Saturday, June 18, 2011

Colleen Chien on the Patent Ecosystem

The "patent ecosystem" is defined by the complex interactions between two seemingly disparate paradigms—the defensive amassing of patents in the "patent arms race," and the purchase of patents (often by "patent-assertion entities") in the "patent marketplace"—argues Colleen Chien (Santa Clara Law) in From Arms Race to Marketplace: The Complex Patent Ecosystem and Its Implications for the Patent System. How do these two paradigms interact, and what can they teach us about the patent system?

In Part I, Chien reviews the development of defensive patenting in high-tech industries (the "arms race"), in which companies like IBM "focused on the quantity rather than the quality of patents in a portfolio." She also reviews the growth of the "patent marketplace," in which people like Jerome Lemelson and companies like Intellectual Ventures have treated patents as commodities to be bought, sold, and asserted. These paradigms have important differences; for example, players in the patent marketplace often have more asymmetric stakes, more concentrated portfolios, and incentives to exploit secrecy.

In Part II, however, Chien argues that the two strategies "are in fact closely related": for practicing companies, "patents acquired defensively to protect product revenues are turned into assets to generate patent revenues" (Figure 1 illustrates this progression), and a non-practicing entity may shift between categories as its "business model evolves over time." I think Chien presents a nice overview and taxonomy of the patent ecosystem, and I like her renaming of patent trolls as "patent-assertion entities"—a term the FTC picked up in a recent report.

The remainder of Chien's article examines the implications of this ecosystem. Part III argues that defensive patenting "left companies defenseless against patent-assertion entities" and has "driv[en] the demand for low-quality patents." Part IV—which may be my favorite part of the article—suggests that the value a patentee can extract from a patent (the "exclusion value") "can fluctuate considerably as the patent is sold" between different players in the ecosystem. Chien supports her arguments with a number of specific examples where she has carefully traced the patent assignment and litigation history.

Finally, Part V proposes that "patentees themselves" could be an "overlooked lever of change within the patent system." Patentees are influenced by each other, and the patent arms race could be deescalated if more companies follow the lead of Cisco in focusing on patent quality, not quantity and if they focus on "'fact-based' rather than 'volume' licensing." Amassing patents is also no longer a sufficient defensive strategy, so Chien argues for increasing transparency about "who owns which patents," limiting sales to patent-assertion entities (such as by allowing companies to donate patents for a tax break instead), and the banding together of targeted companies in joint defense agreements. The details of these particular reforms (such as the extent to which government action is necessary) would need to be fleshed out, but I think Chien is right that an understanding of the patent ecosystem is a necessary foundation for any proposed reform of the patent system.

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