Scholarship: Patent Thickets See a New Light

Patent law professor Douglas Lichtman (and my good friend) has an interesting new short article (8 pages of text) about problems of “patent thickets.” 

Theorists have discussed patent thickets as an example of problematic over-ownership — A.K.A. the tragic “anti-commons.”  When a particular area of technology is blanketed by multiple patents owned by multiple parties, everyone blocks everyone else, and nothing gets done.

After all, the conventional literature on the tragedy of the anti-commons asserts that resources will be inefficiently under-used in the face of too many overlapping patent rights.

Lichtman turns this theory on its head and asserts that in actuality, a very thick thicket might result in less litigation.  His idea is in a case of multiple overlapping patents, each patent represents only a small piece of the pie.  And few patentees would be willing to go through litigation simply to recover such a small slice.

More patents means less money per patent holder. Less money, in turn, means less of an incentive for a firm to strategically delay in the hopes of being a patent holdout, and less of an incentive for an accidental patent holdout to actually bring suit.

A couple of weeks ago, I would have rejected Lichtman’s argument out of hand.  Under the old rule, every patent holder had a right to force large settlements based on its hold-up threat through injunction.  Now, post eBay, his ideas begin to make more sense. . .

Comments

[Phil Mann]

Conceptually, how is a "patent thicket" any different than the problem faced by a real estate developer who needs a couple of city blocks for his project, but finds the land is owned by shop keepers, small restaurateurs and others who may or may not want to sell? Is it "unfair" for someone to refuse to sell or to insist on a price that ensures he will survive the loss of his business?

In the real estate world, abuse of emminent domain for private purposes is apparently the tool of choice to get the little guys out at bargain basement prices. Do we really want the equivalent of that in the patent world?

[Doug Lichtman]

Dennis,

Thanks so much for linking to the paper and giving me a chance to get some feedback from your readers. I think the idea is even broader than you suggest here. If patent holdouts can get injunctions, they still can demand no more than the sunk-cost investment made by the infringer. As I argue in the paper and summarize briefly over at http://uchicagolaw.typepad.com/faculty/2006/05/discouraging_pa.html, that investment, too, is vulnerable to division by a large number.

In any event, my blog, with a four-paragraph summary of the idea:
http://uchicagolaw.typepad.com/faculty/2006/05/discouraging_pa.html

The paper draft, in eight pages:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=902646

Comments, which would be very much appreciated, can go here:
http://uchicagolaw.typepad.com/faculty/2006/05/discouraging_pa.html#comments

Many thanks.

[Paul F. Morgan]

If interested in this topic, I suggest reading the following article by Professor Friedman and I: "Probabilities of Losing As To At Least One Patent In Multi-Patent Litigation", Journal of the Patent and Trademark Office Society (JPTOS), October 1986, Vol. 68, No. 10, pp. 498-502, and the decision against asserted patent thickets in the SCM v. Xerox appellate decision.

[Anonymous]

Of course in the alternative the market forces increase to the extent that the value for a work-around to the protected area increases until one is found. At this point both the new work-around patent and the original are competeting in an open market and prices drop to a lower level than what was previously available. The end result of a crowded patent space is horizontal research growth and a more sound foundation for further vertical growth. Also direct competetion increases and overall patent licensing fees decreases to all parties.

Post Ebay, with mandatory licensing, the market forces might not be persuasive enough to warrent investing in a work-around.

[Bob Priddy]

In reflecting on eBay, I'm wondering what this will do to the value realizable from granting an exclusive license, and the willingness of licensees to gamble the capital investment needed to bring a new technology to market if the patentee-licensor is now less certain to be able to fulfill a promise to abate infringement by third parties. By analogy, if an apartment owner has leased the apartment to a tenant and the apartment was invaded by squatters, must the owner pass a balance of hardships test before the court will enjoin the squatters against continued squatting? Assuming the patent involved is valid and infringed patent, eliminating virtually "automatic" issuance of an injunction against an infringer is an attack against the rightful, exclusive control of one's property. No matter what "policy" arguments others might make, I view this decision as analgoust to the abuse of eminent domain.

[Todd Juneau]

Many of us have been building "patent thickets" for years, only we call them "patent portfolios". I don't find it surprising that a kind of game-theory approach has validated what good patent counsel has known all along. However, it is intellectually satisfying to have an external view of "why we do what we do" since it helps keep the superstition out of our patent best practices.

[Mark Perdue]

Seems this quite describes the patent environment in the electronics industry that resulted in the resounding losses to Intel over the x86 processor in the 90s.

[Jud]

This theory fits in, as well, with the "mutually assured destruction" theory of patent portfolios. This theory was used to explain, for example, the relatively low rate of patent litigation in the semiconductor industry (in Allison, et al., Valuable Patents).

[Tom]

I think that one of the unintended consequences of the eBay decision will be to engender MORE patent suits, earlier on, before patent holding companies go out of business, lest they lose their great advantage in being able to sue for an injunction. Investors in companies will realize that their best shot at getting a good payback on their investment is to start suing as soon as they have a patent in hand, and an infringer.

So, bottom line, expect MORE, not less, disruption in the market after the eBay decision. Markets will find it only HARDER to be established because the patent suits will have to be dealt with far earlier in their development; people will find it harder to settle on solutions and standards, because real or potential patent infringement suits will loom large and immediately.

How this can possibly be a good thing to deal with the so-called "patent thicket" problem, God only knows.

Again, unintended consequences.

[Tom]

Just to follow up on my previous comment, the reason I strongly believe that the effect of the eBay decision will be precisely what I said is that I myself am a principal in a company with a very basic patent in an emerging market.

Before, we were thinking of simply letting some time pass before we filed patent suits, in order to let the market develop without the overhanging threat of a patent suit -- which could chill any enthusiasm for entering that market by major players who still regard it as experimental and speculative. A major global firm has decided to put its entry into the market as of this fall, and major publications are now touting the application as the next big thing. But if patent suits commence at this stage, how will that market develop, however big its promise? We fear that it will chill its development.

But now, our choice is clear: we must file patent suits early on. We must send out our cease and desist letters. We must push our patents as aggressively as possible as early as possible, or we may be reduced to something someone will call a "patent troll", and the courts may look with disdain on our application for an injunction. (And we must do all this despite the fact that we have VERY limited resources, so much so that we don't know we can engage legal counsel to do the job adequately!)

How this can possibly be good for the problem supposed posed by technology patents, and the development of emerging markets, is simply beyond my understanding.