Download - Patent Licensing, Technology Transfer, & Innovation1 · 2016. 6. 20. · Patent Licensing, Technology Transfer, & Innovation1 Mark A. Lemley2 & Robin Feldman3 Abstract Traditional

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PatentLicensing,TechnologyTransfer,&Innovation1

MarkA.Lemley2&RobinFeldman3

Abstract

Traditionaljustificationsforpatentsareallbasedondirectorindirectcontributiontothe

creationofnewproducts.Patentsservethesocialinterestiftheyprovidenotjustinvention,but

innovationtheworldwouldnototherwisehave.Non-practicingentities(NPEs)aswellas

product-producingcompaniescansometimesprovidesuchinnovation,eitherdirectly,through

workingthepatentortransferoftechnologytootherswhodo,orindirectly,whenotherscopy

thepatentedinnovation.Theavailableevidencesuggests,however,thatpatentlicensing

demandsandlawsuitsfromNPEsarenormallynotcasesthatinvolveanyoftheseactivities.

Somescholarshavearguedthatpatentscanbevaluableevenwithouttechnology

transferbecausetheabilitytoexcludeothersfromthemarketmaydrivecommercializationthat

wouldnototherwiseoccur.Wedemonstratethatevenifvariouscommercializationtheories

cansometimesjustifypatentprotection,theycannotjustifymostNPElawsuitsorlicensing

demands.

1©2016RobinFeldman&MarkA.Lemley.2WilliamH.NeukomProfessor,StanfordLawSchool;partner,DurieTangriLLP.3Harry&LillianHastingsProfessor,UniversityofCaliforniaHastingsCollegeoftheLaw.ThankstoRoseHagan,JoshLerner,CarlShapiro,andparticipantsattheAmericanEconomicsAssociationannualmeetingforcommentsonapriordraft.

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1. Innovation-RelatedJustificationsforNPEs

Thepatentsystemexiststoserveutilitariangoals,ratherthantoreflectsomenotionof

aninventor’smoralright.(Feldman2012,Lemley1997,Landes&Posner2003).Fromthemany

commercialactivitiesthatmightotherwisebeopentoanyone,weremovesomeforalimited

periodoftimeinthehopethatdedicatingthemtotheprovinceofafew,willredoundtothe

benefitofusall.(Feldman2013).

Thetraditionalutilitarianstorysupportingthepatentsystemisthatthelureofpatent

rightsencouragesinventionthatwouldnototherwiseoccur,orattheleastwouldoccurlater

butforthepatent.(Landes&Posner,2003;Duffy2004).Theinventionthesystemisdesigned

topromoteisnotwhatisknowninscienceas“basicresearch,”suchasanunderstandingof

hownatureworksorwhatforcespropeltheuniverse.Afterall,formorethanacentury,the

Courtshaveremindedusthatthepropersubjectmatterofapatentdoesnotincludelawsof

nature,naturalphenomenon,orabstractideas—nomatterhowvaluableandessentialtothe

progressofsciencethesemaybe.(AliceCorp.Pty.Ltd.v.CLSInt’l,134S.Ct.2347,2354(2014))

Rather,thepatentsystemisaimedatprotecting“applied”inventions,orinnovations,thatare

deployedintheworld.Onlywhenbroadandbasicprinciplesarereducedtoaparticular

practiceandappliedinaspecificendeavorwilltheybeeligibleforprotection.(Bilskiv.Kappos,

561U.S.593(2010)).

Thepatentsystem’sfocusisconsistentwitheconomicliterature,whichdistinguishes

invention—anidea—frominnovation—turningtheideaintoaviableproduct.Thepatent

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systemencouragesnotjustinventionintheabstract,butthecreationofnewproducts.Thisis

the“progress”ofthe“usefularts”mentionedinthepatentclauseoftheConstitution.

Thefocusoninnovation,notsimplyinvention,isparticularlyimportantwiththe

emergenceofthemodernnon-practicingentity(NPE)businessmodel.Colloquiallyknownas

patenttrolls,NPEsarethosewhosecoreactivityinvolveslicensingorlitigatingpatents,as

opposedtomakingproducts.Byallaccounts,themodernNPEbusinessmodelhasexpanded

rapidlysinceitsemergenceoverthelasttwodecades,anexpansionthatisparticularlyevident

inthecontextoflitigation.(Allisonetal.,2016).Differentscholarsslicethenumbers

differently,withsomeexcludingNPEsorganizedastrustsandindividualsandothersexcluding

“failedstartups”andoriginalinventors,forexample.Whenthebroaderdefinitionisapplied,

however,thedataareremarkablyconsistentacrossstudies,withallshowingthatNPEsnow

accountforthemajorityofpatentlawsuitsfiled.4

Consistentwiththegoalsofthepatentsystem,alloftheargumentssuggestingthe

benefitsofNPEsrestontheircontributions,eitherdirectlyorindirectly,tothecreationof

productssomewhereinthesystem.NPEs,unlikepracticingentities,donotdeploythe

technologyintheworldthemselves,butthatdoesnotanswerthequestionofwhetherthey

contributetoinnovationandthecreationofnewproducts.Topromoteinnovation,however,

theymustnotonlyinvent,butthatinventionmustleadtothecreationofproductsby

someone,somewhereinthesystem,atsomepoint.NPEsmaybeactingasmiddlemen4CompareFeldmanetal.,2013;Chien,2012(usingdatafromRPXCorporationandconcludingthatthepercentageoflitigationbynon-practicingentitiesin2012hasreached62%)withCotropiaetal.2014(usinganarrowerdefinitionofNPEsandfindingnorealincreaseinNPElitigationwhencomparingtheyears2010and2012,butalsonotingthat“whenwerepackageall[NPEs]intoasinglecategory,theyareresponsibleforamajorityof[patentlawsuits]in2012”);seealsoSag,2016(findingthatpatentlitigationvolumedoubledfrom2010to2013).

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transferringtechnologytothosewhowouldimplementit;ortheycouldbecollectingrevenue

fromthosewhocopiedtheirinventionandimplementedit.Neitherpossibility,however,

appearsbroadlysupportedbytheavailableevidence.

Thereisasubstantialliteraturethatcallsintoquestionwhetherthepatentsystemin

generalencouragesinnovationthatwouldnototherwisehappen.Thefactsthatmost

significantinnovationsaresimultaneouslycreatedbytwoormorepeople(Lemley,2012),and

thatinmostindustriesvirtuallyallpatentenforcementisdoneagainstindependentinventors

(Cotropia&Lemley,2009)castsignificantdoubtontheclaimthattheinnovationswouldnot

havehappenedbutforthelureofapatent.Theissueis,however,complicatedbythevery

differentcharacteristicsofdifferentindustries.Theremaybeindustriesinwhichinventionisso

complexanduncertainthatitwouldnotbeundertakenwithoutpatentprotection.(Burk&

Lemley,2009).Buttherealsoseemtobeindustries–perhapsmostofthem–inwhichthe

patentsystemdoesnotseemtobedrivingnewinvention,andmayevenberetardingit.

(Bessen&Meurer,2008).Thatmightleadonetoquestionthepatentsystemasawhole

(Boldrin&Levine,2007),oratleastthetraditionalinnovation-basedjustificationforit.

Inadditiontodoubtsabouthowwellpatentsingeneralactuallydriveinnovationsthat

wouldnototherwisehaveoccurred,theevidencecastssignificantdoubtontheefficacyofthe

patentdisclosureasawayofdisseminatingideasandleadingtothecreationofproducts.

Whilewritingdownandpublishingadescriptionoftheinventionhaslongbeenaquidproquo

forapatent,inthemodernworldthereisgoodreasontothinkthatengineersinmanyfields

rarelyreadpatentsinordertolearnaboutatechnology.(Lemley,2008;Lemley,2012;Harvard

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Note,2005).5Therearemanyreasonsforthis.Lawyersatmanycompaniesdiscouragetheir

engineersfromreadingpatentsforfearofincreasinglegalliability.(Lemley&Tangri,2003).

Thequalityofthedisclosureinthepatentmaybepoor,particularlyintheITindustries.(Burk&

Lemley,2002;Feldman;2012,othercites).Therearesimplytoomanypatentsinmanyfieldsto

possiblykeepupwith,and600,000moreapplicationsarefiledeveryyear.Andinafast-moving

industrylikeITadelayofseveralyearsbetweeninventionanddisclosuremaymakethe

technologydescribedobsoletebythetimeanyonecouldreadit.(Feldman&Lemley,2015).

Further,economicliteraturesuggeststhatinorderforeffectivetechnologytransfer—in

otherwords,transferthatcanleadtocommercialization—readingapatentaloneisnot

enough.Suchtransfergenerallymustincludenotonlytheinformationpubliclyavailableinthe

patent,butalsothetransferofknow-how,complementaryassetsandotherperipheral

disclosures.(Bessen,2015;Teece,1986;Rantanen,2012).Thus,ifpatentsactuallydrive

innovationbythirdpartieswewouldexpecttoseenotsimplypatentingbutbusiness

transactionsthatinvolvethetransferofothertypesofinformationassets.

Alternatively,NPEscoulddriveinnovationiftheyservedasefficientmiddlemen,

connectingthosewhoinventbutwhoseinventionshavenotbeendeployedwiththosewhocan

produceaproductfromthatinvention.SeveralpeoplehavearguedthatNPEsservethisrole.

(Khan2014;Spulber,2012;Crane,2009;)Here,too,aninnovationbenefitrequirestechnology

transfer.Thesocialbenefitofthemiddlemanstorydependsonthemiddlemanproviding

somethingofvaluetotheimplementer.

5Bycontrast,insomefieldspatentsmayprovidemoreusefulguidancetoengineers.(Ouellette,2012).

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Inshort,then,thetraditionaljustificationsforNPEscontributingtosocialwelfareall

involvesomeformoftechnologytransferorlearningdisseminationbywhichtheNPEorthe

patentitholdsteachestheimplementeratechnologyitdidnototherwisepossess.Practicing

entitiescanbenefitsocialwelfarewithouttechnologytransferbymakingandsellingthe

inventiondirectly;NPEscannot.

EarlyevidencetestingthepositiveimpactofNPEsoncommercializationgoalsisnot

encouraging.Theevidenceislargelyobservationalinnature,flowingfromsmallsamplestudies,

withalloftheattendantlimitations.Nevertheless,thedataprovideausefulwindowonthe

NPEbusinessmodelandsuggestapproachesforgeneralizableanalyses.

FeldmanandLemleyprovidesurveyevidenceofthedirectmeasureofthecreationof

newproductsasaresultofpatentassertionsbyNPEs.Wealsotestcommercializationeffects

bymeasuringothermarkersofpotentialinnovation,suchastechnologytransferbeyondthe

patent.(Feldman&Lemley,2015).Includingsuchmarkerscreatesamoredynamicpictureof

thepotentialforfuturecommercialization,evenifthatcommercializationhasyettooccur.

Weknowthatactualtechnologytransferhappenswithinthepatentsystemintheex

antecontext.(Arora,2001).BothpracticingentitiesandsomeNPEsengageinexante

technologytransfer.Inparticular,universitiesandinventorscreateallianceswithcompanies

thatcanmoreeasilydevelopandcommercializetheirinventionsthroughjointventuresand

othertypesoftechnologyandresearchsharingagreements.(Feldman&Lemley,2015).These

agreementsfrequentlyoccurbeforeapatentissuesorevenbeforeanyofthepartiesfilefora

patent.Notably,theseagreementsinvolvetechnologytransfer.Universitiesandother

inventorsinthesedealsprovidenewtechnologytothoseinapositiontoimplementit.And

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thattechnologyoftenincludestradesecretsandknow-howbeyondtheto-be-patented

technologyitself.

Patentlitigationandlicensingdemandsforexistingpatents,bycontrast,tendtooccur

afterthedefendanthasalreadydevelopedandimplementedthetechnology.Thisis

particularlytrueofNPEpatentassertionsandlicensingdemands,whichsomeevidence

suggeststendtohappeninthelastfewyearsofapatent’slife,althoughthepictureis

complicated.(Love,2013;Feldman,Ewing&Jeruss,2013).NPElicensingdemandsand

litigationagainstcompaniesthatareproducingproductsdonotseemtoinvolvetechnology

transferorotherindiciaofnewinnovation.

WhilesomehavearguedthatNPEsserveasefficientmiddlementhroughthisactivity,

transferringinventionsfromcreatorstocommercializers,FeldmanandLemleyfoundnosuch

evidence.Theauthorssurveyed181in-houselicensingattorneysatcompaniesthatproduce

products,onthetheorythatthesepartieshavedirectknowledgeofwhetherthecompany

implementednewtechnologyandbecausein-housecounselstendtonegotiatelicensesbothas

patentholdersandaspotentiallicensees.Thesurveyexaminedtheeffectsoflicensesthata

companytookafterreceivingapatentdemand,whichwasdefinedtoincludecallsorletters

suggestingareasofmutualinterestorjointventures,offeringtolicensepatents,threatening

litigation,givingnoticeofintenttofileaninfringementlawsuitoractuallyfilinginfringement

lawsuit.Respondentswereaskedwhetherthoselicensesledtoanymarkersofinnovation.

Directmarkersofinnovationincludedtheadditionofnewproductsorfeatures.Indirect

markersofinnovationincludedwhetherthepatentholdertransferredknow-howorother

technicalknowledgealongwiththepatent,whetherthepatentholdertransferredpersonnel

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(includingthroughaconsultingagreement),andwhetheranyjointventureswerecreated.

Again,thesurveyconsideredonlylicensestakeninresponsetounsolicitedlicensingrequests.It

didnotlookatthepractice,particularlyamonguniversityinventors,ofenteringintotechnology

transferagreementsbeforeembarkingondevelopmentofanewtechnology.

TheresponsessuggestthatlicensingrequestsfromNPEsrarelyleadtodirectorindirect

markersofinnovation.Ninety-twopercentofrespondentsreportingthattheyaddednew

productsorfeaturesfromzero-10%ofthetime,withNPElicensing.Theresultswereeven

strongerwhenrespondentswereaskedaboutindirectmarkersofinnovation,withrespondents

reportingwithcompleteunanimitythattheyrarereceivedtechnicalknowledge,transferof

personnelorjointventuresalongwithapatentlicense.Thus,theresultssuggestthatNPEsdo

notappeartobeplayingtheroleofefficientmiddlemen.Whileitiscertainlypossiblethata

middlemanrolecouldbereflectedinsomeothermarkersthantheonesweexamined,wedid

notfindsuchevidenceinourpreliminarywork.

Interestingly,theevidencewasalsodismalwhenexpostlicensingrequestscamefrom

thoseotherthantraditionalNPEs.Whenproductproducingcompaniesanduniversitiesmade

unsolicitedapproachesandthoseapproachesresultedinalicensingagreement,the

agreementswereunlikelytoleadtodirectorindirectmarkersofinnovation.Three-quartersof

respondentsreportednewproductsorfeaturesfromzeroto10percentofthetime;88%of

respondentsreportedtransfersofknowledgezeroto10percentofthetime;94%reported

transfersofpersonnel(includingthroughconsultingagreements)zeroto10percentofthe

time;and91%reportedjointventuresfromzeroto10%ofthetime.(Feldman&Lemley,

2015).Theseobservationalresultssuggestthatexpostpatentlicensingdemandsdonotappear

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toleadtotechnologytransferorothermarkersofinnovation,nomatterwhattypeofparty

initiatestheunsolicitedapproach.

Amiddlemanwhoisnotmakingaproductandnotactuallyprovidingthelicenseewith

newtechnologyisoperatingatmostasataxcollectorforinventorswhocouldnototherwisedo

battleagainstlargecompanieswhohaveimplementedtheirideas.(Feldman&Lemley,2015).

Buttransactionsarenotdesirablefortheirownsake.(Burstein,2015)Itissociallydesirableto

imposesuchataxoninnovatorsonlyiftheworldgainssomethingfromit.Thatmightbetrue

if,forinstance,theimplementerhadactuallycopiedtheideafromthepatentee.Ifwethink

copyingcouldreduceincentivestoinvent,wemightreasonablyprefertoforcecopiersinto

licensingarrangementsinstead,compensatingtheinventorwhoseworkiscopied.

Theavailableevidencesuggestsitisunlikelythatmostpatentenforcementtargetssuch

copying.Forexample,CotropiaandLemleydemonstratethatmostpatentlawsuitsarefiled

againstthosewhohavedevelopedaproductindependently,ratherthanthosewhohavetaken

theideafromapatentholder.(Cotropia&Lemley,2009).Andwhilesomehavespeculated

thatdefendantsmaycopyindirectly,learningabouttheinventionfromthepatentee’sproduct

orfromscientificdiscussionsoftheideawithouteverreadingthepatentitself(Merges,2014),

thatisfarmorelikelywhenthepatenteeactuallymakesaproductthanwhenitproduces

nothingotherthanthepatent.Further,thereisevidencethatNPEstendtoassertpatentsat

theendoftheirlives,whilepracticingentitiesassertpatentsearly,furtheringcastingdoubton

thecopyingstory.(Love,2013).6Andthereisverylittleevidencethatpatenteeshaveuseda

6We(andLove)acknowledgethattheinterpretationofhisdataiscomplicatedbythechangeinthenumberofNPEsuitsduringthetimeofhisstudy.(Feldman,Ewing&Jeruss2013).

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remedycreatedin1999toprotectagainstcopyingofpublishedpatentapplications.35U.S.C.

§154(d).

Somehavesuggestedadifferenttheoryoftaxcollection–thatNPEpatentsuitsprovide

analternativewayforventurecapitaliststorecoversomeinvestmentinafailedinvention.We

areskepticalthatventurecapitalistsaremuchmotivatedbytheprospectofasortof

consolationprize.Theytellusthattheyaren’t;insurveyresponsestheyindicatethatitisthe

prospectofabigwin,notthepossibilityofrecoveringsomemoneyfromafailedinvestment,

thatmotivatesthem.(Feldman,2014).Butevenifthereweresomemarginalincentiveto

additionalinvestmentfromNPEtaxation,thathastobeweighedagainstthecostimposedon

successful,product-implementingbusinesses,aswellasonstartupsthemselves.Inparticular,

venturecapitalistsnotethatifastartupcompanyhasapatentassertionagainstit,thatwould

beasignificantdeterrentforanyfundingrequest.(Feldman,2014).Finally,itisworthnoting

thatamajorityofNPEsuitstargetsmallcompaniessuchasventure-fundedstartups,notlarge

companies(Chien2014).Thus,atbest,manyoftheseNPEsuitswouldbetaxingsomeventure-

backedstartupsforthebenefitofsubsidizingothers.Thatseemsadubiouspolicyidea.

2. “Commercialization-Plus”Justifications

Respondingtosomeoftheconcernswithtraditionaljustificationsforpatentprotection

andlicensing,anumberofscholarshavearticulatedwhatwecall“commercialization-plus”

justificationsforpatentprotection.(Kitch,1977;Abramowicz,2007;Kieff,2001;Abramowicz&

Duffy,2008;Sichelman,2010).Thesejustificationsdifferfromthetraditionalinnovation-based

justificationsbecausetheyfocusontheallegedneedforearlyoradditionalprotectionsto

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encouragepost-inventioninvestmentincommercialization.Themostfamousofthese,known

as“prospecttheory,”recommendsgrantingstrongpatentsearlyinthelifecycleofanideaso

thatasinglepartycancontroldevelopmentoftheideamuchthewaythatamineralprospector

managesamineralclaimsite.(Kitch,1977).Otherscholarshavesuggestedthatweshouldgrant

patentstooldtechnologiesinareaslikepharmaceuticalsinordertoencouragethepatent

ownertobringtheproducttomarket.(Roin,2009).Stillothershavesuggestedgrantingnormal

patentsattheoutset,andthen,ifnoonecommercializesit,grantingextrarightstotheperson

whodoes.(Sichelman,2010).TheBayh-DoleAct,passedin1980,waspremisedontheworry

thatuniversityinventionswouldlanguishunlessonepartywasgiventherighttoturnthose

inventionsintocommercialproducts.(CouncilonGovernmentRelations,1999).

Commercialization-plustheoriesarecontroversial.Lemleyamongothershascriticized

Kitch’sprospecttheoryas“fundamentallyanti-market”becauseitpresumesthatcentral

controlissuperiortomarketallocationofexistingresources,andFeldmanhasarguedthat

patentsareentirelyunlikethemoreclearlydefinedrightsinKitch’smineralanalogy.(Lemley,

2004;Lemley,1997;Lemley,2012;Feldman2012).Othershavesuggestedthat

commercializationtheoryispoorlyfittedtoindustriesinwhichinventionproceedsbystages

andimprovementsratherthanbydiscreteadvances.(Merges&Nelson,1990).

Kitch’stheorymayjustifypatentprotectionincertainindustries.BurkandLemley

suggestthatthetheorymapsbesttothepharmaceuticalindustry,wheregovernment

regulatorybarrierssignificantlyraisethecostofentryandmayrequireexclusivity.(Burk&

Lemley,2009).AnditmayjustifypatentprotectionforNPEsinsomecases,aswithuniversity

technologytransferagreements.(Kieff,2001)

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Notably,though,anyformofcommercializationtheoryisself-limitingincertain

importantrespects.First,ifexclusivityisnecessarytoinduceafirmtocommercializea

technology,weshouldrarely,ifever,seemultiplecompaniesindependentlydevelopthesame

technology.Theveryconceptofcommercializationtheoryisthatnoonewouldinvestin

developingandcommercializingthetechnologyunlesstheywerefirstconfidenttheywould

haveexclusiverightsoverthattechnology.Theremaybeexceptionsinwhichcompanies

engageinpatentracing,eachhopingtobethefirsttoreachanimportantinvention.(Barzel,

1968;Tirole,1988;Dasgupta&Stiglitz,1980;Grady&Alexander,1992;Reinganum,1989).But

thehistoricalexamplesofpatentraceshavetendedtoberacestoinvent,notracesto

commercialize.(Lemley,2012).Ifcommercializationtheoryiscorrect,evenindependent

inventorswon’tcommercializethetechnologyunlessanduntiltheyareconfidenttheywill

haveexclusiverightsoverthattechnology.Andracingtocommercialize(ratherthantoinvent)

ispresumablysomethingmostlyengagedinbypracticingentities,notNPEs.Forthesame

reason,undercommercializationtheoryweshouldn’tseeopensourceorpublicdomain

companies.Ifwedo,thatisreasonableevidencethatexclusivityisnotnecessarytoinduce

commercializationinthatindustry.(Asay,2015).

Further,ifanyformofcommercializationtheoryiscorrect,andcertainlyifenhanced

commercializationtheoryis,infringementshouldberare.Independentlaterinventors

shouldn’tcommercialize,sincetheywon’thaveexclusiverightstotheinvention.Norshould

weseemuchcopyingofthepatentee’sinvention,sinceifcommercializationrequiresmarket

exclusivitythecopierwon’tgenerallybeanybetteroffthananindependentinventorwho

doesn’thaveexclusivity.Thatdoesn’tmeanwewouldneverseepatentlitigation.Butitdoes

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meanthatifcommercializationtheoryiscorrect,itshouldinvolveexceptionalcircumstances

suchasalowerregulatoryburdenonsecondentrants(trueofgenericpharmaceutical

companies)orsomereasontothinkthatsimplyknowingthatamarketexistssomehow

dramaticallyreducesthecostsofcommercialization.Theremaybesuchcases.Applev.

Samsungisarguablyone.Butthosecaseswouldinvolvecopyingofexistingmarket

participants.

Athirdimplicationofcommercialization-plustheoryisthatpatentownersshould

generallynotgrantnonexclusivelicenses.Ifthistypeoftheoryiscorrect,universitiesshouldbe

grantingexclusivelicensestopracticingentitiesinanygivenmarket,sincethelicenseeneeds

thatexclusivitytocommercializetheinvention.Nonexclusivelicensesshouldberareand

tightlycontrolled,sincethenonexclusivelicenseeswouldhavetocoordinatetheirproduction

andpricingdecisionsundercommercializationtheory.Andnonexclusivelicensestomultiple

partiesshouldbenonexistent,sinceallowingopenentryintoamarketisinimicaltothetheory

ofcommercialization.Infact,however,theevidencesuggestsnotonlythatnonexclusive

licensingbyuniversitiesiscommon,butthatthelackofexclusivityisanimportantdriverof

subsequentimprovementforcoreenablingtechnologies.(Lemley,2005).

Evenifcommercializationtheoryjustifiespatentprotectioninsomeindustries,itcannot

justifymostmodernpatentlitigation.NorcanitjustifyexpostlicensingdemandsbyNPEs.

Outsidethepharmaceuticalindustries,NPElicensingdoesnotlookmuchlikecommercialization

theorywouldpredict.ThereisevidencethatNPEpatentsareassertedlateinlife,(Love,2013),

andalmostalwaysagainstindependentinventors.(Cotropia&Lemley,2009).ExpostNPE

patentlicensesdon’ttransferthetechnologytoapartythatcanlatermakeuseofit.(Feldman

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&Lemley,2015).AndNPEpatentlicensingdemandsessentiallyalwaysseeknonexclusive

licensesfrommultipleparties,notanexclusivelicensefromasingleparty.Indeed,NPEs

commonlysuetwentyormoredefendantsinthesameindustryandthesametime,settling

witheachoftheminexchangeforanonexclusivelicense.(Allisonetal.,2009).

TheevidencealsosuggeststhatNPEsaretargetingsuccessfulcommercializers,not

facilitatingnewcommercialization.Feldman&Frondorfstudied50productcompaniesthat

hadinitialpublicofferingsbetween2007and2012.(Feldman&Frondorf,2016;Feldman,

2014;Chien,2014).Theauthorsfoundthatthat40%ofrespondentsreceivedpatentdemands

duringtheperiodsaroundthetimeoftheIPOs,withthosedemandscominglargelyfromNPEs.

Theeffectswereevenmorepronouncedforinformationtechnologycompanies,withalmost

60%ofrespondentsreportingpatentdemandsaroundthetimeoftheirIPOs.Similarly,Cohen,

Gurun,&Kominersfoundthatacompanywas50%morelikelytobesuedbyanNPEfollowinga

large,positivecashshocksuchasafundingeventoranIPO,andthatacashshockwasa

significantpredictorofthenumberoftimesacompanywassuedbyNPEs.(Cohenetal.,2015).

Theauthorsfoundfurtherthatnootherformoflitigationhasthesametypeofcashtargeting

behavior--nottorts,contracts,securities,environmental,orlaborlaw.Nothing,butpatent

law.TheresultssuggestthatNPEdemandbehaviormaybedrivenbythelureofdeeppockets

andtheleverageopportunitiesaffordedbyanIPOperiod,ratherthanthemeritorious

representationofclaimsthatawrongedinventorcouldnotbringonitsown.Suchstudiesalso

provideareminderthatanyvirtuousbenefitsofNPEactivityshouldbeevaluatedagainstany

coststoinnovationandsociety.(Bessen&Meurer,2014;Morton&Shapiro,2014).

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Allformsofcommercializationandproduct-basedtheorieshaveafinal,surprising

implicationforNPEsuits.Ifthereasonweneedapatentisnottoinduceinventionbutto

inducecommercializationofthatinvention,thelawshouldpreferthosewhoactually

commercializetheinventionoverthosewhomerelyinventitbutdonothingfurther.Thus,the

ownersofthosepatentshavefailedintheirpurposeiftheyhaveneithercommercializedthe

inventionthemselvesorexclusivelylicensedthepatenttosomeonewhodoes.Suchan

approach,therefore,mayjustifyaworkingrequirement,somethingthatisgenerallyconsidered

anathematopatentadvocates.(Sichelman,2010).Further,asbetweentheNPEinventorwho

doesnotengageintechnologytransferandtheindependentinventordefendant,

commercializationandproduct-basedtheoriesshouldpreferthedefendant,sinceitisthe

defendant,notthepatentee,whohasachievedthegoalofthepatentsystem.

3. IndependentInventionandPriorUserRights

MostotherIPregimes,includingcopyrightandtradesecrets,exemptindependent

developmentfromlegalliability.Patentlaw,bycontrast,punishesanyonewhopracticesthe

claimedinvention,evenindependentinventors.Anumberofscholarshavesuggestedthat

patentlawshouldadoptsomeformofindependentinventionorprioruserrightsdefense.

(Shapiro,2006;Vermont,2006).Othershaveworriedthatanindependentinventiondefense

mightinterferewithpatentracesorincentivestocommercialize.(Lemley,2007).

Ouranalysissuggeststhatthepatentsystemmightsensiblyrequirethatapatentee

showeitherthatitpracticesinthemarketorthatithasengagedintechnologytransfertothose

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whothenputthetechnologyintopractice.7Apatenteewhocannotshoweitherwouldstillbe

abletoenforceitspatent,butonlyagainstthoseitcouldshowcopiedtheinventionfromit,

directlyorindirectly.Thishybridapproachtracksthelegaljustificationsthathavebeenoffered

forpatents.Aninventorwhodevelopsanideaotherscopywouldbeabletoenforcethepatent

againstthosecopiers,sincecopyingisaformoftechnologytransfer(andoneweviewas

sociallyinferiortoalicenseagreement).Aninventorwhoendsupdisseminatingtechnologyto

theworld,eitherbypracticingtheinventionorbytransferringtechnologytootherswhodo,

wouldbeabletoenforcethepatentagainstbothcopiersandindependentinfringers.Anda

practicingentitywouldsimilarlybeabletoenforcepatentsagainstbothcopiersand

independentinfringersonacommercializationtheory.

Introducingevensuchalimitedindependentinventiondefensewouldrequirecourtsto

evaluatedisputedclaimsofcopyingonsomecases.Somehaveworriedthatmuch

independentinventionisreallycopyingindisguise(Merges,2014),thoughothersareskeptical.

(Lemley,2012).AsSamVermonthasobserved,though,courtsarequitegoodatresolving

factualdisputesofthissort.Independentdevelopmentwilltendtoleaveapapertrail.Andthe

partieswillhaveanincentivetocollectandpresentevidenceonthequestion.Further,we

thinkcourtscanproperlyincludeintheconceptofcopyingcasesofindirectcopyingfroman

ideaonceithasbeenpublicizedbythepatentee.(Merges,2014).

Arequirementthatpatenteeswhodonotengageinanyformofcommercializationor

technologytransferprovethatthedefendantcopiedfromthemshouldbepairedwithstricter7Whileinanidealworldacourtmightwanttodeterminewhethertherewastransferofnon-patentknow-howalongwiththepatent,anylegalrulerequiringsuchatransferwouldleadtoshamtransactionsinwhichNPEsattacheduseless“know-how”toanonexclusivepatentlicenseinordertoobtainmorefavorabletreatment.

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penaltiesagainstthosedeemedtohavecopiedtheinvention.Itwouldbereasonableto

require,notmerelypermit,trebledamageawardsandattorneys’feesagainstthosefoundto

copy.Increasingthepenaltiesforthosewhoopttotaketechnologyfromapatenteewithout

paying,whileeliminatingthepenaltyimposedoninnovatorswhodonotbenefitfrompatentee

technologytransfer,properlyalignsthepatentsystem’sincentiveswiththeevidenceandthe

arrayoftheoreticaljustificationsforpatents.

OnlineAppendix

18

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