An innovation boom and falling prices fly in face of thicket, stacking and hold-up claims, says California professor 27 Jan 17
Many of the profound changes to the US patent system over the last decade have been driven by the courts and policymakers. As a result of their efforts, the environment has become far tougher for patent owners.
But these changes have also, at least in part, been fuelled by academic research; with the publication of a steady stream of papers that have supported claims around the existence of: patent thickets, the theory that large numbers of patents in a particular technology act as a drag on innovation; royalty stacking, the idea that in aggregate high licensing payments can ultimately lead to high costs for consumers; and patent hold-up, the notion that patent owners can use their power to demand exorbitant licensing fees. All three are said to be the byproducts of a strong patent system which places too much power in the hands of IP owners.
The extent to which such ideas are grounded in empirical evidence, rather than simply being theoretical, is the subject of a recent paper from University of Southern California professor Jonathan Barnett. Entitled “Has the academy led patent law astray?”, the paper is due to be published in the Berkeley Technology Law Journal and casts serious doubt on the evidence. Instead, it makes the case that since the Court of Appeals for the Federal Circuit was created in 1982 – an event which many cite as the start of a period of stronger patent rights in the US – there has actually been a boom in innovation.
“The frequency and vigor with which thicket, holdup and stacking theories are promoted or adopted by some scholars, courts and antitrust agencies does not match the weak evidence for these theories,” Barnett writes.
In an interview with IAM late last week, Barnett expanded on this theme: “Since 1982 there has been no decline in innovation; in fact. we’ve seen the opposite - as evidenced by the computing power, per dollar, of the smartphone in your pocket compared with a PC in the early ‘80s. The dominant strain in academic commentary doesn’t seem to match up to the facts.”
This, of course, begs the question of how the three theories have taken hold? “They make sense intuitively,” Barnett reflects. “Before you do any empirical research there’s no reason to think they wouldn’t be accurate and it takes time to do empirical research.”
Barnett also suggests that these theories have won support from “downstream” businesses – such as device makers that don’t necessarily develop the fundamental technology in their products – who tend to favour policies that weaken patent rights, especially for standard essential patents (SEPs).
The consequence of all this is that damages awards for victorious plaintiffs in infringement suits have fallen and, thanks to the Supreme Court’s 2006 eBay decision, injunctions have become increasingly rare. According to Barnett’s paper those twin factors are particularly ominous for the US innovation engine: “Without a secure expectation of injunctive relief and compensatory damages, false prophecies of too many patents may result in too little innovation.”
Barnett’s work builds on previous research he has carried out (you can see two of his related papers here and here) and he is by no means the first observer to question some of the dominant theories in academic commentary about the patent market. Last year a paper from Professors Stephen Haber and Alexander Galetovic, and Lew Zaretski, challenged the thinking around the royalty stack on a smartphone, calculating it to be around $7 for a typical device. That was far lower than a 2014 piece of research which estimated that on a hypothetical $400 phone the royalty stack could be in excess of $120.
Barnett’s work is particularly timely given the spate of lawsuits that have recently been brought against Qualcomm by, among others, the Federal Trade Commission (FTC) and Apple, over the chipmaker’s FRAND licensing. Those cases frame the argument around a dominant patent owner and technology supplier abusing its position to block out competitors and extract licences from manufacturers.
Qualcomm will no doubt counter with a robust defence; but, as Barnett’s research shows, like many licensors the company is on the wrong side of a set of theories that continue to shape much of the licensing narrative in the US.
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