For the half-year to 31 December 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Rebecca Gulbul, Lucas Michels and Marie-Andrée Weiss.

Regular round-ups of the previous week's blogposts are kindly compiled by Alberto Bellan.

Monday, 16 July 2007

Worthless patents and technology thieves

The IPKat was puzzled, and a little infurated, by pieces this weekend from the New York Times and Washington Post, both relating to the current US patent system and why it is apparently broken.

Michael Fitzgerald, writing in the Times (article here), cites a study by Boston economist academics James Bessen and Michael Muerer, which argues that many patents are not really worth having, partly based on data showing that the costs of patent litigation now apparently outweighs profits from patents. Although profits were 'estimated' at $9.3 billion in 1999, litigation costs came in at $16 billion in the same year. The situation has apparently become worse since then. Bessen and Meurer don't go as far as saying that the whole system should be abolished (as others do, for example here), but do suggest that some things should be done to change it for the better, such as reining in awards for damages and to increase the number of appeal courts able to handle patent cases.

(Left: Current disputes coming out of Boston have nothing on past ones)

The IPKat, while agreeing in general with the suggested changes, admires the talent that some economists clearly have of being able to come up with any figures they like to justify the conclusion they want to arrive at. How they come up with their valuation of 'profits' from patents is, however, a little beyond his feline imaginings.

On the subject of why (or whether) the current US system is broken for other reasons, Dana Rohrabacher writes in the Washington Post (article here) that American innovators should beware new proposals to bring the US into line with the rest of the world by implementing a 'first to file' system and making publications of patent applications mandatory. By some logic-defying leaps of reasoning, he manages to equate these to direct attacks on the poor small inventor, who would have his inventions stolen by 'technology thieves', and be unable to file the multiple applications necessary to protect his invention.

(Right: Congressman Rohrabacher, supporting one sentiment the IPKat can agree with)

The IPKat thinks that Congressman Rohrabacher ought perhaps to have a little look at what happens in reality with patent applications in the rest of the world, where a first to file system appears to work quite well. The IPKat also wonders how publishing a patent application after 18 months could possibly result in any invention being stolen, since he was under the impression that part of the bargain of getting a patent is to let everyone know what it is you were trying to protect. Any answers would be gratefully received via the comment facility below.

More commentary here (Slashdot), here (Patently-O) and here (IAM blog).

6 comments:

Anonymous said...

The small US inventor wants what Uk had before 1978, no publication till the case is allowed. But he wants more. He wants "First to Invent", a presumption of validity, no finding of invalidity without clear and convincing evidence, and punitive damages. And he says these features of US patent law are exactly those which have made USA the technology powerhouse of the world. And he has more votes than the economists who just published that Paper.

David said...

I have been scattering shark repellent around my garden for 200 years, and I have not yet seen a shark so it must work. It also happens to be toxic to humans, but that's ok because I always wear a protective suit.

Anonymous said...

brilliant comment david

J Bessen said...

Wishful Thinking: Not Boston

IPKat "admires the talent that some economists clearly have of being able to come up with any figures they like to justify the conclusion they want to arrive at."

Hmmm. Let's see. We derived our estimates of patent rents after reviewing 16 different papers published over 25 years, involving 17 different authors and several different methodologies. We chose the highest estimate from these to use in our comparisons (which happened to be from one of our own papers). We also checked this estimate against various data such as patent auction results, known licensing revenues, and Big Pharma financial statements.

But this was clearly wishful thinking.

And how does IPKat know that? Well, apparently because IPKat, not having read the chapter, instead read some patent lawyer blogs who point out that people complain about how much money Big Pharma makes from patents, that TI and Lucent must have big, big patent royalties, too, and that 100% of the USA's technological prowess comes from its patents. And they top it off with the patent-lawyer urban legend that IBM made $1.5 billion from licensing its patents. We also explore that figure in the book: it's a bit of annual report window-dressing consisting mainly of things like the estimated value of IP in divisions that IBM sold off and custom development expenditures. Actual profits from their patent licensing program are about one tenth the cited amount.

So exactly WHO is engaging in wishful thinking? Perhaps IPKat has been living far too long off those royalties from the Boston tea tax...

David said...

It is, of course, one of the IPKat's jobs to be a little provocative. I'm very glad to see that his comments are widely read and considered. My own personal doubts about putting valuations on patents in the way that you have done are more to do with it being an impossible job. I did not read the chapter, but then again I also did not simply take my point of view from the places you pointed out. I have no axe to grind about how much 'big pharma' makes, and do not subscribe to the view that the USA owes its economic success to patent protection.

Patents are indeed property, but they are mostly used as insurance policies against competition rather than tradable commodities, which some people like to see them as. Valuation can therefore be a very tricky thing, because in most cases any value is only relevant to the company holding the patent. Licence revenues and such are very nice to get solid figures from, if you're an economist, but do not tell the whole story by any means.

David said...

For balance, here is the reply from James Besson (received by email):

"Valuing particular patents is indeed dicey, but economists have made some real progress at valuing patents in aggregate, even though we recognize that that value derives from a wide variety of uses. The approaches economists have used infer value from observed actions of agents in paying application and maintenance fees, applying in multiple countries, re-assigning their patents and the actions of investors in valuing companies. Moreover, although these methods have somewhat different meanings, they all correspond rather well."

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