Thursday, February 26, 2015

Feldman & Lemley on Patent Licensing

Robin Feldman and Mark Lemley have posted a very interesting paper on ssrn titled Does Patent Licensing Mean Innovation?  Here is a link to the paper, and here is the abstract:
A commonly offered justification for patent trolls or non-practicing entities (NPEs) is that they serve as a middleman facilitating innovation, bringing new technology from inventors to those who can implement it. We survey those involved in patent licensing to see how often patent licenses actually led to innovation or technology transfer. We find that very few patent licenses from assertion actually lead to new innovation; most are simply about paying for the freedom to keep doing what the licensee was already doing. Surprisingly, this is true not only of NPE licenses but even of licenses from product-producing companies and universities. Our results cast significant doubt on one common justification for patent rights.
The authors are careful to note the limitations of their survey (sample size, response rate, etc.) and the need for more follow-up research.  They also note that their results do not demonstrate that universities are not engaged in technology transfer (e.g., through startups), and do not call into question the "classic justification for patents," i.e., "to allow practicing entities to exclude competitors from the marketplace"; and that their survey does not examine cross-licensing between competitors, or licensing initiated by a product company approaching a patent holder.  Nevertheless, as they state, the "preliminary picture" obtained from the survey does not support the hypothesis that patent owner-initiated licensing (whether by NPEs or not) spurs very much technology transfer.

If these results are generalizable and supported by further empirical evidence, the implications for patent law could be profound.  As for patent remedies in particular, one of the standard law-and-economics rationales for awarding injunctions is that injunctions (a "property rule," to use the Calabresi-Melamed terminology) encourage voluntary bargaining.  But if a wide swath of infringement arises from independent invention (which appears to be the case) and licensing does not lead to additional tech transfer, the virtues of voluntary bargaining in such cases seem elusive.  Perhaps one could argue as well (in the vein of Ted Sichelman) that in many cases damages in the form of reasonable royalties need not be fully compensatory--what a willing licensor and licensee would have agreed to ex ante--because such damages often constitute nothing more than a tax on innovation.  Nevertheless, the various possible critiques of such an argument (rule-of-law, courts cannot easily formulate a better alternative measure of damages, there are better ways to address the problem than through modifying damages law) may remain.  

Anyway, it's a very provocative paper, and one that will garner considerable attention in the weeks to come.

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