Patent Trolls: Myths & Realities.

Transcription

1 Patent Trolls: Myths & Realities For Presentation at the TILEC Tilburg Law and Economics Center Conference on Patent Reforms Thursday 26 and Friday 27 March 2009 NH Grand Hotel Krasnapolsky, Amsterdam By F. Scott Kieff Professor, Washington University School of Law Senior Fellow, Stanford University Hoover Institution 1of of 16 1

2 Modes of Action 3of 16 Why Have IP? Ever Forward! Mark Twain s Connecticut Yank went to Warwick Castle, England. There he was magically transported back to the time of King Arthur. He did well. He was made First Minister. He was called Sir Boss. What was the first thing he did in power? The very first official thing I did, in my administration and it was on the very first day of it, too was to start a patent office; for I knew that a country without a patent office and good patent laws was just a crab, and couldn t travel anyway but sideways or backwards. Lord Robin Jacob, Royal Courts of Justice, London, England, One Size Fits All? in F. Scott Kieff, PERSPECTIVES ON PROPERTIES OF THE HUMAN GENOME PROJECT 449 (2003). 4of 16 2

3 Why Have IP? Really?! Is intellectual property really so good? To call it intellectual is misleading. It takes one's eye off the ball. Intellectual confers a respectability on a monopoly which may well not be deserved. A squirrel is a rat with good P.R. * * * * * [H]owever justified the cry, what we need here is protection may be for an anti AIDS campaign, it is not self evident for a process of the creation of new or escalated kinds of monopoly Lord Robin Jacob, Royal Courts of Justice, London, England, Industrial Property-Industry's Enemy, The Intellectual Property Quarterly, Launch Issue, (Sweet & Maxwell), 1997, pp of 16 Property Rights in IP as Keys to Innovation and Competition Increase innovation Not just incentives to invent Get inventions put to use By facilitating coordination among complementary users of the invention (investors, managers, marketers, laborers, owners of other inventions, etc) Specialization, division of labor, and modularity Help new companies compete Anti-monopoly weapons Vital slingshot for David against Goliath History: Judge Giles Rich,1952 Patent Act don t focus on inventing! (also note Judge Learned Hand and Judge Jerome Frank) 6of 16 3

4 Mechanisms of Coordination for IP (See Kieff, Coordination, Property & Intellectual Property: An Unconventional Approach to Anticompetitive Effects & Downstream Access, 56 Emory L.J. 327 (2006)) (See Kieff, On Coordinating Transactions in Information: A Response to Smith s Delineating Entitlements in Information, 117 Yale L.J. Pocket Part 101 (2007)) Good coordination by property rules to facilitate innovation Beacon effect, not control start conversations Bargaining effect get deals struck Compare liability enforcement rules Boil everything down to $$, but what about unique assets? Help get bad, anticompetitive coordination done among large established players (Keiretsu effect) 7of 16 Patent Reform : Lofty Goals 2007 & 2008 patent bills in US Congress Core problems to be solved Death by a thousand pin pricks Bad patents, Undue leverage (makes a troll) Core proposals would increase government discretion about validity, damages, etc. 8of 16 4

5 Patent Reform : Unintended Consequences? Problems of flexibility and discretion Flexibility s Achilles Heel Increases uncertainty Injects a markedly different kind of risk: pure political risk Influenced by political pressure and lobbying Big guys win, which turns a law designed to help competition into one that hurts competition Example: IBM & Kennedy/Johnson/Katzenbach Discretion to reject any software patent, and eventually all Absence of property rights is when we got Microsoft 9of 16 Mechanism of Bad Coordination Keiretsu Strategy for IP & AT Consider how big players play with and against each other They d love to talk directly But face two key problems: trust, and antitrust What if every legal test turns on discretion? This ensures large numbers of low value IP assets Which helps them coordinate to keep out competition Mitigates trust problem: improves communication Decisions to push and yield transmit preferences Discovery ensures fidelity Mitigates antitrust problem: (blessed by Federal Judges) Insulates from scrutiny generally Mitigates chance of treble damages and jail time even if scrutinized Avoids slingshots from Davids 10 of 16 5

6 Popular View Today: Problems of Property Enforcement Rules for IP Hold ups stop things from getting done Hold outs extract too much, breakdowns, etc. Buzzwords: patent trolls, thickets, & anticommons 11 of 16 Popular Response: Modest Proposals (But Impact is Not So Modest) We have all but removed property treatment from IP We had plenty of release valves already (what scholars call liability rules ) Corporate form, bankruptcy, government immunity, Hatch-Waxman, etc. Now no reliable property rules (except for large players who don t need it) Injunctions after ebay & Paice v. Toyota Enhanced damages after Seagate Increased uncertainty after KSR, Bilski 12 of 16 6

7 RIM s Reality: Failure in the Market for Corporate Control? Settled for ~$600 million Initially offered ~$6 million (1/100 th x) Public estimated $1 billion (~2x) Private cash reserves $1.8 billion (3x) What if LBO with purchase price valuation at typical price? 52 week range in stock price: low 52, typical 63, high 88 Majority of outstanding shares (191 million) in public float (141 million) Put in $10 premium for about $1.4 billion Settle for $1 billion, pay total fees and other costs of $100 million $22 bounce back in share price to high makes about $3.5 billion On $2.4 billion investment that s ~ 40% return 13 of 16 Overlooked Problem: Transacting in the Shadow of Liability Enforcement Rules & Mandatory Rules for Contracts Liability rules make transactions too forced and too frequent Some deals shouldn t get done, and a forced yes is not a deal Intervention when disagreement encourages disagreement Harder for patentee to attract and hold constructive attention of a potential contracting party (can t hold-in the counterparty) Removes patentee s option to terminate the negotiations in favor of striking a deal with a different party (can t hold-on to option) Hits small firms worse since big firms have easier time holding-in Have more $$$ to finance litigation Have leverage with reputation effects, relationships, bargaining power New mandatory contract rules block deals Licensees now can always renegotiate (Medimmune) License to one may now license all (Quanta) 14 of 16 7

8 Overstating Patent Anticommons If a vast number of IP rights cover a single good or service it won t get done Heller on anticommons in the post-socialist environment Why are so many vendors using kiosks in front of empty storefronts Why don t they come in from the cold? If too many people can say no to a use, that use may not occur But the explanation is wrong: it s not the number of permissions that matters It s the nature of the people from whom permission is needed Bureaucrats can t openly sell a yes Patentees can, want to, and do And the nature of the permission that can be given Permissions of bureaucrats can t be enforced against them, or others Courts enforce patent licenses and bind everyone And the nature of the underlying asset Clear rules for property and contract force parties to focus on parties Uncertainty force parties to focus on legislators, regulators, and courts 15 of 16 Conclusion A well functioning patent system is critical to our economy Fosters innovation, jobs, and capital investment But a patent system can also be plagued by frivolous suits, unending process, and extreme uncertainty We now see intense lobbying with curious political alignments Focusing on importance of strong patents were unions, Republicans, small business, and Big Pharma Focusing on the problems of over enforcement of patents were Democrats and the big business interests of High Tech Let s focus on good ideas & practical problem solving, not compromise among loudest voices Sound theory and historical practice both show how to meet these dual sets of concerns by blending predictable patents with the flexibility for market actors to contract over them and adding symmetrical mechanisms to cabin abusive litigation and other legal process Today, we may get more by doing less Every good chef knows the benefits of letting things marinate spices need time to soak in and intermingle With such a large number of potent changes over the past few years only time will tell whether more would help or hurt, let alone which type would be a good decision to try 16 of 16 8