Thursday, May 14, 2015

Trolling for Content in the Patent-Trolling Debate

by Neil H. Buchanan

Two weeks ago, I posted some thoughts here on Dorf on Law about so-called patent trolling.  On the comments board for that post, Professor Dorf noted that he had published a post on the same subject almost two years ago.  I had missed that post, due to personal matters that were preoccupying me at the time, which means that any overlap between our posts was pure happenstance.  But the overlap in what we wrote really is rather remarkable.  It is true that Professor Dorf and I are co-bloggers, occasional co-authors, and longtime friends with very similar opinions on most issues, but we were writing 23 months apart, responding to different news articles about patent trolling (he to an NPR story, I to a NYT column and a "Last Week Tonight with John Oliver" segment), and bringing our very different scholarly toolboxes to the issue.  That we disagreed on nothing, and that what we wrote was about 90% overlapping, is notable.

The big issue upon which we agree is that the problems usually attributed to patent trolling are actually not caused by trolling at all.  In Professor Dorf's closing words: "In short, patent trolls are a symptom.  Fix the underlying substantive problems with the patent system and there will be no distinct problem of patent trolls."  We also both argue that any litigation-related problems are not unique to patents, but are simply repackaged complaints about supposedly frivolous lawsuits clogging U.S. courts, with a strong dose of lawyer bashing tossed in for good measure.

On the comments board for my post, readers engaged in a serious and (with one unfortunate exception) respectful debate, raising a number of issues that I think are worth thinking through a bit more.  This is an especially welcome opportunity, because I continue to have a very open mind about all of this.  That is, although I am genuinely skeptical about much of what I have seen on the anti-troll side of the discussion, that skepticism mostly arises from empirical and quantitative questions that I have not seen answered (and that, in some cases, might be impossible to answer).  I will discuss some of those questions below.

One of the disadvantages of using the blog format for this kind of discussion is, of course, that there are many layers of this subject that are simply too deep to be tractable within a decent 2000-or-so-word essay.  Should patents exist at all?  Is intellectual property actually property?  Except as they directly impinge on the smaller points that I want to make below, I will not address such foundational questions here.  (I realize that this is a bit like someone saying to me: "Yes, I know that you have written that Social Security is not 'going bust,' but I'm going to respond by assuming that it is going bust.  Stay with me here."  As frustrating as such a move can be, however, even that conversation can still be useful.)

Some of the comments on my recent post at least implied that patents are a kind of property (if it is property at all) that should be nontransferable.  As I argued in my earlier post, however, there does not seem to be anything fundamentally problematic with the idea that a patent holder could sell the legal rights in that patent to an unrelated party.  If I invent something, and I am not especially keen on spending time guaranteeing that the patent is respected, it seems perfectly reasonable to try to find someone who is good at that kind of thing, and to negotiate a price that takes into account the various risks that determine the value of owning that particular patent.

That the company to which I sell the rights "produces nothing" is a meaningless complaint, because I could accomplish the same result by hiring in-house to enforce the patent, and none of those new employees would produce anything, either.  More importantly, that the firm to which I sell my patent rights might exclusively be in the business of bringing patent suits should not worry us, and should in fact be viewed as good news, because enforcing patents is surely a process in which specialization can reduce a lot of transaction costs.  Conceptually, it is no different than deciding whether to hire a moving company to relocate one's offices, or to hire temporary employees to do the same thing.  In fact, this is all merely an application of Ronald Coase's famous "nature of the firm" question.

Even if there is nothing special going on here, there is still nothing stopping Congress from limiting the transferability of patent litigation rights.  If it did so, it would simply be telling potential inventors: "If you invent something patentable, you can still get a patent.  But if anyone violates that patent, you and only you must go to court to seek damages."  If we are worried about setting up bad incentives, however, it strikes me that such a change in legal rights could be reasonably expected to reduce the incentive to invent things.  Currently, a potential inventor can say, "If I invent something patentable, I can make money by (1) producing and selling the patented item myself, (2) licensing it, (3) suing violators who have not licensed it, or (4) selling to a specialist the right to license and/or sue under the patent."  Taking away option (4) might have other virtues, but it certainly would take away one avenue to profiting from one's inventions -- notably, the one avenue that promises the most immediate return on one's investment (albeit surely at a discount).

As I noted above, this is ultimately an empirical question.  Maybe inventors are generally not aware of option (4), or if they are aware of it, they view it as somehow illegitimate or unappealing.  If so, it could be that a non-transferability law would have virtually no downside from the social standpoint of patent law's raison d'etre, while potentially reducing or eliminating the hold-up problems and other costs that come with any system of law enforcement.  Again, I am skeptical, but this seems completely plausible, pending empirical investigation.

An important related point is that there might be a problem with a system that punishes not only deliberate copying, but that treats innocent and culpable violators the same.  Consider a (non-patentable, but still IP-related) example.  When I decided to write this post (two days after writing my earlier post), I was going to give it the title "Missing the Forest for the Trolls."  I was very proud, thinking myself quite clever in coming up with a cute play on words.  This morning, however, as I was reading back over Professor Dorf's post, I saw an addendum in which he noted that Mark A. Lemley and A. Douglas Melamed were at that point (in 2013) about to publish a law review article with that very title.  Obviously, I had absorbed that title when I read Professor Dorf's post on May 1, but within only a matter of days, I had forgotten about it, remembered it, and thought that I had invented it.

Similarly, a few years ago, I published a law review article titled "Medicare Meets Mephistopheles."  I later discovered that David Hyman (of the U. of Illinois's law school) had published a book by the same name.  In that case, I could honestly say that I had never heard of Hyman's book.  However, I then recalled that the title had been recommended to me by a colleague who teaches at Loyola-LA.  My guess is that he had seen Hyman's book title, and then went through the same process of forgetting and reinventing that I described above.

All of this means that it is often possible to be completely innocent, yet somehow also guilty, of copying another person's idea.  It is also, of course, possible to be completely innocent.  (Recall the first paragraph of this post, in which I noted that in 2015 I had unknowingly made arguments that were nearly identical to Professor Dorf's arguments in 2013.)  Is there really any reason to punish someone for stealing ideas, even when there was no intent to steal?  Here, the differences between intellectual property and real property become especially important, because intellectual property's "non-rivalrous" nature (that it, that it can be used by non-originators, whose use does not prevent the originator from continuing to use the idea) makes one suspect that the theft analogy here is, at best, inexact.  (Even in real property law, of course, there are exceptions to the notion of theft, most obviously the adverse selection doctrine.)

In any case, the comments on my post, and Professor Dorf's post, suggest that in real life it is sometimes quite difficult to figure out whether a patent exists that one might be violating, which means that the licensing market is seriously compromised by information asymmetries.  That suggests that there could be a pure win-win policy solution, by which Congress could mandate that patents be registered on a searchable database, with that database widely available.  This would, as Professor Dorf suggested, get at the real problem, rather than giving Congress the excuse to scapegoat lawyers.

The ability to set up such a database, moreover, would create an impetus to fix the other big issue toward which my earlier post gestured (and which various comments confirmed): Congress, the PTO, and the courts all seem to have allowed an overly generous definition of patentability to have harmed the system.  Making the ability to sue violators contingent on a patent's having been properly registered on a public database would all but force the players in the system to confront and fix the overbreadth problem.

Even this solution, however, does not get at the question of how companies are supposed to know that they should be checking the database in the first place.  I can force myself to google any of the blog titles that I think I have invented, and Google can certainly be expected to keep a keen eye on a patent database, but surely this cannot reasonably become one of the standard operating procedures for non-tech companies.  There, unfortunately, the case-by-case litigation approach seems to be required.  (A restaurant might really have violated a patent.  If so, the court system is there -- in all of its imperfect glory -- to sort it out, and to assess proper penalties.  That process might lead some companies to settle dubious cases, and so on.  But it is, at a minimum, not obvious why the rules for such litigation should be different than for any other kind of litigation, where the same insuperable problems exist, no matter whether one enacts loser-pays rules or any other change to the system.)

Finally, this discussion points toward a problematic analogy that I used in my earlier post.  There, I likened patent trolls to banks and other financial intermediaries, as a way to say that there is often a big economic upside to allowing people to engage in activities that facilitate commerce, even when the specific activity itself is not obviously valuable.  So far, so good.  I then said, however, that the problem with banking is uniquely worrisome, because "there is certainly nothing about patent trolling that seems meaningfully analogous to the problems that financial intermediaries have inflicted on the economy.  (Skeptical?  Try to imagine patent trolls causing a global economic crisis.)"

And this is where I want to reemphasize my ambivalence about all of the questions that I have raised here.  Simply because problems in the patent system cannot plausibly lead to another Great Depression does not mean that they are not harmful.  It really is quite simple to describe situations (and, I have no doubt, to find them in the real world) in which people have lost their jobs and their livelihoods because of the imperfections in our system of granting and enforcing patents.  Such costs are incremental, but they certainly can add up to a real problem that is worth addressing, even if doing so creates other costs along the way.

My skepticism arises from my sense that the anti-trolling argument is based on unsubstantiated empirical assertions.  An entertainer like John Oliver can be excused, I suppose, for asserting that "the only viable business left in America will be one that relies on no patents whatsoever," if patent-trolls are not brought to heel.  Exaggeration has its place in such debates.  Even so, generic anti-lawsuit "reforms" are almost certainly not the best way to fix the excesses of the patent system -- excesses that arise from fundamental errors that have essentially nothing to do with trolls (or lawsuits).  At the very least, the case for such reforms is contingent on some highly contestable empirical suppositions.  Legislating in such an environment of ignorance seems like a rather bad idea.