Patent Rights as Property Rights
Source
Article: Ignoring Patents. Byh Mark A. Lemley, Stanford Law School. Stanford Public Law Working Paper No. 999961, July 3, 2007
URL = http://papers.ssrn.com/sol3/papers.cfm?abstract_id=999961
Excerpt
This paper makes some important distinctions between patents and real property, and notes that it's probably for the best that in the real world patents actually are not treated like property, because it would slow down innovation if, before anyone invented anything, they had to secure a ton of agreements with patent holders [1]:
"It is currently very much in vogue to talk about patent rights as a form of property, and in particular to draw analogies to real property. So let's engage in a thought experiment: what if we took the analogy seriously and actually behaved with patents as we do with real property? Product manufacturers would have to stop ignoring patents. No venture capitalist or bank (or shareholder, should Intel fund the project internally) would give Intel the money to build a new manufacturing plant (or "fab") unless it could demonstrate that it had conducted an exhaustive search for patents it might infringe in manufacturing its chips and had obtained irrevocable or at least long-term licenses to use any patent that anyone might conceivably later assert against the chips or the manufacturing plant. Intel, in turn, would look to a group of "patent insurance" firms that would spring up and that would conduct the search and determine what patents needed to be licensed. Unless and until all of this had happened, Intel could not start construction of its fab, much less make or sell chips produced by that fab. If there were significant disagreement over whether a party legitimately owned patent rights, perhaps Intel could bring a declaratory judgment action to try to clarify those rights, but it would hold construction in abeyance until it got an answer. And since there is no experimental use defense to patent infringement, scientists at both universities and corporations would have to conduct a similar search and wait to get permission from all possible interested parties before they began their research, lest they infringe a patent in the lab.
Would this world be desirable? I'm skeptical. Let's begin with the benefits of such a world. Patent owners would get paid early and often. Patent litigation would decrease, or maybe even disappear entirely, because anyone who wanted to make a product would find the patent owner and enter into a deal up front, or else not make the product. And patent owners who compete in the marketplace, and rely on the patent to preserve exclusivity, would not face competition during the often-protracted period during which the patent is being litigated.
At the same time, these benefits would come at significant cost. First, both research and the manufacture of products would be regularly delayed for years and perhaps decades as potential defendants identified and cleared rights....
Second, a real-property patent system would replace competition with central coordination in a significant number of cases. So far we have assumed that the patent owners will be willing to license their patents. But that is likely not to be true in many cases. Patent owners who compete in the marketplace want exclusivity, and there is no license price an equally efficient competitor will be willing to pay that will compensate for the loss of monopoly rights. Even patent owners who do not compete in the marketplace may find it more lucrative to grant an exclusive rather than a nonexclusive license to someone who does make a product, for the same reasons. Nor will a competing company be particularly sympathetic to efforts by outsiders to engage in research on the invention if the effect of that research will be to design around or improve that core invention. The effect of a real-property or title-search system is to replace competition in the shadow of a patent while it is being litigated with single-firm markets whenever the patentee participates in the market, either directly or by proxy. Researchers who could not obtain a license would direct their scientific efforts into different fields, and potential competitors would do the same, meaning that the owner of a core patent could control who, if anyone, worked on a particular technology. If you believe, as I do, that the evidence suggests that competition is often a better spur to innovation than monopoly, removing that contingent competition is a potentially significant cost.
Third, and perhaps most important, a significant percentage -- maybe as many as three-fourths -- of these patents turn out to be either invalid or not infringed. It is this probabilistic nature that most critically distinguishes patents from real property. Under the current system in patent-ignoring industries, consumers benefit from competition during the time before those patents are invalidated or held not to be infringed. Under a real-property patent system, the owners of invalid patents can capture supracompetitive profits during the time before their patents are invalidated, profits made at the expense of consumers and that they will never have to disgorge. That extra profit, in turn, would create significant incentives to obtain and enforce dubious patents....
Finally, people usually build a house on a single plot of land, while as I have noted, there may be hundreds or thousands of rights that must be aggregated to build a multi-component product. As Carl Shapiro and I have argued elsewhere, this fact exacerbates the patent holdup problem and leads to systematic overpayments by manufacturing companies, because individual patent owners won’t discount the royalty they charge to account for the complementary rights owned by others."