Bernard Chao on Horizontal Innovation and Interface Patents

Bernard Chao has posted an interesting new paper, Horizontal Innovation and Interface Patents (forthcoming in the Wisconsin Law Review), on inventions whose value comes merely from compatibility rather than improvements on existing technology. And I'm grateful to him for writing an abstract that concisely summarizes the point of the article:

Scholars understandably devote a great deal of effort to studying how well patent law works to incentive the most important inventions. After all, these inventions form the foundation of our new technological age. But very little time is spent focusing on the other end of the spectrum, inventions that are no better than what the public already has. At first blush, studying such “horizontal” innovation seems pointless. But this inquiry actually reveals much about how patents can be used in unintended, and arguably, anticompetitive ways.

This issue has roots in one unintuitive aspect of patent law. Despite the law’s goal of promoting innovation, patents can be obtained on inventions that are no better than existing technology. Such patents might appear worthless, but companies regularly obtain these patents to cover interfaces. That is because interface patents actually derive value from two distinct characteristics. First, they can have “innovation value” that is based on how much better the patented interface is than prior technology. Second, interface patents can also have “compatibility value.” In other words, the patented technology is often needed to make products operate (i.e. compatible) with a particular interface. In practical terms, this means that an interface patent that is not innovative can still give a company the ability to foreclose competition.

This undesirable result is a consequence of how patent law has structured its remedies. Under current law, recoveries implicitly include both innovation and compatibility values. This Article argues that the law should change its remedies to exclude the latter kind of recovery. This proposal has two benefits. It would eliminate wasteful patents on horizontal technology. Second, and more importantly, the value of all interface patents would be better aligned with the goals of the patent system. To achieve these outcomes, this Article proposes changes to the standards for awarding injunctions, lost profits and reasonable royalties.

The article covers examples ranging from razor/handle interfaces to Apple's patented Lightning interface, so it is a fun read. And it also illustrates what seems like an increasing trend in patent scholarship, in which authors turn to remedies as the optimal policy tool for effecting their desired changes.