It’s been a busy month for intellectual property. In late May, the U.S. Senate failed to pass a reform bill aimed at curbing the influence of patent trolls. In early June, Elon Musk announced that Tesla would not initiate lawsuits with any firm that used its patents “in good faith.” Last week, the U.S. Supreme Court issued a ruling limiting the scope of software patents.
The backdrop for all of it — and the reason why so many companies ought to be paying attention — is the explosion of patent litigation since the 1980s, illustrated below:
That chart is also key to understanding Tesla’s decision to share its patents in order to grow the electric vehicle industry, as I discussed today with Orly Lobel of University of San Diego and James Bessen of BU. (You can watch the recording of our conversation at the bottom of this post.)
“What Musk has said is basically these patents aren’t very valuable to us in terms of keeping other electric vehicles out of the marketplace,” Bessen explained. “But he’s hanging on to them, and what he’s talking about there is that they may be valuable in defensive terms, if other firms come after him and sue Tesla.”
In other words, the value of patents in an increasing number of cases is merely to keep from getting sued by someone else with patents.
Tesla isn’t the first to recognize this. The same sentiment was behind Twitter’s announcement in 2012 of an Innovator’s Patent Agreement, designed so that “employees can be assured that their patents will be used only as a shield rather than as a weapon.”
In his 2008 book Patent Failure, Bessen and co-author Michael Meurer argue that after taking the cost of litigation into account, the effect of patenting in all industries except pharmaceuticals and chemicals was to reduce the profitability of innovation rather than to increase it. The system works better in the pharmaceutical and chemical industries since the “boundaries” around the patents — what is and isn’t covered — are relatively clear. By contrast, in software it’s often far less obvious what a given patent protects.
Last week’s Supreme Court ruling sought to remedy that, holding that abstract ideas are not made patentable simply by the fact that they are performed by a computer. But it did not go out of its way to make clear just what sort of software inventions were novel enough to warrant protection.
While Lobel and Bessen see the ruling as positive, our conversation ended on a gloomy note. Patent pools, defensive patent agreements, and court rulings can all help. But ultimately the onus is largely on policymakers to clean up the mess.
“We’re forgetting that intellectual property is all about striking the right balance,” said Lobel. “It’s all about the purpose of promoting, not impeding progress in arts and science.” Instead, we treat patenting as a natural right, she said, ignoring the adverse impact on innovation.
Hence cutting-edge firms like Tesla hold patents even when they aren’t looking to exclude others from copying their technology, just in order to mitigate their own litigation risk. Given such a perverse environment, sharing patents in good faith is a step in the right direction. But it doesn’t really fix the problem.