01 Dec 2016

The US Patent System’s Uncertain Fate

Professors Lauren Cohen and Josh Lerner talk about the economic toll of the current system—and the troll problem
by April White


(Illustration by Peter Arkle)

What is really at stake when we talk about patents?

Lauren Cohen: Innovation is the future of the US economy. Given that the value of firms is shifting toward intellectual property, if we don’t get patents right, then we’re going to be at a huge disadvantage.

Josh Lerner: Not only is the system not doing its intended job, which is to encourage new ideas, it is essentially being hijacked to tax the innovators. Still, it’s a real struggle to get people excited about patent reform.

What are the questions we should be asking about the current US patent system?

JL: One is how are the bad patents getting issued in the first place? The situation is the result of the confluence of two things: the strengthening of the patents themselves, which has been a gradual change over the last 30 years, and the decision in the early 1980s to create a centralized appellate court for patent cases. That sounded reasonable on the surface, but it ended up making more stuff patentable with more remedies for patent holders. It has led to a flood of patents.

LC: The research that I’ve done has focused on the massive increase in patent litigation we’ve seen in the past 10 years; the rate of increase in patents has been far outstripped by the increase in patent litigation. And essentially all the new cases are brought by this new organizational form called the non-practicing entity, or NPE, that amasses patents not for the sake of producing anything—or practicing—but instead to sue.

“Patent trolling” is the opportunistic use of a patent to extract licensing fees or settlements when no infringement has occurred. On average it takes 18 to 24 months and about $500,000 to $3 million for a patent holder to defend that type of case. It’s great economics for patent trolls. How can we change that?

JL: When Adam Jaffe and I wrote Innovation and Its Discontents [in 2004 about the patent system], our big worry as we were working on it was that Congress was going to pass patent reform, and these problems were all going to go away. And here we are a decade later, and the problems are worse than they’ve ever been.

Where do you see the US patent system in 5 or 10 years?

LC: In a good world, some of the things that we have proposed for cleaning up the patent system itself and for fixing the patent litigation system will be piloted, and we’ll start to get people to understand that this is a bipartisan issue.

JL: But given the gridlock in Washington, you can see the status quo continuing. If that happens—and if the efforts on the part of the Supreme Court to try to reform the system are ineffective—we will see not only an intensification of the issues we’ve discussed, but also the patent system serving as a real drag on innovation.

LC: You’ll see a shift in innovation to other countries. But you’ll also see continued growth in patent issuances in the United States. If I’m a company that is worried about being sued—and I’m increasingly worried about being sued—one of the best defenses against that is having my own patent. So things will get worse and worse. It’s the snowball effect.

Continue the Conversation

Has your company had interactions with non-practicing entities (NPEs) or other experiences navigating the patent system? Professors Josh Lerner and Lauren Cohen would like to hear from you. Continue the conversation with them at jlerner@hbs.edu and lcohen@hbs.edu.


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