Book Review: Innovation and its Discontents

Review by Professor Thomas G. Field, Jr.

Innovation and its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What to Do About It (2004).
by Adam Jaffe and Josh Lerner

The 2004 book, Innovation and Its Discontents, has received too much attention to ignore. There, and more recently in the Wall Street Journal and elsewhere, Professors Jaffee and Lerner maintain that the patent system is broken, endangering innovation and progress. To their credit, they acknowledge that the alarm has been sounded for centuries. But such ground was well covered in Fritz Machlup's agnostic study, An Economic Review of the Patent System, published by the U.S. Senate in 1958. Also, to their credit, they criticize, at 158, Nobel Laureates for exceeding the scope of their expertise. Yet, their often-rambling book suffers from the same fault.

Ironically, an introductory section beginning at 18 is entitled "patent medicine." As noted by Wikipedia, for example, "One memorable group of patent medicines — liniments that allegedly contained snake oil, supposedly a universal panacea — made snake oil salesman a lasting synonym for a charlatan." The authors aren't charlatans, but it is difficult for anyone who knows much about patents to take Discontents seriously.

Jaffee and Lerner put a fresh face on prophesies of doom by linking them to two recent process changes in the patent system — a shift from tax to user-fee funding for the PTO and the creation of the U.S. Court of Appeals for the Federal Circuit. Although they argue that patent policy is too important to leave to patent lawyers, both problems and proposed solutions seem more related to process than policy.

The authors could be taken more seriously if they didn't persist in flagging a few patents as evidence that, according to their subtitle, "our patent system is broken, endangering innovation and progress." Three mentioned in their book and elsewhere are for sideways swinging, exercising cats with laser pointers, and wristwatches for dogs. They might not resort to such examples, however, if they appreciated that the first is unenforceable, the second could not be enforced except possibly under § 271(b), and the third if enforced would seem unlikely to endanger much of anything.

By citing such patents, Jaffee and Lerner are hardly alone in subjecting the PTO to ridicule, but I fail to see how altered funding of the PTO could have increased the frequency of such patents. Nor do I see how their proposals would reduce it. Although they advocate, for example, earlier publication and expanded opposition, who other than the humorless would oppose? And how much time or money might such humorless individuals be willing to spend?

The relationship between the shift in PTO funding, on the one hand, and the issuance of patents for silly or trivial inventions, on the other, is remote. Indeed, I can think of nothing more likely to deter applications to protect inventions of little or no economic value than the substantial fee increases that followed the shift.

It is unlikely that those who got the swinging and cat-exercising patents harbored delusions about their economic value. Jaffee and Lerner, with most other patent system critics, however, seem not to appreciate why applicants often find such assessments difficult. As I've argued repeatedly, applicants unaware of the market value of inventions have far less incentive to scour the literature for potentially fatal art than infringers who subsequently become aware of the stakes. Anyone who understands that should not be surprised that patents are sometimes invalidated. Nor should they protest overmuch that infringers intending to do so must meet a heightened burden of proof. Moreover, they should not be sanguine about the prospects for early opposition.

Turning to Jaffee and Lerner's claim that the Federal Circuit was a bad idea, I’m even more skeptical. Prior to 1982, only two courts had appellate jurisdiction to review PTO decisions directly — the D.C. Circuit and the CCPA. The 1966 report of an expert commission established by President Johnson faulted the latter as too quick to favor applicants. Fearing erosion of a strong presumption of validity, the Johnson Commission recommended that the CCPA be more deferential. It also recommended that the Office be allowed to appeal from the CCPA to the D.C. Circuit. Because that circuit was unlikely to see infringement appeals, I regard the post-1982 situation as an improvement over what was proposed.

If the Federal Circuit, reviewing directly, adopts rules unduly favoring applicants, the consequences must be faced in collateral review. The substantial price paid for that possibility, apparently unappreciated at the time — and perhaps even now, was the dearth of precedents bearing on the many issues that arise only in the latter context.

Beyond that, some things for which Jaffee and Lerner fault the Federal Circuit, e.g., the strength of the validity presumption, preceded its creation. Others, e.g., the role of juries in patent litigation, are best addressed by Congress or by Supreme Court justices who have made a hash of fact-law distinctions in patent law.

If Jaffee and Lerner, with many others, fear that the fox has been set to watch the hen house, they need to re-evaluate their assumptions about the Federal Circuit and the patent bar. Even if the court were inclined to be the handmaiden of that bar, how would it deal with the many internal conflicts manifested by the diversity of amici in the eBay case? How would it deal with the fact that, for many attorneys, patents are both sword and shield?

On balance I am anything but contented with Innovation and its Discontents. Those who share my belief that two relative newcomers have little grasp of key problems, much less meaningful solutions, should not stand silent.

Note: This review was originally published in PatentCafe's IPFrontLine. Republished with permission.

Comments

[John Darling]

I read the book and it's very evident that neither author ever prosecuted a patent application. I laughed out loud at several of their misstatements.

[David J. French]

David French writes:

The fundamental policy issues in respect of patents are the scope of patentable subject matter, and the consequences of enforcement. The exact definition of novelty and issues of entitlement are collateral to encouraging advances in technology that will serve society.

Those who advocate that everything new under the sun should be patentable are not taking a balanced approach. This is an easy principle to declare because of its simplicity. But if patents are not needed in certain fields in order to advance technology, why should they be granted?

The consequences of patent enforcement should be taken into consideration in deciding what should be patentable. Today, virtually 50% of all US patents are granted to nonresidents. Increasingly, into the future, the US patent system will be operating as a mechanism by which foreigners will acquire the right to withhold access to the latest developments in technology from American industry.

The principles of the TRIPS round of negotiations under GATT are now part of the rules of the World Trade Organization. These rules prohibit discrimination against patentees not only on the basis of nationality but also on the basis of where products are manufactured. The full consequences of these principles and their effect on American industry will only unfold in the next 20 to 30 years. By that time, the US patent system will be totally dominated by foreigners.

Patent law is not an inherent system that arises as a matter of natural principles. It is a man-made creation. Accordingly, careful thought should go into its construction.

[The Patent Guy]

By golly, if'n we could only keep 'dem damn ferners outta da patent office, we'd all a be betta off. Hell, ah, fer one, don need none of dem invenshuns that come from outside the U.S. of A and may have U.S. of A patents! Such az: the LED, UltraSoniks, the alfabet, and a number of vakseens (not ta mention good quality auto-mobiles). I boleeve U.S. of A industry wood be more competiteeve if 'n we built a wall 'round the USPeeTee-O and gave the only keeys to 'Mericans.

[Michael Slonecker]

I can hardly wait for their sequel about copyright laws and their implementation. After all, how much of what they cover actually promote progress in the useful arts and sciences? Perhaps we should photocopy their book and distribute it over the internet. I suspect the words "you stole our IPRs" would roll from their lips, all the while ignoring that IPRs are extremely important to others as well.

Just like there are ridiculous patents, the same can be said for copyrighted works. The main difference? Patentees pay through the nose to get their limited duration IPRs, while copyright holders hardly break into a financial sweat for rights that will last for decades.

[Joe Smith]

The patent industry (lawyers and judges) ignores public disquiet at obvious injustices (like the NTP v. RIM fiasco) at its own peril.

Either the industry gets serious about reform (with particular reference to obviousness and enforcement) or people like Jaffee and Lerner will be given the job of writing the new laws.

[Mark Perdue]

Where is the obvious injustice in NTP vs. RIM?

[Joe Smith]

"Where is the obvious injustice in NTP vs. RIM?"

Extorting $600 million dollars from a company when the USPTO had ruled that the patents are invalid just because a Judge thought he was too important to spend any more time on the case seems like an injustice to me. Maybe not to you.

[Mark Perdue]

After RIM lobbied the PTO ex parte? The reexams aren't done yet, there's no final judgment of "invalidity" or more accurately no certificate cancelling the claims at issue. Don't know why the hell they waited so long to institute them. It will probably take another year or two to get the reexams through appeal, maybe longer.

I have no problem with what the judge did. There is a long judicial tradition of ignoring reexams pendente lite.

[Joe Smith]

"There is a long judicial tradition of ignoring reexams pendente lite."

The NTP re-exams had gone to final office action. The Judge should have stayed the proceeding and required RIM to pay the damages into escrow. The Judge railroaded RIM and it was WRONG. The fact that the patent courts have done the same to other litigants is not a defence of the practise but rather an argument for a "scorched earth" reform of the existing system.

[Mark Perdue]

We will agree to disagree. My point stands.

[Greg Stark]

It seems to me that the more interesting question in the NTP v. RIM case is why, after RIM had full opportunity to adjudicate the validity of these patents through the courts, is the patent office even allowed to make a subsequent decision on validity? The patents have been found to be valid by the federal courts, what gives the patent office standing to make a different determination. Allowing infringers a second bite at the validity apple does not necessarily seem fair. Certainly at a minimum it is judicially inefficient.

Perhaps some reform in how the Federal Courts and the USPTO jointly deal with validity of patents would be useful.

[Joe Smith]

"Allowing infringers a second bite at the validity apple does not necessarily seem fair."

It seems to me that RIM is not a party to most of the re-exams. They are ex parte re-examinations commenced by the USPTO itself.

Title 35 section 317 restricts the right of a party who has lost in court to pursue an inter partes re-examination.

Just because one judge and jury (after ruling certain evidence of prior art inadmissible) found that the patents were not invalid does not, and should not, make that finding binding on the USPTO or anyone else who was not involved in the lawsuit.

[steve]

This book is aweful.

The part that I go bonkers over is where they are so sure a patent for softening bread is rendered invalid by any home bbq.

However, if I recall, the claims of that patent required a heat of 4000 degrees for a very short time or so. I don't think my bbq gets that hot.

[Mark]

Wikipedia has a good article on the details of the RIM NTP litigation and reexaminations.

http://en.wikipedia.org/wiki/NTP_Inc.#Patent_Reexaminations

[David Jaglowski]

While Mr. Smith's point is well taken, but he cannot escape the fact that RIM requested the ex parte reexaminations while it was engaged in litigation over the validity of those same patents.

RIM argued that the USPTO had made certain preliminary decisions in proceedings that it had requested as a way to collaterally attack a jury verdict that apparently could not be reversed on a JMOL. The patents had a valid status at the time the verdict was entered in the infringement suit, and at first glance I find it hard to reconcile RIM's litigation position with the concept of res judicata. If you are sued for patent and infringement and lose, the fact that some other party later proves that the patent is invalid does not permit you to recover the damages that you paid to satisfy the judgment against you.

I also think that a few of us, and many members of the public, are also forgetting that NTP can appeal the USPTO examiners' decisions through multiple levels of administrative and federal judicial review. Let's not pretend that the result of a final office action is set in stone.

[Joe Smith]

I know that final office actions are not set in stone and are subject to appeal. I understand that NTP has appeals underway and is attacking the conduct of the USPTO.

I believe that the Judge should have stayed any injunction until the USPTO process and any appeals are finished. He made it clear he would not do that.

Legalistic rationalizations of what happened to RIM are not going to have any sway with the public if in two years the patents are struck down on the basis of prior art (including the two examples of prior art the Judge kept from the jury). The general public will rightly be asking why the patent bar thinks that a six hundred million dollar payment on invalid patents is a reasonable result. An answer to the effect that the $600 Million was just the price for RIM not playing the game well enough at trial is not going to cut it. If the current trial process is that unreliable then we need a new process. No one would buy a brand of car where every third one had the wheels fall off. Quality, in the industrial sense, is a serious issue for the judicial system.

[SF]

"including the two examples of prior art the Judge kept from the jury"

... damn those activist judges!

[algogocom]

Wikipedia has a good article on the details of the RIM NTP litigation and reexaminations.
I have read it.It is really so good,well worth reading.

[Lawrence B. Ebert]

Note that Professor LaFrance finds that Jaffe and Lerner's --Innovation and Its Discontents-- diagnoses a broken system.

See
http://ipbiz.blogspot.com/2007/01/lafrance-on-jaffelerner-on-patent.html