Live and Let Live: A Tale of Weak Patents

Abstract

Patent protection has gradually expanded over time, and many patents of suspect value are routinely granted owing to the lack of rigorous scrutiny in the examination process. This has resulted in the recent explosion of patents granted and potentially creates a "patent thicket" that hinders future innovation. I investigate the question of whether the litigation process can be relied on to restore competition when an imperfect market outcome is sustained through patents of suspect value. The analysis undertaken in the paper points out the serious lack of private incentives to eliminate patents of suspect value through litigation. I also discuss potential measures to restore the soundness of the patent system. (JEL: O3, L1, L4, D8, K4) E-mail address: choijay@msu.edu 1. See Kitch (1977) for an alternative view of the patent system. The "prospect theory" contends that a major function of the patent system is to maximize the efficiency to technological innovation by enabling the coordination of investments to innovation and eliminating duplicative efforts. 2. 35 U.S.C. Sections 102 and 103. These are called the novelty and the nonobviousness requirements, respectively. 3. The corresponding rates for Europe and Japan were 67% and 64%, respectively.

‘Essential’ Patents, FRAND Royalties and Technological Standards

“…If one thinks that essential patents are created explicitly in anticipation of the development of a new technological standard, as we do, and that inessential patents come from the 'stock' of existing patents (some generated during the recent R&D effort, others from previous efforts), then inessential patents come more often from the past and will also be ex-post cited less often in relation to the new technology.11 Inessential patents are therefore patents that have successfully gone through the patent office and the SSO but that are not valuable to the standard, as in the tests made inGoodman and Myers [2005]. We could extend the model to allow for patents that are 'legally' weak as inChoi [2005],Lemley and Shapiro [2005],Farrell and Shapiro [2008], and that would not be upheld in courts.…”

“…Inessential patents are therefore patents that have successfully gone through the patent office and the SSO but that are not valuable to the standard, as in the tests made in Goodman and Myers []. We could extend the model to allow for patents that are ‘legally’ weak as in Choi [], Lemley and Shapiro [], Farrell and Shapiro [], and that would not be upheld in courts.…”

Decentralising the Patent System

“…Recent years have seen increasing concern about the quality of granted patents (Jaffe and Lerner, 2004;Wagner, 2008;de Rassenfosse et al, 2016). Much of this concern has been focused on the perceived proliferation of so-called 'weak' patents (Choi, 2005;Lemley and Shapiro, 2005;Farrell and Shapiro, 2008) that are likely to be found invalid if challenged in court. After all, the exclusion rights obtained by patenting an invention only exist insofar as they are enforceable.…”

Patent, Screening, Innovation and Welfare

“…Second, the private incentives to challenge a patent can be either smaller or larger than the social incentives. Conventional wisdom is that the incentives to challenge are insufficient due to the positive externalities a successful challenge generates (Farrell and Merges, 2004;Choi, 2005;Farrell and Shapiro, 2008). While this point is valid, it is incomplete both because the challenger takes only his own litigation cost into account and because the private gains from a successful challenge can be larger than the deadweight loss avoided.…”