that patents discourage innovation among public firms outside of the pharmaceutical and chemical industries, this is only because they are just starting to learn to maximize the values of their patent portfolios. But if that were true, then the problem would be lessening. In fact, it is growing dramatically worse. We would suggest, in fact, that patent litigation is exploding precisely because more firms are attempting maximize patent value in opportunistic ways.

Finally, Joff argues that we are "pretty disingenuous" because we attempt "a complete assessment of the US patent system without factoring in the vital role private companies, start-ups and universities play in the US innovation process." Although we hardly discussed these players in the Patently-O post, we certainly realize their importance and we devote a chapter to discussing their significance and the ways that poor patent notice hurts them, also. Their story is more complicated. Small inventors do receive positive (but small) incentives from the patent system, so this does provide some positive news about the patent system. But aside from patent trolls, they, too, are hurt by the "fuzzy boundaries" of the current patent system. In any case, the positive incentives for private inventors are not large enough to offset the negative incentives for the public firms outside the chemical and pharmaceutical industries, so this does not change our basic conclusion.

It is hard to do justice to a topic so subtle and complicated as patents in short blog posts. We hope the book will clarify some of these issues.

While being very grateful to Jim and Michael for getting in touch – and I would certainly love to read their book if the publishers can send me a copy – I am not sure I am persuaded by what they have to say.

Let’s start with IBM. The $1 billion of licensing revenue as an urban legend “promoted by patent boosters” claim is an extremely serious one. In effect, what Jim and Michael are saying here is that there are a lot of people who have been economical with the truth about IBM’s licensing activities from the early 1990s onwards. Certainly, to my knowledge IBM has never sought to deny the figures associated with the programme and neither have those who helped develop it. Clearly, if Jim and Michael are correct it will have significant consequences for the patent community as a whole, as well as for the reputations of many highly-respected individuals within that community. What surprises me, however, is that in 16 years as an IP journalist, this is the first I have ever heard of it. I have asked Jim and Michael to provide me with further information. The other side of the coin, of course, is that if what they say does not stand up to scrutiny, they will be very seriously discredited.

Moving on to the second criticism of my weekend post. I stated that I thought most US companies were, as yet, unaware of the ways in which they could maximise the value of the patents they own and that this might explain the very low total profits of $3 billion Patent Failure claims publicly-quoted US companies outside the pharmaceutical and chemical sectors generated from their patents in 1999. For their part, Jim and Michael refer to what they term the explosion in patent litigation and say that this shows more and more companies are seeking to “maximise patent value in opportunistic ways”. Hmmmmm. According to the website Patstats, in 1999 2,318 patent suits were filed in the US; in 2007 the figure was 2,772 - I am not sure that you can call that an explosion, especially when you compare the number of patent applications filed in those two years: 270,187 (1999) and 362,227 (2007). Certainly the growth in the number of patent applications far outweighs the growth in the number of patent disputes. In any case, with a total of 2,772 disputes, you can hardly claim that most or even a significant minority of US companies are instigating patent suits; the simple fact is that the vast majority of patent owners in the US do not get involved in patent litigation, either as plaintiffs or as defendants.

As a matter of fact, however, I would also dispute the assertion that patent litigation is any real indication of a company’s appreciation of patent value. It seems to me that there is a whole lot more to it than that: the ownership of patents, for example, can be a way into highly successful collaborative projects; while as I have stated previously, surveying the patent landscape can also help you maximise the bang from your R&D buck. My contention is that most US companies – like their counterparts around the world – have failed to explore these things up to now, something that inevitably has an impact on the value of the patents they own.

Finally, I do owe Jim and Michael an apology. I have had a look at the contents of the book and, just as they say, chapter 8 runs to 22 pages and is entitled “Small Inventors” (that's 22 pages out of more than 300 by the way). As well as discussing how poor notice affects small inventors I hope that, among other things, the chapter seeks to explain why it was only after the Bayh-Dole Act came into force that university technology transfer became such an important part of the US innovation system, and that they analyse why the ownership of patents is so important if high-tech start-ups are to attract financing. As they say in their note to me, patents are a "subtle and complex" topic. It is important, therefore, to be as objective and as even-handed as possible when discussing them.  

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