In this post, I want to address the notion that the secondary market for patents is too valuable to risk regulating. Patent trolls and their defenders often argue that a “vibrant” secondary market benefits inventors, which implies that any restrictions on patent transfers harms inventors. One recent op-ed in the Seattle Times caught my eye. This argument has also been made by prominent patent assertion entities like Intellectual Ventures, patent lawyers, and groups representing PAEs.
Describing the secondary market for patents as somehow helping companies and inventors recoup their investments sounds perfectly legitimate. But that’s not what’s going on at all — as I’ve written before, the value of patents on the secondary market is typically determined by how likely it is that the patent can be used to extract money from various victims. An unregulated secondary market for patents inevitably leads to patent trolls, and we all pay that cost.
To illustrate, let me offer up a fictional example:
The town of Wackoville has come up with an idea to raise money. It will sell the right to enforce its regulations! The town will sell certificates that authorize the holder to enforce some specific rule or ordinance. The certificates sell well, and the town is flush with cash. Everyone assumes that there won’t be much abuse – the initial sales are all to Wackoville residents, so the rights are kept in the town.
You moved to Wackoville a few years ago. One day, you get a notice in the mail. The notice is threatening to sue you for violating a regulation about the appearance of your house. Apparently, there’s a rule against walkways from the driveway to the front door that have an angle less than 90 degrees. (The Acute Walkway Ordinance was pushed by a local eccentric group, the Society for the Obtuse.) Your walkway has a sharp turn in it, which might be less than 90 degrees, although you can’t be sure.