“Patent Failure” Fails to Recognize Danger of Too Much Repair

A Reply to Professors Bessen and Meurer’s Book About the Difficulty of Perfecting the Patent System

By Roya Ghafele and Benjamin Gibert

The publication of Patent Failure: How Judges, Bureaucrats and Lawyers Put Innovators at Risk (Princeton University Press, 2008) by James Bessen and Michael Meurer challenged the conventional wisdom on the relationship between patents and innovation.

The authors basically posit that the poor boundary definitions of patents result in over-litigation. Arguing that the costs of litigation create disincentives for innovators, Bessen and Meurer suggest that the IP system has fundamentally failed as a system of property rights for public firms in the USA. Industry analysts and public commentators have jumped on the findings to justify various positions in patent reform debates. Patrick Anderson and Joff Wild have already responded to some of the shortcomings in the Patent Failure study, particularly with regard to the interplay between infringement suits, stock prices and NPEs.

Assessing the Damage

Bessen and Meurer have clearly taken a leaf from their own book. The conclusion that badly defined patent scope results in costly litigation is based on narrow definitions of patent trolls, public firms, high-technology industries and litigation costs. While this narrow scope is necessary to make their analysis feasible, the accompanying qualifications to their conclusions seem to have been lost in the ensuing storm. Patents do still provide incentives to individual inventors and to the chemical and pharmaceutical industries. They are also likely to provide positive incentives for private firms operating in multiple sectors. Yet, round after round of Chinese whispers has morphed the study into a declaration that the patent system is fundamentally broken, rather than an exploration of where it is challenged, why it faces problems and how we can solve them.

That major high-technology firms supported the study, which concluded that patents on software are too abstract and ill-defined, naturally raises some questions. It is not surprising that major software patent infringers would welcome a declaration of a broken patent system. However, regardless of funding, these types of studies still fulfill important roles: 1) they encourage debate on the efficacy of the current IP system; 2) they identify avenues for possible reform. Perhaps it is here that Bessen and Meurer have the most to offer.

Specialized courts such as the Federal Circuit have expanded their influence over patent law in the past twenty years. Whether or not this means patents no longer work, it is important to recognize this development and understand its impact in the USA. Identifying detailed mechanisms to render patent claims more transparent and improve patent search is another welcome contribution. Yet the suggestion that increased patent fees can reduce the number of patent applications may come at the cost of locking out smaller innovators and gearing the patent system towards large corporate actors.

No Easy Solutions

While the economic and philosophic underpinnings of Patent Failure are easy to follow and coherent, there seems to be less reflection about the possible consequences of their recommendations. Other suggestions, such as exemptions from infringement repayments when technology is invented independently from the patent owner, seem useful on the surface but may prove extremely difficult to implement in practice.

Perhaps Bessen and Meurer’s most important contribution is simply the idea that the patent system must recognize the limits of its grasp, regardless of whether we currently know how to set those limits. By recognizing these limits we can start to understand how national institutions can support patent law to fuel innovation in an era of new challenges and opportunities.

____________________________________________________________________

Dr. Roya Ghafele is the Director of Oxfirst Limited, a boutique consulting firm focusing on the economics of innovation and IP. Within the University of Oxford, she holds Fellowships at the Said Business School, the Oxford Intellectual Property Research Centre and St. Cross College. Dr. Ghafele worked as an Economist with the U.N.’s World Intellectual Property Organization (WIPO) and the Organization for Economic Cooperation and Development (OECD).  After having toured for five years as a ballet dancer she began her career in 2000 with McKinsey & Company. Dr. Ghafele is a consultant to Brody Berman Associates. roya.ghafele@oxfirst.com

Benjamin Gibert is a Research Associate with Oxfirst Ltd. Prior to joining the firm he was a research Associate in the University of Oxford where he graduated with distinction from Oxford and from Warwick University.
benjamin.gibert@oxfirst.com

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