More on Why We Need Patent Reform: Patent Assertion Doesn’t Lead to Innovation

Mark Lemley and Robin Feldman have just put out a new paper that shows something many of us suspected: patent licenses tend to be for the freedom to operate, not for technology transfer. That is, in their survey, they found that the overwhelming majority of the time, companies took licenses in order to settle an infringement claim for technology they’d developed independently; they generally did not take licenses in order to be able to develop new products.

In other words, the companies surveyed said that, when they were approached by a person or company offering a patent license, almost all the time the license was for technology they already had, not something new. That was still true even when the companies were approached by universities.

We’ve been hearing from opponents of reform that changing the patent litigation system would risk innovation. But if Lemley and Feldman’s findings accurately reflect reality, the opponents’ argument is simply false; patent assertion is nearly always seeking money, not offering new technology.

Naturally, there are critics of the study. Adam Mossoff calls the study “junk science”:

I’ve repeatedly and publicly asked him to show us all what “real” science looks like, but he’s refused so far. As best I can understand it, he believes the conclusion to be wrong, therefore the study must be “junk science.”

It’s true that this survey did not have a huge number of participants. There were 188 companies that responded to the survey from 11 different industries. The authors acknowledge that, “Thus, the sample is small enough that statistical significance should not be inferred from any of the results.”

One commentator claimed that CCIA (which runs Patent Progress) and other pro-reform groups were surveyed. This is a misunderstanding. I sent CCIA’s member companies a link to the survey. I have no idea which members, if any, responded to the survey.

But the biggest criticisms come from Gene Quinn, who complains that the paper relies on “subjective evidence rather than volumes of objective evidence that contradict the self-serving responses from those who are licensing rights they are already infringing.”

The problem with Gene’s complaint is that, as Lemley and Feldman note in their paper, there is no publicly available data on why companies take licenses when patent owners assert their patents. The only way to find that out is to ask them.

Gene starts from the premise that “patents provide an exclusive right, which grants the owner of the patent the right to exclude others. When there is an infringement the innovation has already been seized away from the rightful owner without payment or permission.”

This premise has a few problems. First, it assumes that patent owners only assert their patents when they’re infringed. We know that’s not true, if only because many cases result in finding no infringement. Second, it ignores the reality that companies generally develop technology independently, not by “seizing” anyone’s innovations. Of course there are exceptions, but, as I wrote a while ago, there’s no evidence that copying is a widespread problem.

The point of the Lemley/Feldman article is to ask whether companies are getting anything beyond freedom to operate from the licenses they take from patent owners who assert their patents. The answer in the surveyed sample is nearly always “no.”

Does that mean that companies never acquire new technology? No, of course not. But it may well be that what they do is something that Gene himself mentions, namely they acquire companies with technology they want instead of licensing the technology.

Gene also claims that the survey participants are biased. The authors actually note the possibility:

Most important, it is critical to highlight the limitations of the low response rate and small sample size. The response rate is complicated by the fact that we provided links to certain associations of in‐house counsel to allow their members to respond. Because we did not distribute those latter surveys directly to prequalified individuals, we cannot assess how many people considered responding to the survey but ultimately did not do so. A small response rate increases the risk of selectivity bias among those who do respond.

But Gene doesn’t know who responded any more than the authors do. The responses were anonymized, as the authors explain:

The surveys were administered through Qualtrix, a survey firm. All information was anonymized and aggregated for publication here. In addition, all responses were anonymized so that even the authors could not see any identifying information about responders. In particular, responders were asked whether they would be willing to participate in future research and, if so, to provide contact information. That contact information was provided to the authors separate from any individual survey responses.

Is it possible that the survey results were skewed by self-selection bias, i.e., that the people who chose to respond were people with stronger negative feelings towards licensing? Yes, it’s possible, as the authors acknowledge. That’s always a risk with surveys and polls.

Lemley and Feldman state very clearly that they haven’t definitively answered the question of whether licenses taken in response to a patent assertion lead to innovation. But nearly 200 companies from a broad spectrum of industries all said that they generally license in order to get freedom to operate, not to innovate. This certainly casts doubt on just how socially beneficial most patent licensing is. (This does not include licensing by competitors where both companies practice the patented technology. That’s consistent with the purpose of patents.)

Here’s how Lemley and Feldman put it on pages 50-51:

We don’t think our data suggest that patents serve no useful purpose. The classic justification for patents, after all, is not to encourage technology transfer but to allow practicing entities to exclude competitors from the marketplace. Our evidence casts no doubt on that justification. But NPEs, universities, and practicing companies that are licensing patents in areas in which they don’t practice can’t defend their assertion of patents on that ground. If their licensing of patents is contributing to social welfare, it must be because it encourages innovation. And the evidence from our survey results suggests that some of the commonly asserted ways in which patents might encourage innovation – by facilitating new products or technology transfer – are more illusion than reality.

All this suggests that addressing patent troll abuses through patent litigation reform will not affect innovation. It seems that patent assertions and lawsuits that are not between competitors don’t lead to innovations or new products.

This makes sense if you think about it. A patent does give a right to practice a technology, but the reality of making a product requires more than that: it requires know-how. A license doesn’t come with experience. That’s why a company looking to add a new technology may acquire another company that’s doing it already. In addition to patents, the acquisition brings in the people with the knowledge and experience that are needed to make a real product.

This does not mean that licenses are useless. They’re a key part of joint ventures, startups, etc. But, apart from disputes between competitors, licenses taken in a non-cooperative context, i.e., after a patent owner asserts its patent, don’t seem to lead to innovation.

This means that opponents of reform are making a tempest in a teapot. But you knew that already.