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Ted Sichelman
University of San Diego School of Law
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Judge Posner contends that "It is extremely difficult to discern any possible social benefit from trolls, and extremely easy to discern substantial social costs." Actually, it is "extremely easy" to discern social benefits and costs from "trolls" (hereinafter, NPEs). The question is whether the costs outweigh the benefits, and Posner presents no evidence other than anecdote and flawed speculation that NPEs are a net cost. Moreover, the only legitimate problems Posner cites with NPEs are systemic problems of the patent system, endemic to non-practicing and practicing entities alike. As Becker notes, the benefit of NPEs is that they provide an intermediary function to more efficiently channel payment back to inventors so that they can more easily recoup their (risk-adjusted) costs of invention. By aggregating numerous patents, NPEs lower the costs of litigating against and licensing third-party infringers. This benefit is simple to identify and palpable. Posner's assertion that "There are no upfront costs if the patented invention is never produced, but serves merely as an excuse for a threat to sue" is clearly wrong. The upfront costs of a patented invention are R & D costs and the related costs of filing for a patent. Because, ex ante, it is impossible to determine which inventions will and won't be commercialized, a rule that barred suit on inventions not commercialized by their inventors would diminish the incentive to engage in costly R & D and patent filing. Nor is the potential counterargument that NPEs never commercialize their inventions a way out of this dilemma. They may not, but the inventors who sell them to NPEs often plan to commercialize their inventions, or license them out to third parties who will. In this sense, NPEs serve an important "hedging" function, acting as a sort of insurance company in the event the inventor cannot commercialize or license its invention because of other factors--such as barriers to entry imposed by incumbents (often via cross-licensing agreements, control of distribution networks, and the like), effective collusion by incumbents in refusing to license the invention, difficulty in raising further financing, and so forth. By eliminating this hedging function, the value of patents is diminished. To this, Posner would rejoin that it is beneficial to diminish the value of such patents. He argues that the problem of "patent troll is a function in part of the promiscuity with which the patent office has issued patents in recent years, and the encouragement that such issuance has received from the U.S. Court of Appeals for the Federal Circuit." Relatedly, Posner claims that "There is a widespread belief among economists, scientists, and business people that the patent system is vastly overextended—patents granted too casually, patent terms too long, patent litigation too expensive and unreliable." Yet these concerns are ones that are systemic, and infect all types of patent owners, from NPEs to commercializing startups to large incumbents. As such, Posner's screed against trolls is highly problematic to the extent it identifies a type of business model as the major problem--with concomitant solutions against the business model (e.g., preclude all suits by NPEs)--when the solutions should focus on these core problems (e.g., improving the USPTO, the Federal Circuit, reducing litigation costs, and so forth). Ultimately, Posner's claim that "It’s not just that patent trolls don’t do anything that encourages innovation; they impair innovation," is dubious as a theoretical proposition and has little to no empirical support. (The several studies by Bessen & Meurer are seriously flawed--see, e.g., critiques by Lunney and Kesan & Schwartz.) Making such a statement is not only unjustified, but also a detractor to the types of patent law reforms on which we should be focusing our efforts--namely, ones addressing systemic problems that affect all manner of patent owners.
Toggle Commented Jul 22, 2013 on Patent Trolls—Posner at The Becker-Posner Blog
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Jul 22, 2013