Freedom Line Blog

This week, conservatives from across the nation and even the globe congregate in Washington for the annual Conservative Political Action Conference (CPAC).

Each year, CPAC features prominent conservative political figures, including prospective presidential candidates, as well as panels on various issues.  This year, appropriately, a panel is scheduled to address the important issue of patent reform.

We at CFIF value and advocate strong intellectual property (IP) rights, including patent rights, as much as any organization.  At the same time, we support patent reform like that proposed by Congressman Robert Goodlatte (R – Virginia).  The way we see it, the problem of so-called “patent trolls” (which can be an overused and unfair term, as non-practicing entities have every right to enforce legitimate patent rights in court) is largely one requiring legal reform, rather than one justifying weakening of patent rights themselves.  Accordingly, we favor such reforms as requiring greater specificity in court pleadings, assessment of fees and costs to a greater number of improperly-litigious plaintiffs and discovery process reform.

Opponents of patent reform legislation incorrectly claim that it will deprive judges of discretion in assessing fees, but the fact is that discretion will remain.  As we have detailed, what will change is that the presumption in awarding costs and feels will shift on the continuum toward allowing innocent victims of vexatious plaintiffs to receive compensation for having to defend against unjustified lawsuits.  Reform opponents also claim that it would improperly chill the filing of lawsuits by legitimate plaintiffs.  But as any reasonable person realizes, the overwhelming problem in our current litigation system is not reluctance by plaintiffs to sue, but rather excessive willingness to sue.

Accordingly, our hope is that the CPAC panel allows a full and fair presentation of both sides in this debate.  To do otherwise would be a disservice to attendees, the broader debate and CPAC itself.

In a typically excellent commentary, AEI’s Michael Rosen suggests how Republicans can begin to correct their costly lag in attracting “votes and dollars from the high-tech industry,” and to “forge a technology policy rooted in free-market policy and updated to reflect and respond to 21st-century concerns.”

Mr. Rosen provides illustrations of the nature and depth of the problem, but also identifies recent progress made by various Republicans.  Helpfully, he proceeds to identify three key components of a much-needed “technology manifesto”:  (1)  Address the needs and wants of the tech community without pandering to it;  (2)  Adhere to free-market values, but apply them intelligently to new technological challenges;  and (3)  Avoid soundbites – articulate sound explanations.  He then cites AirBNB, Uber and other tech upstarts to apply his points.

Finally, Mr. Rosen smartly addresses the ongoing patent reform and patent “troll” debate that’s likely to reappear in the new Congress.  Among other points, he highlights how litigation reform to curb trial lawyer abuses, as opposed to altering patents or intellectual property rights more generally, offers the primary corrective to the underlying problem:

Republican candidates must promote real innovation and reduce deadweight loss without succumbing to the temptation to demonize patent holders.  The patent ‘troll’ reform debate contains multitudes, but the specific issue of attorney fees nicely encapsulates the tensions and the opportunities for GOP candidates…  GOP candidates hoping to garner support in the tech community should resist their inclination to uproot centuries of American legal and intellectual property tradition simply to settle old scores, both in general and in the particular area of attorney fees.  Rather than undo our longstanding ‘day in court’ practice by presumptively awarding fees to winning parties, as many Congressional Republicans seek to do, discerning free marketeers should push to modestly trim, not flip, the burden.  This approach may not fully satisfy the rabidly anti-trial-lawyer conservative donor base, or, for that matter, large Silicon Valley companies pushing for significant changes to the patent system.  But it will certainly find favor with small and large companies whose bottom lines – if not whose very existences – depend heavily on their IP assets.  Such a nuanced position promotes innovation and comports with historical notions of American justice – two key themes Republicans looking to score points in the Valley must hammer home consistently.”

Excellent points with which CFIF has consistently agreed, apart from my need to assure him that at least this “anti-trial-lawyer conservative” tested negative for rabies.

Each Monday, The Wall Street Journal’s “Information Age” column by L. Gordon Crovitz is a must-read.  His analyses are invariably intelligent and his policy positions are usually wise.

On intellectual property (IP), however, Crovitz occasionally hits discordant notes.  Unfortunately, this week provided another example.

In “Even Silicon Valley Tilts Republican,” he highlights the surprising news that this year, technology companies reversed tradition and gave 52% of their political contributions to Republicans.  He also touches upon the topic of patent law reform, which CFIF has broadly supported.  But then he veers off logical course by maligning patent rights, specifically with regard to software patents:

Patents make little sense for software, which almost always builds on an earlier work.  There are some 250,000 potential patent violations in smartphones alone.  Companies known as ‘patent trolls’ stockpile patents to extract huge settlements from technology companies, not to build products.  Plaintiff lawyers joke that their focus has gone from ‘PI to IP.’  Now that personal-injury litigation has been reformed in many states, they’re turning to intellectual property lawsuits such as patent infringement.”

It’s difficult to fathom how Crovitz continues to make such a claim.

The United States maintains by many measures the world’s strongest patent and IP protections.  It also leads the world in technological innovation, including software and smartphones.  That’s not coincidence.  It’s cause-and-effect.  In an excellent recent piece for IPWatchdog.com, patent attorney Gene Quinn offers a superior analysis on IP rights and innovation in such areas:

Why will anyone invest the extraordinary sums of money to create the innovations we want without an expectation of exclusivity that will allow for a recoupment of the investment plus a reasonable return on investment?  ‘The Truly Staggering Cost of Inventing New Drugs unveils a Forbes study finding:  ‘The average drug developed by a major pharmaceutical company costs at least $4 billion, and it can be as much as $11 billion.’  And it is pure fiction to believe that software development doesn’t follow the same economic realities.  When IBM produces one of their large-scale projects, there will have been many hundreds of people working on the software solution for at least several years.  The same is true for a new Apple operating system, or the next version of Microsoft Windows.  It is pure fantasy to believe that software programs are written over a long weekend by a single person who is merely a second-year engineering student.  Software that is compatible, secure and actually works is rare these days, and takes real development effort, which costs real sums of money.  The quickest way to get less innovation is to destroy the patent system.”

Quinn is correct, and the real-world facts speak for themselves.  Strong patent protections spur the innovation for which America and its tech sector are known.  Moreover, there isn’t anything inherently wrong if a patent holder with no ability or intention of manufacturing or marketing an invention sues for violation.  A patent right is simply a property right enforceable by law, just as a songwriter can rightfully sue for infringement even if he or she didn’t have the ability to sing the song, assemble a band, reserve a recording studio or find an agent.

That obviously doesn’t mean that we should in any way condone the filing of frivolous lawsuits based upon false claims of patent infringement.  But it does mean that much of the “patent troll” problem can be resolved via litigation reform, such as requiring greater specificity in court pleadings and shifting of attorneys’ fees and costs to more of a “loser pays” system.

What we don’t want to do is demonize patent rights, which have been the foundation for American innovation through the decades and centuries.

Following up on our patent reform post last week, today’s Wall Street Journal includes an interesting viewpoint via letters to the editor.  Specifically, Paul Adams of Albuquerque, New Mexico notes that while some economists short-sightedly applaud the way in which weakening patent protections and encouraging copying can lower costs in the near-term, they ignore the longer-term incentive to invest and invent that strong patent protections provide:

It may satisfy economists that allowing copying by large corporations will drive down prices for consumers since there is no other way to compete.  But that does enhance technology.  In fact, one benefit of the patent system is the pressure on competitors to invent a different and likely better solution, thereby advancing the technology.  I have on many occasions assisted competitors in ‘designing around’ a patent creating a new product or service.  There are few patents of such broad scope that there is not an alternative.”

Opponents of strong patent protections often fancy themselves clear-sighted, dispassionate, economics-based observers, but their positions are more accurately penny-wise but pound-foolish, as Mr. Adams correctly notes.

“Patent troll.”  The term has assumed prevalence amid discussion of broader patent law reform, which we at CFIF have supported in some incarnations.

The “patent troll” problem, however, is to a large degree a litigation problem more than a problem inherent in our patent system.  And in that vein, two prominent conservative/libertarian figures have penned a Wall Street Journal commentary entitled “The Myth of the Wicked Patent Troll.”  Author Stephen Haber is a senior fellow at the Hoover Institution’s Task Force on Intellectual Property, Innovation and Prosperity, while co-author Ross Levine is a business professor at the University of California, Berkeley and a senior fellow at the Milken Institute.  In other words, their intellectual and free-market credentials are well-established.

In their commentary, Mr. Haber and Mr. Levine substantively detail research showing that, “innovation rates have been strongest in exactly the industries that patent-reform advocates claim are suffering from ‘trolls’ and a broken patent system.”  They also correctly highlight the fact that, for whatever its flaws, our patent system is the world’s greatest:

Thanks in large part to the patent system we have, the current rate of invention in the U.S. might be the fastest in human history.  Where is the evidence that society would benefit from undertaking the risky process of reforming a patenting system that has been the envy of the world for more than two centuries?”

The real problem, they say, is large corporations seeking to leverage government power in pursuit of their own self-interest:

There is one basic reason behind the attacks on trolls:  Big Money.  Many patent-intensive products — the smartphone in your pocket, the laptop computer in your briefcase — are produced by big corporations that license many patents.  The iPhone is a classic example:  It contains thousands of patented components, but Apple does not own many of the key ones.  It must negotiate for the right to use them.  These corporations can make higher profits the less they pay to use patented technology they do not own, and higher profits still by paying nothing at all.  The battle over the ‘right price’ for patented technologies takes many forms, one of which is political.  Indeed, some corporations are looking to gain a competitive edge by changing the rules of the game.  The strategy is to pass patent-reform legislation that weakens the negotiating position of patent holders.  Corporations that pay large sums for patented technologies will point to lawsuits, trolls and anything else that will encourage lawmakers to pass such reforms.”

Agree or disagree, their piece brings an important and under-discussed perspective to the ongoing patent reform debate.