Crouch on Carrier's Innovation in the 21st Century - International Center for Law & Economics
Focus Areas:    Antitrust | Intellectual Property

Crouch on Carrier’s Innovation in the 21st Century

 This post is from Dennis Crouch(Missouri/PatentlyO)

I am enjoying Professor Carrier’s new book Innovation in the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law. I will focus my discussion here on patent issues discussed in Part III of the book.

As other commentaries have noted the book is long on conclusions and proposals but somewhat short on justifications for the conclusions. In the words of Geoff Manne: “with what seems to me to be little support (and with only essentially-anecdotal empirical support), Carrier then chooses sides.” On the patent side, Carrier rather consistently chooses sides in favor of weaker patents.

Thank you Supreme Court: Like many academics, Carrier knows that patent law circa 2006 was in a bad-state. The problems stem from the Federal Circuit and its “formalistic rules”; from “patent trolls [who] do not manufacture products and thus do not face patent infringement counterclaims, emboldening them to file lawsuits”; and from the PTO and its insufficient resources.  The pendulum had swung too far in favor of the patent applicant and litigious patent holder. In Carrier’s history, the Supreme Court at least partially saved the day by weakening patent rights in eBay (no injunctive relief), KSR (easing obviousness rules), and MedImmune (greater access to declaratory judgment actions). Seeing the light, the Federal Circuit also rolled-back the scourge of treble damages for willful infringement in a way that “promises to promote disclosure and innovation.” Because of the Supreme Court’s action, many of the proposals needed in 2006 “are no longer needed.” From an antitrust harm perspective, eBay and MedImmune are theoretically important because they help prevent potential hold-ups. We are left without any answer, however, as to whether it is worth the added litigation expense and reduced patent incentive in order to shadow box with these mythical holdups. It is interesting that the best example that Carrier provides is the NTP Blackberry case which RIM eventually settled for $600+ million. In that case, RIM had taken on the risk of a large settlement by declining early opportunities to settle. In addition, because of the competitive nature of the wireless market, there is no indication that the settlement raised prices or limited access in any way.

On KSR, my reading is that Carrier sees this case as benefiting patent quality – at least the likelihood that issued patents are valid. Later, Carrier links elimination of invalid patents with a pro-competitive benefit. (p.229). What I don’t understand is if Carrier’s argument is special to invalid patents – or is he simply saying that the marketplace would be more competitive without patent rights?

Post-Grant Opposition: Chapter 9 is devoted to a new post-grant opposition layered over the reexamination and interference procedures. Carrier’s proposal is a close parallel to the proposals in the Patent Reform Act of 2009, and I agree with his rejection of current alternatives. (1) It would be prohibitively expensive (and I would argue detrimental to innovation) to ensure that only valid patents issue on the first pass through the PTO; (2) challenging patents during litigation is expensive and financially risky; and (3) current reexamination proceedings are too limited in scope and procedure (and I would argue too slow).

I have a small problem with Carrier’s explanation of the benefits of his proposed system. He first indicates that stronger post grant review will lower prices because competitors will less often need to spend money to design around a would-be invalid patent. Then, in the next breath, Carrier promises spillover technology benefits derived from money spent on reviewing competitors patents for opposition. Of course, these two arguments are on the same coin. If money spent designing around is wasteful so is money spent reviewing the validity of patents. Likewise, if reviewing competitor’s patents leads to additional innovation, so will time spent designing around.

Carrier also notes the “antitrust benefit” that invalidated patents will no longer create any market power problems. Glaringly absent from the discussion is how the opposition proceedings would impact the innovation incentive – especially under the PTO’s current mantra favoring rejection.

Material Transfer Agreements: Carrier includes Chapter 12 on MTA’s in the patent section as well. It is an important topic, although it is unclear why it fits in patents. The closest link is that many material transfer agreements include restrictions on public disclosure and a declaration of ownership of any future patent rights. MTA’s are generally negotiated. A researcher typically wants access to some materials such as a stem cell line, seed-line, or tissue. The owner of those physical item ordinarily demands some consideration from the researcher as inducement for sharing.

Carrier’s problems with the current MTA approach appears three-fold. First, some researchers are unwilling to pay the consideration and thus cannot access the materials. Second, the negotiation has high transaction costs – including delay. And, third, the public loses when the researchers are restricted or delayed from publishing. His solution: require all agencies receiving federal funding to agree to a standard universal MTA (the UBMTA). The proposal is nice, but we really don’t know its impact. Parties that care about non-standard terms would still do side-deals — adding more complexity than before the rule. Alternatively, those parties may simply walk away because the terms are not acceptable — further limiting access to the materials.

Pricing: Finally, I have a word to say about Oxford Press. The books are great, but they are entirely too expensive. List price for this book is $65 while the Bessen Meurer book by Princeton University Press was only $30. Authors, when you negotiate you book deal, work to make sure the book is affordable.