... we find that the economic losses resulting from the grant of substandard patents can reach $21 billion per year by deterring valid research with an additional deadweight loss from litigation and administrative costs of $4.5 billion annually. This brings the total deadweight loss created by our “dented” patent system to be at least $25.5 billion annually. These estimates may be viewed as conservative because they do not take into account other economic costs from our existing patent system, such as the consumer welfare losses from granting monopoly rents to patent holders that have not, in the end, invented a novel product, or the full social value of the innovations lost. 

So concludes the abstract of an article published in Volume 12 of the Yale Journal of Law and Technology. As is often the case with this type of article, there are many heroic assumptions made to establish the premise of a series of calculations that will be incomprehensible to most people who do not have some kind of mathematical and/or economic qualification.

As far as I can work out, however, what the authors are claiming is that around 50% of US patents are currently what they term "sub-standard" and that because of this there is not as much R&D as there would otherwise be; while these patents also spark a great deal of expensive litigation, much of it relating to "patent trolls", so sucking money from companies that otherwise could be spent on other more productive activities.

What the paper does not state is what is meant by "patent troll", neither is there much discussion of what a sub-standard patent might be. The only definition I can find is this: "Substandard patents are those which are granted that are of low quality (that is, for ideas that are not in fact new or non-obvious) and which create risks for valid patents through litigation and licensing." Now, I am not a patent lawyer and maybe that sentence does make sense, but it looks a little strange to me. My understanding is that patents do not get granted for ideas, they get granted for inventions; if an "invention" is not new or is obvious, then any patent granted is not sub-standard, it is invalid and should not have been granted. And if that is the case, how can it pose any kind of risk to what the authors describe as a "valid patent" - that is one which represents "true inventions or discoveries in which the cost to society of granting a twenty-year monopoly to the patent holder are outweighed by the aggregate social benefit of the invention or discovery itself"?

Another way the article identifies sub-standard patents are those which are not granted by all of the triadic authorities (the USPTO, the JPO and the EPO):

... it seems undeniable that triadic patents are highly likely to be important, valid patents, even if there are valid patents that are not registered in all three jurisdictions. In this case, variations in the rates of triadic patents between jurisdictions will still provide a relative measure of lesser quality patents, although perhaps not universally substandard ones. Then, looking at the high rate of patents granted in the United States relatively to U.S. investment in R&D, one is forced to conclude either that: (1) the United States is highly efficient in R&D given its investments, or (2) the U.S. system generates a large number of dubious patents relative to the other jurisdictions. We base our calculations on the second of these interpretations.

There is, of course a (3) that US companies are just more likely to patent than companies based in Europe and Japan because they are more focused on patents as valuable assets; and also a (4) patent protection is available in the US for certain inventions that is not available in Europe and/or Japan and that such patents may well be "valid" in that they are "true inventions or discoveries" of high social benefit. I am sure that others can think of a 5, 6, 7 and so on.

Now all the assumptions the article makes may well be true. But if they are, the authors have not shown us why that is the case. They have just decided that it is so. This would not matter, except for this: those multi-billion dollar figures are likely to be referenced and cited in other articles, so that over time they will become broadly accepted in certain quarters and used to underpin calls for policy change and reform. And that is just plain dangerous.

Sectors

IP politics, IP litigation, Patents, IP business