Jaffe Adam B. - Innovation and Its Discontents

INNOVATION AND ITS DISCONTENTS

How Our Broken Patent System Is

Endangering Innovation and Progress,

and What to Do about It

With a new preface by the authors

Adam B. Jaffe and Josh Lerner

PRINCETON UNIVERSITY PRESS PRINCETON AND OXFORD

Copyright2004 by Princeton University Press
Published by Princeton University Press, 41 William Street,
Princeton, New Jersey 08540
In the United Kingdom: Princeton University Press,
3 Market Place, Woodstock, Oxfordshire OX20 1SY
All Rights Reserved

Third printing, and first paperback printing, with a new preface
by the authors, 2007

Paperback ISBN-13: 978-0-691-12794-1

Paperback ISBN-10: 0-691-12794-8

The Library of Congress has cataloged the cloth edition of this book as follows

Jaffe, Adam B.

Innovation and its discontents / how our broken patent system is
endangering innovation and progress, and what to do about it /
Adam B. Jaffe and Josh Lerner.

p. cm.

Includes bibliographical references and index.

ISBN 0-691-11725-X (cloth : alk. paper)

1. Patent practiceEconomic aspectsUnited States. 2. PatentsUnited States. 3. Technological innovationsUnited States.

I. Lerner, Josh. II. Title.

KF120.J34 2004

346.730486dc22 2004044250

British Library Cataloging-in-Publication Data is available

This book has been composed in Galliard, News Gothic Family,
and ITC Kabel Family Display

Printed on acid-free paper.

pup.princeton.edu

Printed in the United States of America

10 9 8 7 6 5 4 3

To Pam

To Frog and Jamie

We wrote this book because patent policy in the United States has gotten seriously off the rails, in ways that endanger the long-term well-being of our citizens. The complexity and political obscurity of the subject had precluded widespread informed debate of the issues. And with the exception of fleeting controversies over a few patents on drugs or aspects of the Internet, business people and others concerned with economic policy seemed to pay little attention to patents.

Since we wrote Innovation and Its Discontents, there has been some modest progress in this regard. The U.S. Federal Trade Commission and the National Academy of Sciences have issued reports calling for reform of patent policy. In the summer of 2005, the Subcommittee on Courts, the Internet, and Intellectual Property of the House Judiciary Committee drafted legislation that would make major changes in how patents are awarded and litigated. And a number of major business and industry associations have gone on record as supporting various aspects of reform. Although there remain significant disagreements about what shape reform should take, the debate does appear to have become both more engaged and more substantive.

More recently, several important and high-profile patent cases drew industry and media attention and provoked wider reaction among the millions potentially affected. Patent disputes threatened to shut down first the ubiquitous BlackBerry wireless e-mail device and then the Buy-It-Now feature of eBay online auctions. In the first case, Research In Motion, the company that sells the Black-Berry, agreed to pay a $612 million ransom, even though the U.S. Patent and Trademark Office had already indicated that it was likely to conclude soon that the patents BlackBerry was accused of infringing were not even valid. In the eBay case, the U.S. Supreme Court issued a ruling attempting to clarify the circumstances under which a patent holder can shut down a competitor, and sent the case back to the lower courts to resolve. (Most observers are skeptical as to whether the new rules are any clearer than the old ones.) And as of this writing, the Supreme Court, under the leadership of Chief Justice John Roberts, seems poised, over the course of the next judicial term, to rule on a number of important cases that will potentially affect the workings of the patent system. The most impactful of these is likely to be the case of KSR International v. Teleflex, which the Court has agreed to hear and which raises substantial questions as to whether the bar for an obvious invention is set too low.

We applaud the greater attention that policy makers and the general public have been giving to patent policy in the last year or so. Yet in many cases observers are still drawing the wrong conclusions about what needs to be fixed to get the system on the right track. Many have concluded that certain kinds of technology, such as Internet business methods or biotech drugs, should not be patentable. Or they have demonized certain firms for ruthlessly enforcing patents instead of concentrating on making and selling products.

But the problem with the patent system is neither that it doesnt fit certain technologies nor that certain kinds of firms should not be allowed to enforce patents. The problem is that the system that we use for determining who should get a patent in the first place is not sufficient. While no patent system will ever be perfect, the technology world today is awash in patents that should not have been granted in the first place, because they either are not new ideas, are overly broad, or did not sufficiently flesh out the invention at issue to deserve patent protection.

Innovation and Its Discontents provides a substantive basis for deciding how the system needs to changefor how the U.S. Patent and Trademark Office can stop granting bad patents that gum up the United States innovation system and slow the speed of business. The book is explicitly designed to help business people, policy makers, and others who care about innovation in the economy to understand how patent policy and patent practice affect innovation and economic growth. The undesirable manifestations of current policy can be understood as the inevitable consequences of inventors, their attorneys, and competing firms exploitation of the incentives that changes in policy and practice over the last two decades have inadvertently created. Once the book documents how we got into the current mess, it discusses ways to fix the problems. In particular, we argue for reducing the incentives to file bogus patent applications and then use them to threaten litigation, and for increasing the incentives for parties to bring information bearing on the validity of disputed patents to the patent office so that these disputes can be resolved at an earlier, less expensive, and less risky stage. Without such fundamental changes to the incentives of inventors and their representatives, efforts at reform are likely to be fruitless.