Tuesday, March 17, 2015

Yelderman on Coordination-Focused Patent Policy

If the main benefit of patents is their role in coordination—facilitating transactions in information and thereby increasing collaboration—would we want patent law to look any different? This is the question tackled by Steve Yelderman (Notre Dame Law School) in his working paper Coordination-Focused Patent Policy, which I recently had the pleasure to read.

As Yelderman notes, there is currently much debate among patent scholars on what the best utilitarian justification for the patent system is (as well as whether utilitarianism is even the right foundation). Historically, patents have been seen primarily as ways to incentivize innovators with monetary rewards, though there is disagreement over whether the reward is for ex ante or ex post behavior. But commentators have increasingly argued that the patent system also (or primarily) plays a key role in coordinating communities of innovators; see, e.g., work by Paul Heald, Scott Kieff, Oskar Liivak, Clarisa Long, Rob Merges, and Jason Rantanen. Different scholars emphasize different coordinating functions, but Yelderman notes a unifying theme in this line of work: "reducing costs and risks so that otherwise privately desirable transactions can occur."

In Coordination-Focused Patent Policy, Yelderman does not take sides in this debate over the role of coordination in justifying the patent system. Rather, he is interested in what coordination-focused policy would even look like—a question that is important even if coordination is merely a subsidiary benefit of patents—and he concludes that it would look rather different from a rewards-focused system.

A rewards-focused patent system is focused on wealth transfer to those who deserve the reward—so getting the reward to the right person is important, and reducing the reward in one manner often can be compensated for by increasing the reward with a different policy lever. A coordination-focused patent system, in contrast, depends on getting patents "in the hands of those who are positioned to use them to exchange information," and giving these patentees access to a highly efficient patent litigation system. "[W]hen patents provide a high likelihood of obtaining secrecy-like exclusion at low cost to the patent holder, they will induce a large amount of patent-backed information sharing, and the coordination function will be at its peak." Because wealth transfer is not the goal, Yelderman notes that in theory, "the coordination function could be just as well served by a system that allocates patents randomly and makes them easy to trade," or patents could be "allocated by auction."

As an example of how these different approaches can impact patent policy, he examines the recent Microsoft v. i4i case on the presumption of validity for granted patents. Because "the rewards function places a high value on allocating patents to the parties that deserve them, with comparatively less significance placed on the stability of patent rights over time," it would suggest that "the presumption of validity should carry less force when a challenger brings forth prior art that the patent office did not consider." In contrast, under the coordination view, "the importance of patent reliability is significantly heightened" and the presumption of validity "facilitate[s] patent-backed information exchange by protecting the reliance interests of patent holders" and should not be altered by the existence of new evidence.

Yelderman also argues that "the benefits of the coordination function flow from technical exclusivity, not market exclusivity," leading to different conclusions about optimal claim scope. For example, if three companies successfully solve a problem through three different technological paths, a rewards-focused system faces difficult problems about whether the first company to succeed should be entitled to a foundational patent that covers the market, or the extent to which the companies should be allowed to merge or cross-license. But "[f]rom a coordination perspective, the answer is straightforward: each company should be granted patent protection broad enough to enable disclosures related to its specific technology," and the goals of coordination can still be satisfied if the companies "end up in brutal three-way competition."

The article concludes by noting various caveats and avenues for future work, including comparing the costs and benefits of patent-based coordination across technologies and looking at non-patent mechanisms that fulfill similar functions. Yelderman notes that "the right question to ask may be not whether or not it is desirable to use the patent system to facilitate coordination, but how much patent-based coordination is worth its cost." This is a similar move to the one I made in Do Patents Disclose Useful Information?, in which I examined another justification for patents—forcing disclosure—and argued that the more important question is not whether disclosure justifies the patent system, but whether the benefits of requiring more disclosure outweigh its costs. I suspect that the real payoff from Yelderman's work will be to get scholars to think more seriously about which policy levers we could pull to get more coordination benefits from patents—and whether it is worthwhile to pull them.

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