The Troll Toll
How “patent assertion entities” stifle innovation. (It’s even worse than you think.)
An MRI is the kind of health care technology that might be stifled by patent trolls.
Photograph by Suzanne Kreiter/The Boston Globe via Getty Images.
Photograph by Suzanne Kreiter/The Boston Globe via Getty Images.
When hospitals come upon a technology with a proven track record of
saving lives, you’d expect a flood of investment to expand its use, and a
race by manufacturers to bring new products to market. Digital medical
records, which give physicians quick and easy access to patients’ case
histories, is an example of such a technology. Over the past dozen or so
years, hospitals across the country have gone digital, leading to better patient outcomes
and making hangar-size file-storage facilities obsolete. But even as
more hospitals opted into using computer records, the leading vendors of
picture storage software—an important component of medical
records—completely stopped introducing new products to the market.
Why, precisely when the market for their product had just taken off, would companies stop innovating? An explanation comes from Catherine Tucker, an economist at MIT who has studied the medical IT sector. In an unpublished study,
she shows that the slowdown in R&D occurred as a result of
litigation by a company whose primary reason for existing is to acquire
the rights to others’ inventions and file patent claims against
producers of related products—a patent troll. Tucker’s study is, to
date, one of the best pieces of quantitative evidence of the broken
state of America’s patent system, a critical concern not just for
improving health care but for encouraging the innovation that’s needed
to ensure future economic prosperity.
Patents exist for good reason—to allow inventors to reap the spoils
of the creativity and hard work required to come up with a “new and
useful” product. If we could all sponge off the inventive efforts of
others, who would bother coming up with new ideas in the first place?
At the same time, ideas are different from physical property, like a
house or a machine that two people or companies can’t use at the same
time. Ideas are “non-rival”
in nature, which means everyone can use them at once, and they don’t
wear out from use. We allow patents to expire after a number of years so
they can eventually be used by everyone, and we permit inventors to
license their use to others in exchange for payment, so the greatest
number of people benefit from innovations even in the short run.
We also let people buy and sell ideas—the same as a house or car—to allow their rights to be transferred to those who can make the best use of them. Biotech companies can focus on developing new drugs, then transfer their ownership to pharmaceutical giants that can manufacture and market them. The much-romanticized solitary inventor can focus on coming up with new ideas, then sell them off to someone better suited to selling licenses or using an application.
We also let people buy and sell ideas—the same as a house or car—to allow their rights to be transferred to those who can make the best use of them. Biotech companies can focus on developing new drugs, then transfer their ownership to pharmaceutical giants that can manufacture and market them. The much-romanticized solitary inventor can focus on coming up with new ideas, then sell them off to someone better suited to selling licenses or using an application.
That’s where patent trolls—the more polite term is patent assertion entities—come
in. They are companies set up for no other purpose than buying and
exploiting the inventions of others. At times, they do it by licensing
technologies—precisely the type of activity that creates a market for
inventions, which in turn encourages innovators who might not otherwise
expect to earn a return from their work. But often, trolls buy patents
with the intent of suing first and asking questions later.
That’s what happened in the case for picture archival and
communications systems, or PACS, which store medical images from
ultrasounds, CT-scans, and other diagnostic tests. In the mid-’90s a
surgeon and engineer team in Tampa filed a patent that described a
system for sharing medical images via communications networks. They were
exactly the sort of solitary inventors that a market for ideas is meant
to help, and indeed they sold their patent to the innocuous-sounding
Acacia Research Corp. in 2005.
Acacia is a patent troll. They claimed broad coverage over their
newly acquired patents, arguing in press releases that the patents
encompassed any system that could “enable multiple, remote users to
simultaneously access image data from remote display terminals over
common phone and data networks, such as the Internet.”
According to Acacia, a number of companies were already treading on
their intellectual property, including such deep-pocketed industrial
giants like GE Healthcare, Siemens, and Philips, all of whom produced
PACS and were served notice of a lawsuit in an out-of-the-way Eastern
District of Texas court that is particularly friendly to plaintiffs in
intellectual-property disputes.
Measuring the effects of patent litigation is a tricky exercise—you need to figure out what innovation would
have happened in the absence of a lawsuit. In the case of Acacia’s PACS
suit, there was a convenient point of comparison: The lawsuit covered
only medical-image-storage software, not text-storage systems, which are
just as technologically complex. Since most companies named in the suit
sold both image- and text-storage systems, the latter could be used as a
benchmark to assess the impact of the Acacia suit on the PACS market.
Tucker found that the market for imaging software was put on ice by
the Acacia lawsuit—among companies named in the suit, imaging software
sales dropped more or less in half after the suit was announced. There
was no change in sales for their text-based software sales. This wasn’t
the result of a leveling off in demand for imaging software, which
continued to grow in 2008 and 2009. And sales at smaller companies not
named in the Acacia suit continued apace after the lawsuit announcement.
Why the slowdown in sales? Imagine what would happen to iPhone sales
if Apple’s last product was its 3G phone introduced in 2009:
Android-based devices would be running away with the market. Tucker
claims that at least part of the reason imaging software sales were
slowed by the Acacia suit is that R&D at the affected companies went
into a deep freeze. In the two years following the suit, none of the
defendants came out with a single new version of their products, while
improvements continued in their text-based systems and at smaller
competitors not subject to the suit.
Given the nature of U.S. patent law, it’s easy to understand why—a
company that continues to develop new products while targeted with a
patent suit is guilty of “willful infringement”
if it loses the case and is then subject to triple damages. So the
court need not even rule in favor of patent trolls like Acacia to slow
down innovation—merely the threat of a possible guilty verdict is enough
to put R&D on hold.
Before joining the lynch mob that’s after Acacia and its fellow
patent trolls, it’s important to remember that encouraging innovation
involves a delicate set of tradeoffs. Acacia claims it is merely
defending the intellectual property of small-scale inventors whose ideas
would have been usurped by multinational bullies without patent trolls
to license and litigate on their behalf. That’s what has led some people
to sing their praises.
At the same time, most experts feel that the system is designed too much in patent litigants’ favor.
Patent claims are often ridiculously broad—Acacia’s PACS suit claimed
to cover all systems that transmit medical images over the Internet;
Amazon patented the one-click checkout; and according to a recent episode of NPR’s This American Life,
patent number 5771354 covers any software upgrade delivered via the
Internet. Many patents cover inventions that are neither new nor
useful—according to the same NPR story, 30 percent of patents are
granted for pre-existing innovations and for ideas as frivolous as a new way of swinging on a swing, issued to a 5-year-old in 2002. (His dad was a patent attorney.)
Some research even goes so far as to suggest that we’d get no less innovation if there were no patent protection at all: In a fascinating study of innovations presented at two World’s Fairs in the 19th century, economic historian Petra Moser compares inventions exhibited by countries with varying degrees of patent protection.
The exhibitions, which allowed for a global exchange of technology,
patented and otherwise, drew on the very best ideas from countries eager
to show off their technological prowess. Awards for the most innovative
and useful exhibits provided Moser with a ready measure to assess the
quality of each country’s entries. The results might surprise patent
trolls and their defenders—there were three countries that had no patent
protection whatsoever at one or more of the two exhibitions:
Switzerland, Denmark, and the Netherlands. Yet their innovations fared
just as well in competition as those from Belgium and France, which gave
15 or 20 years of protection to patented ideas. It’s not that Swiss and
Danish inventors were oblivious to theft of intellectual property—they
focused on invention in areas where secrecy was relatively effective in
keeping ideas from others, namely scientific instruments and food
processing. But overall they were just as innovative.
Patent laws aren’t going to disappear anytime soon. But work like
Tucker’s is beginning to show that the system we’ve got is often
achieving the opposite of its intended purpose. If we want to ensure
that Americans keep innovating, we probably need to produce fewer
lawyers trained to pursue patent litigation, more inventors to create
new ideas, and weaken the laws intended to protect them.
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