Do Patents Really Drive Innovation and Value

by Dorsey & Whitney LLP

On Wednesday, May 16, 2018, Dorsey is hosting a panel entitled “Do Patents Really Drive Innovation and Value?”  It’s been a question that we’ve grappled with as outside counsel for many innovators and technology-driven clients.

The most typical answer is – of course they do.  Most innovators get patents, it’s a fundamental right guaranteed by the U.S. Constitution (and many around the world).  Everyone from Thomas Jefferson to the latest and greatest startup think patents are of paramount importance to the U.S. economy.

But there’s a problem that keeps popping up more and more throughout the U.S. economy.  A patent isn’t worth what it used to be.  And if a patent cannot be enforced, what is it really worth?

Think about a famous example.  Thomas Edison seminal patent for the light bulb (U.S. Patent No. 223,898) was the source of huge wealth for him.  Today, Edison might be penniless.

Why?  If Edison had a lab in Menlo Park, NJ, today, and he received a patent for an incandescent lamp that moved the world from the gaslamp era to the modern electric light era (no small feat), a big company (like Westinghouse in his day, let’s say Company X today), would likely refuse to pay his for his patent.  Company X would say, we can come up with a lightbulb ourselves that doesn’t infringe your lightbulb patent.  And we will develop a product, market it, advertise it, and sell it, all without paying you a dime.  You’re just some “garage” inventor in New Jersey.  Edison could sue that company, like he sued Westinghouse in the 1880s, but they would make him spend years in court and millions of dollars.  Edison might not win given the state of patent law today.  The “War of the Currents’ was obviously much more complex than I’m describing it in this post (War of the Currents), but you get the gist.

In 2011, Congress passed the Leahy-Smith America Invents Act (AIA), which amongst other provisions, had the effect of making it harder for small companies to sue large ones for infringement.  This has been borne out by various data, such that many patent monetizers who had run businesses filing patents suits have either gone out of business or been sold.  That’s the “proof in the pudding.”  I get calls from such garage inventors, and they ask how hard it will be to enforce their patents, and the answer today is, hard.  If you were Paul Cravath (who actually represented Edison against Westinghouse in the 1880s, see Last Days of Night), and you filed a patent infringement lawsuit in court today, you had better have a great invention story, a great patent, and lots of money to allow that lightbulb patent to generate revenue.

What’s the right answer?  Company X will say that we live in a post-patent world, where there is an Edison at every company, working away in a well-funded lab, and it takes more than a flash of genius in a patent to drive innovation and value.  Yes, a patent is one part of a product launch, but it takes a backseat to product development, marketing, and sales, and everything it takes to generate revenues from products.

In 2018, a new PTO Director has been appointed, Andrea Iancu, who has represented both patent plaintiffs and defendants in his career.  All indications to date are that Mr. Iancu is going to push for stronger enforcement of patents.  But should he swing the proverbial pendulum back to where someone like Thomas Edison could make a fortune from a patent?  Or should the status quo exist where such a result would be nearly impossible, but rather the well-funded incumbent Company X reaps such benefits even though they were not the first to come up with the idea.

Unfortunately, there’s no simple answer.  Our panel will attempt to look at it from both sides – the innovators who are at the front end of the economy, the brokers who buy and sell patents and IP-powered businesses, and the larger companies for whom patenting is one of many aspects of products and services.  It is an open question in today’s U.S. economy, with many rapid changes under the new PTO Director promising some answers.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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