Posner on Patents

by on June 9, 2012 at 7:30 am in Economics, Law | Permalink

Our patent law is by and large judge created and thus it is judges rather than legislators who are responsible for most of the dysfunction in patent law. It was judges who expanded (or endorsed) patents to cover business methods, software and animals. It was judges who weakened the obviousness, enablement and possession requirements. Finally, it was judges who interpreted vague patents broadly, thereby midwifing fearsome patent trolls.

Fortunately, judges also have the power to reform patent law which is why Judge Posner’s recent suggestion that he may dismiss with prejudice the Apple v. Google/Motorola  suit over smartphone patents is potentially ground breaking.

We don’t yet have a full ruling but in early rulings Posner referred to claims made by Apple and Motorola as “silly” and “ridiculous.” Most importantly, Posner has said:

“injunctive relief would impose costs disproportionate to the harm to the patentee and the benefit of the alleged infringement to the alleged infringer and would be contrary to the public interest….”

which I read as saying that Posner is tired of the patent system being used by big business as a cudgel against competitive innovation.

Posner is a founder of the law and economics movement and one of the most influential judges in America. Indeed, as I have said before, Posner is the only person in the world who deserves a Nobel prize in economics and a seat on the Supreme Court so this ruling will be closely followed.

Michael Heller June 9, 2012 at 8:07 am

Excellent news. Here’s Posner on his economic principles about a decade ago:

“Dynamic antitrust theory implied by Schumpeter’s theory of economic welfare aims not at maintaining a currently competitive market but instead at facilitating economic progress by permitting monopoly while assuring that would-be challengers have a fair shot at entry… What is important is not the number of competitors but that the existing ones not be able to entrench themselves against new entry”.

The temporary monopoly given by patents must be just that, temporary.

Enrique June 9, 2012 at 2:54 pm

But is Posner simply applying patent law to the facts of this case — or is he making new law based on his own policy preferences?

Andrew' June 10, 2012 at 12:08 pm

In the formalized CYA system we have known as case law, isn’t the answer ‘yes’ and ‘yes’?

Bill June 9, 2012 at 8:20 am

Reading Posners statement of the injunctive standard for temporary relief as a reinterpretation of patentability or the value of patents is a bit much.

Paul June 9, 2012 at 8:54 am

I am not an expert on patent law, or law at all, but wouldn’t an injunction at this point mean that someone would have to stop producing their product or offering a service until the lawsuit was resolved? If that is the case, then this could still be important. If, in patent cases, it is difficult to get an injunction until the issue is resolved, then it should become more expensive for patent trolls, and also large corporations, to stop their competitors from operating their businesses, and so we should see less of that type of behavior.

Bill June 9, 2012 at 10:38 am

It’s a balancing of harms question for this stage of the litigation, on whether to grant a temporary injunction pending trial, which is the basis for Posner’s comment. It has nothing to do with whether design patents are valid or not, or a good idea.

Cliff June 10, 2012 at 12:35 am

Design patents? Do you mean software patents?

Norman Pfyster June 9, 2012 at 11:35 am

Agreed. Without having read the opinion, Posner might be saying that injunctive relief is inapplicable (or rarely applicable) for patent protection, since you could also sue for damages after the fact.

dearieme June 9, 2012 at 9:18 am

a Nobelish prize in economics

Dan Cole June 9, 2012 at 9:26 am

Hi Alex:

I agree with almost everything you write, but with a couple caveats: first, patents are not mostly judge-made, even if many of the patent systems dysfunctions stem from judicial rulings. Patent law, like all intellectual property, is pre dominantly a creature of statute. The court did not create business method patents, the Patent and Trademark Office (a federal agency) did, and the court simply upheld as reasonable its interpretation of its enabling statute. If the PTO had held the other way on business methods, the court very likely would have upheld that decision as well. So to blame the court for the existence of business method patents – which I agree should be abolished by statute – seems a bit of a stretch.

Best.

Dan

Alex Tabarrok June 9, 2012 at 11:08 am

Dan,
You are right that USPTO go the ball rolling on business methods. I see State Street, however, as a strong push forward. I added “(or endorsed)” to my post. Do you disagree that judges could reform a lot of patent law without statute? If so, then I don’t think we disagree about the importance of judges to patent law.

Dan Cole June 10, 2012 at 5:44 pm

Alex, I guess I don’t think the courts could change much of patent law by themselves; to do so, they would have to find that existing PTO interpretations of the Patent Act are “arbitrary and capricious,” which would be a very difficult thing to do, having previously found them to be reasonable interpretations. But then, I’m not an IP expert.

Dan

Douglas Knight June 9, 2012 at 12:01 pm

You’re really understating how wrong Alex is. If PTO hadn’t issued business method or software patents, how could judges have possibly done anything to create them?

Anonymous June 9, 2012 at 3:33 pm

Uhhh, because an inventor can appeal from the Board of Patent Appeals to the Federal Circuit. And the Federal Circuit finds *everything* patentable.

Cliff June 10, 2012 at 12:38 am

Certainly untrue, but a broad understanding of patentable subject matter is entirely consistent with the constitution, statutory law, and the practices of the courts going back to the revolutionary period. See http://www.patentlyo.com/patent/2012/05/guest-post-by-michael-risch-americas-first-patents.html.

Andrew' June 10, 2012 at 12:11 pm

So, is the PTO one step closer to legislation, or one step further away?

Ray Lopez June 9, 2012 at 12:09 pm

Also that Posner’s economic theories of law are not favored by the Supremes, and his bosses are the CAFC I believe it’s called, the appeal court for patents founded by Ronald Reagan. As for this statement by Alex Tabarrok: ” thereby midwifing fearsome patent trolls.” – fearsome? Not. My experience talking to many Fortune 500 companies (which do the bulk of innovation, not small businesses–yes, you read that right, and I’m speaking with statistics on my side) is that they really don’t fear patent trolls. Patent trolls are like mosquitoes without malaria or yellow fever or any disease: they won’t kill you, just annoy you. The only companies that are anti-patent are dissimulator or middleman companies like Dell computer (or Google, before it got religion and decided to go into hardware). Big companies are pro-patent, unlike academics like Alex who still think of patents are ‘monopolies’. Question for Alex: if it is unethical to patent a life saving drug, is it more unethical for an inventor not to invent such a drug in the first place? Do you believe ‘inventors will invent regardless of incentives’? Do you really think Einstein’s Special Theory would not have been ‘discovered’ (invented actually, as it is a model not really a ‘discovery’ that exists independently of anybody) before Einstein, if there was a rule to allow the inventor to reap profit from a scientific theory? Google Lorenz Transform. Are you ‘born to teach’ while I am ‘born to troll’? A caste system of economics? Seems that way if you talk to these anti-patent types.

Cliff June 10, 2012 at 12:45 am

Thanks for sharing your statistics, and tell that to RIM. Big companies are pro-laws that ensure only they have patents. The big companies pool all their patents and use them as a big anti-competitive cudgel to make sure that no new entrants can join the market. Big companies want very different laws and rules than small businesses do- this divide was very obvious on the recently passed America Invents Act, which small businesses opposed and big businesses loved.

Andrew' June 10, 2012 at 11:58 am

“My experience talking to many Fortune 500 companies (which do the bulk of innovation, not small businesses–yes, you read that right, and I’m speaking with statistics on my side)”

Have you proven the non-existence of things like survivor bias, buying patents, and government bias to this? Considering that my whole thing is that patent law is a fixed cost that advantages large companies, and patents might be one of the ways “innovation” is measured makes me not feel a lot better after your assertion.

byomtov June 9, 2012 at 10:48 am

What injunctive relief is Posner referring to? It’s not clear to me from the quote.

I agree that business process patents are silly, and we’d be better off without them.

A big part of the problem, from my angle, is not big business using patents as a cudgel, though that may well happen, it is the costs to small business of litigation against trolls, which often leaves them no choice but to pay up. This not only puts some companies out of business, it raises the risk to investors, making financing harder to get.

Why Congress can’t deal with this, instead of wasting time on silliness, is a mystery.

Cliff June 10, 2012 at 12:47 am

Do trolls really waste their time on small businesses?

Ryan Cousineau June 10, 2012 at 3:46 am

Yes, many do. Indeed, smaller businesses are often the sweet spot for trolling: send out a demand letter, ask for license fees that are less than what even a successful legal battle would cost, and profit!

By comparison, a big corporation can happily afford to fight the legal battle, and even when it would cost less to settle, sometimes they do not settle, probably for game-theory reasons that any mafioso would instinctively recognize.

Jonathan June 9, 2012 at 12:20 pm

Anything that brakes the momentum of the anti-competitive solution of massive cross-licensing agreements is a good thing. The final ruling will surely be appealed to the more patent-holder friendly Federal Circuit. I am hopeful but not optimistic.

Willitts June 9, 2012 at 1:57 pm

Patents weren’t my ball game, but this argument is why I left the legal profession. Our Congress is full of idiots, shortsighted idealists, and ignorant, incompetent fools. Judges are either power drunk activists or strict constructionists who deceive themselves into believing every omission or vaguery by Congress was advertent.

The source of failure of common law is the overriding of common sense because of the arrogance or interests of the law makers.

Dan Hanson June 9, 2012 at 5:42 pm

Congress hasn’t done anything about patents because far too many powerful special interests have spent billions of dollars building up patent war-chests which they use to collude with other large special interests to keep out small players and innovation.

Many of the tech acquisitions and mergers that have been going on in recent years have nothing to do with market synergy, filling gaps in product lines, or other traditional reasons for merging or buying companies. Rather, companies are being bought for outrageous sums of money just to grab their patent catalog. These patents are not used for innovation – they are used as weapons against other large corporations doing the same thing. So Motorola sues Apple, Apple sues Microsoft, Microsoft sues Google, Google sues Apple… In the end, the huge corporations settle with each other for a wash, using their own patent portfolios to threaten mutually-assured destruction if anyone steps out of line.

Why do they do this? Because this hail of constant patent lawsuits acts as a massive barrier to entry into the field. If someone were to start up a company today with an innovative new smart phone, but without the multi-billion dollar patent warchests the big players have, they’ll be squashed like a bug. Patents are so vague and widely applied now that almost any company attempting to innovate in the cell phone or portable computer market is guaranteed to be found guilty of infringement of some patent held by a large company. They know it, so they don’t even try.

Cliff June 10, 2012 at 12:48 am

+1

Cliff June 10, 2012 at 12:56 am

Alex,

I think you are actually complaining that judges have NOT made enough law. The constitutional and statutory framework for patents are completely consistent with a broad understanding of patentable subject matter and with the way the laws are currently applied. Judges would have to make up some doctrines that are not supported by that framework in order to get to where you want the law to be. In fact, it is judges who created the new, much more strict statutory subject matter rules currently plaguing the patent bar with their vagueness and resultant uncertainty.

“It was judges who weakened the obviousness, enablement and possession requirements. Finally, it was judges who interpreted vague patents broadly, thereby midwifing fearsome patent trolls.”

How so? Do you have anything to support this statement? Do you have a law review article to point to? If anything, my understanding is that the patentability requirements have become much more strict in recent years.

In my opinion the main problem is a difficulty in applying the obviousness standard to software/business method patent applications and lack of patent prior art in this area, as well as an inability or unwillingness to require a higher level of clarity (definiteness) in the claims. The easiest and probably best way to solve the problem would be just to eliminate this type of patent (since the industry does not seem to want patent protection). But the problem is not activist judges loosening standards over the years.
Where do you get this from? This seems entirely unsupported

James Love June 10, 2012 at 8:14 pm

The software, mobile phone, smartphone, tablet markets illustrate the shortcomings of relying upon exclusive rights to reward innovation. There are just too many “inventions” in these products, and giving everyone a right to block everyone is recipe for bad outcomes. At a certain point, and for certain markets, the patent system should be implemented as a liability rule, where money rather than monopoly is a possibility, and decisions about how much money are made by third parties.

Gigo June 11, 2012 at 10:49 am

is the only person in the world who deserves a Nobel prize in economics and a seat on the Supreme Court

Maybe the first, but dear lord, please not the second.

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