The “Patent Litigation Explosion” Canard

Adam Mossoff —  18 October 2012

We often hear today that there’s an unprecedented “patent litigation explosion” that’s killing innovation. Last week, the New York Times plied this claim without abandon in its hit piece on high-tech patents.  It’s become so commonplace that this phrase garners over 1.3 million hits on Google. It’s especially common fare in discussions about the “smart phone war.”  It was raised repeatedly by my fellow panelists, for instance, at a congressional briefing a few days ago (you can listen to the audio of the event here).

Of course, a blog posting is not a law review article and so I can’t get into all of the weeds here, but a blog is ideal for a few quick reactions to this tread-worn trope in the public policy debates about patents.

First, it’s simply untrue. Award-winning economist, Zorina Khan, reports in her book, The Democratization of Invention, that patent litigation rates from 1790 to 1860 fluctuated a lot, but averaged 1.65%. Today’s patent litigation rates are around 1.5%.  As Yoda would say: patent litigation explosion this is not, hmm, no.  In fact, for three decades in Khan’s study patent litigation rates were higher than today’s litigation rate. From 1840-1849, for instance, patent litigation rates were 3.6% — more than twice the patent litigation rate today.

This was during a time, as reported by patent law professor Michael Risch, when patents were handwritten, and even worse, patents were extremely vague, incoherent and sometimes outright unintelligible.  And, as Professor Risch and others have so ably reported, patent law was very much unsettled at this time as well given the many new ways that the American patent system departed from English patent law. 

And it wasn’t just that the law was new and that patents were vague, as early scientific and technological discoveries were just as difficult to comprehend as the new scientific and technological discoveries are today. Long before Judge Richard Posner was complaining of the lack of technical competence at the PTO or Judge Learned Hand was complaining about his own ignorance of biochemistry in assessing the validity of early pharma patents, Supreme Court Justice Joseph Story was explaining in 1841 that

Patents and copyrights approach nearer than any other class of cases belonging to forensic discussions, to what may be called the metaphysics of law, where the distinctions are, or at least may be very subtle and refined, and sometimes, almost evanescent.

Frankly, with all of the rampant uncertainty in early patent law and in early developments in science and technology — early nineteenth-century scientists, for instance, were still vigorously debating whether the atomic theory of matter was valid — it’s surprising that the patent litigations rates weren’t astronomically higher than just 1.65%, or with many similar problems today that our patent litigations rates are only 1.5%.

The historical patent litigation rates are significant because they also include the same “patent wars” that we are experiencing with the “smart phone war.” The very first patent war began in 1851, and was called at the time in the popular press the “Sewing Machine War.”  The Sewing Machine War had all of the allegedly new problems about which there is much breathless commentary on the “smart phone war” today: lawsuits in multiple venues, expensive litigation, numerous overlapping patents, non-practicing (patent-licensing) entities obtaining injunctions against manufacturers, “defensive patenting,” inventors’ sales of patents to firms, etc., etc. There was even widespread popular outcry over the Sewing Machine War, as it was fought as much in the newspapers as it was in the courts. As the classic saying goes: What’s old is new again.

Importantly, the Sewing Machine War was ultimately resolved by patent-owners innovatively creating the very first patent pool in American history, called the Sewing Machine Combination, which functioned successfully until its last patent expired in the 1870s. The Sewing Machine Combination unleashed a tremendous amount of commercial, technological and even social innovation — including new innovative manufacturing techniques, innovative commercial practices, and even helping change social prejudices about women’s ability to use machines.  As a result, the sewing machine was fundamental to the success of the Industrial Revolution in the U.S., as I have detailed extensively in my historical research.

But even after the Sewing Machine War was brought to an end in 1856 by the Sewing Machine Combination, so-called “patent wars” continued to occur with every pioneering leap forward in technological innovation — the incandescent light bulb, telephone, electrical systems, automobile, airplane, and radio were all subjects of patent wars. Today’s patent lawyers remember very well the “diaper wars” and the “stent wars” of the 1980s, resulting in hundreds of millions of dollars in patent damages awards. If cutting-edge innovation in disposable diapers (a multi-billion-dollar industry, as any parent knows) is the subject of intense patenting and extensive litigation, then frankly we should be unsurprised that this occurs again with 21st-century cutting-edge innovation in smart phones, tablet computers and other digital devices.

Unfortunately, the complaints today about today’s patent litigation crisis arise more from unchecked intuitions about what feels like a bad situation, from unrealistic assumptions about how much certainty we can achieve in the patent system, and from emotionally-compelling anecdotes about innovators running into trouble with patents — like the ones that dominated the New York Times hit piece on high-tech patents a week ago.

As I said in a previous blog posting, it’s time to bring objectivity and a historical-based perspective to public policy discussions about patent litigation, the smart phone wars, and the role of property rights in innovation.

12 responses to The “Patent Litigation Explosion” Canard

  1. 

    Terrific article refuting the hysteria over patent litigation today. It should also be noted that the actual number of infringement trials each year is still the same as it was in 1980 — about 100. And for all the concern over the 100-plus suits filed in the smartphone industry, remember that American Bell Telephone alone litigated 587 patent suits during the first telephone wars in Alkexander Graham Bell’s time.

    But a larger issue driving anti-patent criticism today concerns the role of non-practicing entities and patent trading — both consciously designed into our patent system by the Founding Fathers, who knew that limiting patents to practicing entities would limit innovation only to those with the capital to commercialize their own inventions.

    In fact, HR-41, the bill that became the first patent law in 1790, had an explicit provision for the sale of patent rights that both the courts and the U.S. Patent Office acted to facilitate.

    Why facilitate the buying and selling of patents? Because doing so enabled ordinary worker or farmer inventors without the capital to commercialize their own discoveries to still participate in inventive activity and earn income instead by licensing or selling their patents to enterprises that could. This ability to license patent rights (along with the low application fees) turned inventing into a new career path for thousands of poor but technically creative citizens. It also proved to be a powerful means of mobilizing capital for investment in new technologies and their commercialization into new products and services for society.

    That patents could be used as tradable assets was a wholly unique feature of the American patent system, and it led to a dramatic surge in U.S. innovation as large numbers of ordinary citizens started inventing and licensing their discoveries to firms for commercialization. By 1865, the U.S. per capita patenting rate was more than triple that of Britain’s, according to the annual reports from the commissioners of patents in both countries, and by 1885 it was more than quadruple that of Britain.

    By 1880, 85 percent of all U.S. patents were licensed by their inventors, compared with 30 percent of British patents. And patent assignment records showed that 2/3 of the “great inventors” of the 19th cntury, including Thomas Edison, were non-practicing entities.

    As economic historians Naomi Lamoreaux and the late Kenneth Sokoloff have noted: “The growth of market trade in patents raised the returns to invention and encouraged a division of labor whereby technologically-creative individuals increasingly specialized in their comparative advantage — invention. It was the expanded opportunities to trade in patented technologies that enabled the independent inventors of this golden age to flourish — and that stimulated the growth of inventive activity generally.”

    And litigation, then and now, served to settle the disputed ownership of rights to new technology and facilitate their commercialization.

  2. 

    No problem. I just revised my post. The number of patents should be per $1B of GDP.

  3. 

    Very cool, Mr. Connolly. Thanks for running the numbers on GDP!

  4. 

    I wrote a post inspired by this. http://connollyip.com/patent-litigation-rates-what-they-tell-us-and-what-they-dont/
    Patents issued per year adjusted for GDP has been fairly steady for the last fifty years.

  5. 

    Hi Dennis – That’s an interesting suggestion for getting at a more precise comparison of patent litigation rates. I wonder what the real result would be given that you’d still have to control for the increase in length of patent term since then (from 14 years from issuance to 20 years from date of filing), which would effect the number of patents available for enforcement. This is what makes me wonder if this would produce really significantly different numbers, statistically significant differences, or if it might drive the patent litigation rates in the early nineteenth century even higher (because fewer patents vis-a-vis the same number of court decisions). Of course, these are just intuitions and not empirical claims, but since there were fewer patents available for enforcement at any particular point in the Antebellum Era, then the hundreds and hundreds of lawsuits filed by Charles Goodyear (one of the first truly successful NPEs), and the hundreds of lawsuits filed by by Cyrus McCormick, and the tens and tens of lawsuits filed by Morse, etc., would end up being more salient. As I said, this is just an intuition on my part, and so it would be interesting for someone who is trained in empirical analysis to run the numbers. As always, thanks for the comment and the interesting food for thought!

  6. 

    This is a very interesting post, but I agree with Prof. Crouch on the issue of metrics. I’d be interested to know how the number of patents litigated or the the total dollars in damages compared to GDP or other indicator to account for the scale of the economy.

    I would guess (but that is all it would be) that more patents are issued now, per $1 of GDP, than in the nineteenth century.

  7. 

    Adam – I think you are on the right track here. One question though, is why the percent of total patents is the correct measure. If it is, I would argue that the percent should be based upon the total number of patents available for enforcement rather than the the total number issued in the same year that the infringement action was filed. If you use that number, I believe that you will see an increase in patent enforcement actions.

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