Books and Arts

Nature 454, 164-165 (10 July 2008) | doi:10.1038/454164a; Published online 9 July 2008

The cost of vague patents

Michael Gollin1

BOOK REVIEWEDPatent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk

by James Bessen & Michael J. Meurer

Princeton University Press: 2008. 352 pp. $29.95 £17.95

Adding fuel to the anti-patent fire, James Bessen and Michael Meurer argue in Patent Failure that US patents cost more than they should because their claims are too vague. Patent claims define the scope of a patented invention, and when they are unclear, competitors cannot determine whether or not they are infringing the patent and whether they should license or litigate.

The cost of vague patents

J.-C. VERHAEGEN/AFP/GETTY IMAGES

Microsoft's legal chief Brad Smith (bottom left) and lawyers wait for a 2007 decision at the European Union court that fined the company over expensive patent licences.

Bessen and Meurer argue that 'fuzzy' claims for abstract inventions such as software, biotechnology and business methods make patents too expensive to society. Chemical and pharmaceutical patents, however, produce net economic benefits, as do patents obtained by small companies.

The authors spend most of their energy attacking software patents, describing skyrocketing litigation costs, increasing uncertainty, the thousands of patents on a single product, and other problems that hinder software innovation. They ask why the system works more poorly for software and biotechnology companies than for pharmaceuticals and chemicals. Their research leads the authors to posit several explanations. First, claims on small molecules are clearer and more comprehensible than the abstract claims in biotechnology and software patents.

Second, the US Patent and Trademark Office (USPTO) and courts unwisely permit 'premature' patent claims on biotechnology and software products that have not and cannot yet be made. For example, Amgen's patent on a method of making the red-blood-cell protein erythropoietin in hamster cells claimed all "non-naturally occurring" erythropoietin, including that made in human cells, even though erythropoietin had not yet been made that way.

Third, the courts have allowed patenting of early-stage biotechnology and software inventions that remain inchoate and abstract, increasing the likelihood of litigation against someone who independently develops an invention that falls within the scope of a patent claim. Fourth, patent law is in flux for the new fields of biotechnology and software. By contrast, organic chemistry is more than a century old, so the boundaries of patent claims are written clearly enough for competitors to understand what is claimed and what is not. Thus, companies can avoid infringement or resolve disputes quickly. Finally, the authors blame judges for expansionist tendencies that lead them to allow patents on "everything under the sun made by man", resulting in a flood of biotechnology and software patents.

Bessen and Meurer use a lively, assertive style and are critical of patent-system stakeholders, including federal judges, the USPTO and patent lawyers. Throughout the book, they contrast the patent system's rules about claim boundaries with the supposed success of real-estate law, a system that has clear, surveyed and publicly available land boundaries.

In the late 1990s, the authors contend, the US patent system failed publicly traded corporations. They estimate that the cost to such businesses of litigation over chemical and pharmaceutical patents was around $4 billion in 2000, but this was more than outweighed by the profits associated with patents of about $15 billion, a questionably low number given the value of blockbuster drugs. But for other industries, litigation costs were about $12 billion and the profit was only about $3 billion, also a questionably low number, and a net social loss. The authors recognize that owning patents always provides a competitive advantage for individual companies, even if the overall industry would be better off without them.

The authors offer several suggestions. Force inventors to clarify ambiguous claims with the USPTO. Convince judges to invalidate claims that are not definite and clear. Empower the USPTO to give pre-litigation opinions on claim scope and infringement. Increase renewal fees to prune out unused patents. Establish a prior user defence so that independent discovery and use of a patented invention is not considered infringement.

Admirably, Bessen and Meurer reject what they call "faith-based policy" based on unsubstantiated beliefs about how patents help or hurt different companies and industries. Instead, they aim to provide the "first comprehensive empirical evaluation of the patent system's performance". They do well with studies of famous patent disputes, such as Kodak versus Polaroid (regarding instant photography) and NTP versus Research in Motion (regarding the BlackBerry wireless device). Unfortunately, the book's strength — its reliance on data — is also a weakness. Most of the data are peripheral to traditional methods of patent valuation, such as market value, and date from the 1990s, so are only a trailing indicator of patent activity. The book's conclusions do not adequately reflect recent developments, including US court decisions that have narrowed patent scope, the open-source software movement and global pressures to limit software and medical patents.

Patent Failure focuses narrowly on financial value and costs of patents as private-property assets of publicly traded corporations. But patents serve other objectives that deserve greater attention. They are part of a dynamic, global intellectual-property system that drives innovation by balancing the exclusive rights of creators against the ability of others to access and copy creative works. The social benefits of the patent system, as it has evolved over the centuries, include promoting publication as an alternative to secrecy, rewarding investment in research, expanding international trade, allowing individual freedom and control over creative activities, promoting innovation races, helping innovators break into an established market allowing well-managed companies to supplant poorly managed competitors, and facilitating collaboration and technology transfer between public and private organizations. These benefits are undervalued or ignored in the book's financial calculations, and they contradict its conclusion of patent failure.

The book uses lively anecdotes and analogies, but this is ironic because the authors criticize other writers for relying on anecdotal information. And they overstate their case that patents would work better if they were more like real estate or copyright. The recent collapse in the real-estate market suggests that particular system is no panacea. And the authors' favourable view about the clarity of copyrights in the entertainment industry ignores frequent disputes over who owns rights to movies and music.

Patent Failure sets out in the right direction by comparing the corporate benefits of patents to their overall social costs, based on empirical data. And the book's conclusion may be sound, that the patent system would work better with clearer boundaries defined by patent claims. Ultimately, the book raises good questions, but leaves many unanswered.

  1. Michael Gollin is a partner in the patent group at Venable LLP, 575 7th Street NW, Washington DC 20004, USA. He is author of Driving Innovation: Intellectual Property Strategies for a Dynamic World.