Ted Sichelman: Purging Patent Law of 'Private Law' Remedies

Do current patent law remedies efficiently promote innovation? In his article Purging Patent Law of ‘Private Law’ Remedies, Professor Ted Sichelman (University of San Diego School of Law) argues that patent law’s reliance on tort, contract, and property law models is conceptually flawed and proposes a regulatory model of patent law remedies that would optimize innovation. Professor Sichelman discusses the universally accepted goal of patent law, identifies deficiencies in existing remedy models, and suggests that patent law will more efficiently promote innovation by eradicating the private law moorings from patent law.

Professor Sichelman begins his analysis by identifying the undisputed goal of patent law: to promote technological innovation. Hence, it is almost a universal belief that patent law should rest on a utilitarian foundation. Yet, the patent remedy model simply attempts to return the individual patentee to the status it previously held prior to infringement—specifically, the status quo ante.

Professor Sichelman explains how the standard model of patent law remedies detrimentally relies on the assumption that “make whole” exclusionary rights provided by patents will benefit society. By using a straightforward example for his economic analysis, Professor Sichelman demonstrates how the threat of an injunction, coupled with high switching costs, would enable a patentee to derive more than the social value of the invention. He goes even further to demonstrate the resulting deadweight loss that would occur when there is no design-around available. Professors Mark Lemley and Carl Shapiro have previously addressed the inappropriateness of injunctions for non-practicing entities, yet have still found these remedies appropriate for practicing entities. See Patent Holdup and Royalty Stacking, 85 Texas L. Rev. 1991 (2007). However, Professor Sichelman asserts that there is little economic justification for such a distinction.

Professor Sichelman argues that the underlying premise of promoting the status quo ante is fundamentally flawed—often skewing costs and creating deadweight losses—frustrating the optimal promotion of innovation. He specifically argues that make-whole damages routinely give suboptimal results for component patents, industries with relatively low costs and low risks of innovation, and when transaction costs dwarf the social value of the innovation. Additionally, Professor Sichelman argues that it may be necessary to award greater than compensatory damages where detecting infringement is difficult or where private returns are insufficient to generate peak social returns.

Rather than aim to prevent the violation of any patent right or rely on tort law compensation rationale, Professor Sichelman proposes that patent law function as a public regulatory mechanism. He suggests that this regulatory approach aim to adequately compensate patentees while considering the numerous social costs associated with patents. Professor Sichelman extends those scholarly works that criticize the soundness of contract and property law models, by recognizing that classifying patent infringement as a common law tort can be just as pernicious. Professor Sichelman’s article brings to light a few of the flaws in the foundation of patent remedies. Rather than interpreting patent litigation as a means to remedy a personal wrong inflicted on a patentee, perhaps the time has come to reconsider the patent law remedy model in order to provide proper compensation to innovators and optimize the promotion of innovation.

Posted by Derik Sanders (dtsanders@smu.edu), a 2014 Juris Doctor Candidate at SMU Dedman School of Law and research assistant to Professor Sarah Tran.