“If we zoom out to take a look at all issued patents, then the most typical drawback, and even an important drawback, will not be that there are some wide-but-invalid fences round standard territory. The issue is that the majority patents draw tiny fences round territory that by no means turns into standard.”
“Many consider the basis reason for the patent system’s dysfunction is that the U.S. Patent and Trademark Workplace [USPTO] is issuing too many invalid patents that unnecessarily drain client welfare, stunt productive analysis, and unreasonably extract rents from innovators.” (emphasis added)
That quote from Professors Michael Frakes and Melissa F. Wasserman echoes a standard criticism in patent coverage conversations. The USPTO is extensively perceived as issuing too many dangerous patents.
Furthermore, this criticism is comprehensible if one focuses on patents which can be challenged in authorized tribunals akin to federal district court docket, the Worldwide Commerce Fee (ITC), or the Patent Trial and Attraction Board (PTAB). However, as Mark Lemley has pointed out, that is only a tiny, tiny fraction of all issued patents:
“So why on the planet am I optimistic in regards to the patent system? The reply has to do with the case of the lacking patents. There are over 160,000 new patents issued yearly. The place do they go? Nicely, a few of them get litigated, however regardless of the dramatic improve within the numbers of litigation, we’re speaking there about perhaps 1,000 to 2,000 lawsuits a 12 months. We’re speaking about perhaps one p.c of all precise patents ever being litigated. So, the main target of the patent regulation system, which has been on patent litigation, is definitely directed to solely a tiny subset of these patents. There are different patents that get licensed in negotiated transactions however by no means go to litigation, after all. That will increase the quantity past one p.c, however at most it raises the quantity to 2 or three p.c. We’re nonetheless speaking about solely a tiny proportion of all patents.”
Neither is this tiny, tiny fraction consultant of the remaining issued patents, so statistics can’t be extrapolated from this tiny fraction onto the remainder. On this method, headlines in regards to the charge of dangerous patents might be extraordinarily deceptive, if they’re solely primarily based on the tiny fraction of litigated patents.
Certainly, one of many greatest challenges in patent valuation is the dearth of information: most patents aren’t meaningfully licensed and, even when they’re, these licensing agreements are sometimes confidential. From this attitude, specializing in the two% of litigated patents as a result of that’s the place now we have information is analogous to looking for your keys beneath the streetlight, as a result of that’s the place the sunshine is.
I’d like to offer an alternate perspective. As an skilled patent lawyer who has obtained many a whole bunch of patents for shoppers over nearly twenty years, I might recommend that the basis reason for the patent system’s shortcomings is, if something, the alternative: the USPTO points too many patents which can be legitimate whereas nonetheless having zero assertion worth. In different phrases, in case you zoom out and have a look at the statistics for all issued patents—not simply these challenged in authorized proceedings—then the extra frequent drawback is that patents usually concern with claims which can be so slender or commercially unimportant that they by no means turn into infringed. Furthermore, there are such a lot of of those slender patents that, even when the financial value of 1 is small, in mixture the financial prices turn into similar to, or better than, the financial prices related to patents invalidated in a authorized continuing.
Tiny Fences
An analogy helps to make the purpose. If we zoom out to take a look at all issued patents, then the most typical drawback, and even an important drawback, will not be that there are some wide-but-invalid fences round standard territory. The issue is that the majority patents draw tiny fences round territory that by no means turns into standard. In different phrases, these patents are locking up household jewels even when no one is making an attempt to steal them.
From the next stage perspective, the invalid patents that Professors Frakes and Wasserman are complaining about are arguably lower than 1% of all issued patents. Even when we multiplied that error charge by ten, leading to a ten% error charge, the remaining 90% nonetheless deserves an A for the USPTO. This can be a purpose to point out the company some respect and sympathy after contemplating the Herculean measurement and issue of its mission.
I’m talking from private expertise, however please don’t simply take my phrase for it. Listed below are some quotes to help my thesis (these with out supply hyperlinks have been offered to me immediately):
- “One p.c of the patents in a portfolio drives the worth of the complete portfolio.” – Andrew Godsey, International Expertise Switch Group
- “Most patent specialists agree, nevertheless, that over 90% to 95% of patents carry little to no worth as a result of they don’t seem to be being utilized within the market.” – Matt Moyers, Peak Value IP
- “The overwhelming majority of U.S. patents cross their lives in full idleness, gathering mud, fairly than revenues.” – Law Professors Polk and Gideon Parchomovsky
- “First, the so referred to as ‘dangerous patents’ are gone; these days, there are such a lot of methods to invalidate an issued patent that nobody of their proper thoughts would need to implement their rights with something however the highest pedigree property the place indeniable validity, sturdy infringement concept and substantial damages should be assumed. The flip facet to this; solely a minuscule proportion (manner lower than 1%) can meet this very excessive bar and the smallest blunder in drafting (e.g. “a” vs “the” in a declare) or throughout prosecution might be deadly, leaving completely no margin for error.” – Louis Carbonneau, Tangible IP
- “98%” – the p.c of provides from patent homeowners to safe litigation financing that GLS Capital turns down – Adam Gill, GLS Capital
Don’t Panic
Now, some readers would possibly hear these statistics and discover them alarming. Please don’t fear. There are completely good and rational the reason why so many patents have zero assertion worth. First, the USPTO’s job is to make sure that solely model new issues get patented. If we’re solely patenting model new issues, then it’s not stunning that, after a patent points, {the marketplace} will not be overflowing with infringement. Not all the things turns into standard; reaching reputation takes vital time; and that is inconceivable to foretell completely prematurely.
Furthermore, there are good and rational causes to get a patent with out ever asserting the patent. Many years in the past, Professor Lengthy at Columbia College explained that rational corporations can spend hundreds of thousands of {dollars} securing patent as “indicators”[1] that may considerably enhance share worth—no matter whether or not the underlying patents can be enforced and even might be enforced. Equally, in his article on venture capital, Professor Lemley documented many various non-traditional causes to safe a patent, and he highlighted these as his justification for being “optimistic” in regards to the patent system.
Heavy Skew
In abstract, there’s a heavy skew in patent valuation: a tiny fraction of all patents drives the assertion worth of their portfolios, and the remaining patents present little, if any, assertion worth. In different phrases, patent valuation follows an influence curve fairly than a standard curve. We are able to name the highest patents that drive portfolio worth “1% patents” and the remainder “99% patents.”
The truth that patent valuation follows this energy curve has many deep and attention-grabbing implications. First, it means that when a patent seems to be a 99% patent fairly than a 1% patent, then this isn’t the tip of the world, and in some methods it’s routine. Second, as Professor Lemley has repeatedly observed, it means that the patent system has some resilience in opposition to authorized adjustments that scale back the assertion worth of patents. Even when Congress and the Supreme Court wipe out a trillion dollars’ worth of patent worth, corporations proceed to purchase them in bulk.
Third, the heavy skew in patent valuation is a cautionary observe for our career. The 1% quantity is so low that it will doubtless be wholesome to extend it. Why ought to 1% of the patents in a portfolio, like Atlas, bear the complete weight of the portfolio? It could be attention-grabbing to think about the course of change on this quantity over time: have been 1% of patents all the time driving the complete worth of their portfolios? A century in the past, was the quantity increased or decrease? Our career doesn’t need the quantity to drop to zero.
Stopping ‘Unforced Errors’
Fourth, and most significantly, the heavy skew in patent valuation suggests that there’s room for enchancment. Though there are numerous causes to not fear in regards to the heavy skew in patent valuation, together with these outlined above (e.g., signaling), it should nonetheless be true that at the very least a few of these unenforceable patents are avoidable. In tennis phrases, they’re unforced errors. In upcoming articles, I’ll discover the reason why these unforced errors occur and contemplate methods to assist stop them from occurring. I cannot advocate for main surgical procedure to the patent system, as a result of I believe that such main surgical procedure is neither obligatory nor fascinating. However, I need to spotlight all the ways in which patents, as monetary property, can turn into weaker than they seem at first, and I need to recommend a number of methods to harden these property. To the extent that Congress and the Supreme Court docket have overwhelmed up on patents, what can the patent bar do to strengthen and reinvigorate them? As a career, how can we deal with 1% patents and create extra of them? Can we double the 1% quantity or watch it shrink to 0%?
That is the silver lining to the heavy skew in patent valuation: even in case you do nothing greater than improve the speed of enforceable patents from 1% to 2% in a given portfolio, the general worth of that portfolio will nonetheless double.
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Writer: Supertrooper
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