Sunday, September 17, 2006

Jaffe & Lerner: Innovation and Its Discontents

Innovation and Its Discontents by Adam Jaffe and Josh Lerner is a level-headed appraisal of the problems with the current patent system in the US, accompanied by some common sense proposals to address them. In discussions of problems with the patent system, I have said for a while that the problem is that the patent office is issuing bad patents, and argued that people should be careful not to conclude from the effects of these bad patents that patents are a bad idea.

Jaffe & Lerner seem to agree with this point of view. They describe the problems of the patent office as being poor incentive structure in the patent office, compounded by procedural rules in the patent courts that presume that patents are being issued competently. The budget of the patent office has been cut, and the incentives on individual patent clerks push toward easy approval; there is no cost to issuing too many patents, and a high cost to spending extra time reviewing. Once patents get to the patent court, the rules are stacked in favor of the patent holder by a presumption that the patent review was performed competently. All this combines to produce a glut of lousy patents that are hard to attack.

Patents that are easy to earn and hard to dislodge can be a serious drain on innovation, because inventors and innovators necessarily re-use previous ideas in developing new solutions. When only major innovations gain the right to exclude rivals, the incentives ought to encourage inventors to describe their breakthroughs so others can exploit them after the exclusion period, and minor advances don't turn into roadblocks.

One somewhat surprising point that Jaffe and Lerner make quite clearly is that the patent system doesn't have to screen out worthless patents perfectly. As long as it's possible to overturn undeserved patents, allowing too many patents wouldn't be a problem, since most patents don't lead to commercial products. If it's not too expensive to defend against a claim of infringement based on an weak patent, then the system doesn't have to prevent all bad patents. If we can't remove the strong presumption the current system makes in favor of patent holders, the only resolutions would be to look for reforms that prevent bad patents from being issued or to advocate the complete repeal of patents.

Their proposals are much more conservative than this, and if they are adopted relatively intact, they seem to have a fair chance of improving the situation greatly.

Their proposal has three parts: 1) make it possible for people to provide relevant prior art before a patent is granted without precluding the prior art from being used later in court (the current system assumes that prior art that the patent office knew about before granting a patent was correctly considered by the examiner, and so it is excluded from later use in court challenges.) 2) provide escalating levels of review and challenge so that weak patents can be challenged cheaply, and important patents get an appropriate level of review without too strong a presumption about the outcome, and 3) drop the option of jury trials, and move to a system of judges and expert special masters. (Juries seldom understand the issues in a patent case, and the presumptions they are instructed to make lead them to decide for the patent holder whenever they are confused.)

Another argument that the authors make persuasively is that it would be a mistake to advocate different rules for patents in different fields. First, this would have the effect of pushing patenters to couch their patents in whatever terms give them the most advantage. The authors show that this has gone on with respect to the different treatment that business method, pharmaceutical, and software patents get currently. Secondly, if the rules are variable across fields, every lobby will have an incentive to make a case that they are special in some way. We'll all be better off if we can get simple across-the-board reforms implemented that limit patents to real breakthroughs, and make it possible for innovators to proceed without being obstructed by patents on minutiae well-known techniques.

I have no idea what the chances are that these reforms might be considered in the current political environment. It appears that lawyers, as a coalition, like the current system, but it's not clear why any innovative company would prefer it, even if they have a large patent portfolio at present.

1 comment:

Lawrence B. Ebert said...

In the time since the above post, there has been much commentary showing that the Jaffe/Lerner analysis is anything but level-headed, or more importantly, anything but factually correct.

Is the Jaffe/Lerner Analysis of Patent Law Correct?


Legal academics have now "discovered" that the patent grant is not in the 90%+ range, and is in fact what Robert Clarke said it was back in 2003. [Jaffe and Lerner erroneously mentioned "George" Clarke, suggesting they never even read his work.]

The whole Jaffe/Lerner business reflects bad analysis. They never checked out the work they cited, and now most of it is shown to be wrong.