The U.S. Patent System is Broken: Derek Khanna on Trolling and Low-Quality Patents

Our current patent policy hurts our economy and hampers innovation.

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The U.S. Patent System is Broken: Derek Khanna on Trolling and Low-Quality Patents

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Are current patent policies slowing innovation and infringing on economic liberties? Derek Khanna, a tech policy and intellectual property expert, says yes.

"A patent is a government-granted monopoly" that gives the owner sole right to profit from making or licensing a product, Khanna explains. "So effectively every week the government says, 'These are all the things that American citizens can't do for about the next 20 years.'"

Khanna's new paper, How to Fix Patents: Economic Liberty Requires Patent Reform, argues that patent policy and its abuse is failing to achieve its constitutionally enshrined purpose of "promoting the progress of the sciences and useful arts." This failure, he laments, has led to more monopolies and crony capitalism—the very  opposite of the free-enterprise system the founders sought to protect.

James Madison warned us 200 years ago to guard patents and copyrights with "strictness against abuse." Patent trolling, created and exacerbated by modern patent policy, is one manifestation of that abuse and is increasingly stifling competition, reducing innovation, and limiting potential economic growth. More than nearly any other instrument of government policy, getting patent policy right is critical to innovation and growing the economy.

If Americans want robust innovation and competition, then they must confront this cronyism in our midst and demand free markets and free competition without the government choosing winners and losers by granting patents for non-inventions. Less regulation will lead to more competition and more innovation. 

Khanna recently sat down with Reason TV's Nick Gillespie to discuss patents, why you shouldn't be able to patent the shape of a cellphone and other obvious things, and why he believes the problems are reversible. 

About 15 minutes.

Shot by Todd Krainin and Joshua Swain; edited by Amanda Winkler.

Scroll down for downloadable versions of this video, and subscribe to Reason TV's YouTube channel for daily content like this.

Comments

[jjjjj]

But without patents there would be no innovation, according to countless people who have no shred of evidence to prove it.

[Old Man With Subpoena]

How about my entire career and every dollar I've made because I could work as an inventor? Talk about no shred of evidence- as well as your homunculus stuffed with dried plants.

[OldMexican]

Re: Old Man With Subpoena,

How about my entire career and every dollar I've made because I could work as an inventor?

Would you be precluded from inventing sans patents?

Please, tell us another story, Aesop!

[Old Man With Subpoena]

Yes, I might have ended up being your competition as a greeter at Walmart.

[OldMexican]

Re: Old Man With Subpoena,

Yes, I might have ended up being your competition as a greeter at Walmart.

If you really trust your feelings on this one, it would mean you have no regard for your inventions except as excuses to file and hold patents. You would be a pathetic soul if you placed such a low esteem on the usefulness of your own production.

[mad.casual]

I was going to point out that his lifetime of inventions have been so profitable and groundbreaking that, without IP, he would be a greeter at Walmart... Then I was going as if he ate pieces of shit for breakfast.

You're a better man than I.

[Old Man With Subpoena]

I can always detect someone who has never done anything creative in his life to put food on the table, create value, create jobs, and make people's lives better. But hey, that blue apron looks great on you!

[IceTrey]

He might be precluded from profiting from his inventions which is the whole point.

[OldMexican]

Re: IceTrey,

He might be precluded from profiting from his inventions which is the whole point.

Unless someone physically stops him from producing or selling, what you say is preposterous.

[IceTrey]

It's preposterous that an existing well funded business could not undercut him in producing the invention? What universe do you live in? Apparently one in which China does not exist.

[Old Man With Subpoena]

Or merely entrenched competitors, from whatever country, with inferior technologies, who then copy what I'm doing and use their existing sales channels.

[JFree]

You want evidence of innovation stifled by patents - and innovation because of the lack of patents? Compare the German/Swiss chemical industry to the UK/US from say 1850-1918.

The UK/US had extensive and easy product patents. Germ/Switzerland had mfg process patents - but no product patents until the 1970's or so. Germ/Switz (BASF, Bayer, Hoechst, Agfa, CIBA, Geigy, Sandoz, etc) were the biggest producers (easily) and so much so that chemicals (later pharm) were the main drivers of industrialization there. They were also the main product innovators - and came to dominate the product patents issued by the UK/US.

The UK went from the world innovator to an also-ran. The US became a huge volume producer - but dominated by petrochemicals (input cost advantage) not innovation. The only reason the German advantage ended was WW1 - when they were stripped of their patents and when their internal secrets were transferred to Dupont/etc as part of the Versailles inspection process - which also forced them to merge into Farben. The Swiss moved to the higher-value pharma chemicals.

It's actually an interesting early industrialization story beyond just the patent stuff

[Old Man With Subpoena]

I couldn't watch the video (and why is there no transcript?) but it's a simple fix:

1. Open up the examination to crowdsource prior art searches. Right now, the examiners cannot look at anything sent to them by a third party.

2. Loser pays in infringement suits. If loser is impecunious, loser's lawyer pays. This removes the bias toward plaintiffs, who can get lawyers on contingency.

[Robert]

I like your ideas. Examiners are overworked & often have peculiar ideas about what prior art reads on which appl'ns.

[Old Man With Subpoena]

The other thing is that they just do a search on prior patents, not on ads, magazine articles, catalogs, or what-have-you. I had to deal with a troll who patented something that had been commercially available for about 40 years. Cost us over $100k in legal fees before the guy (or his lawyer) decided that we were going to push a re-examination and he'd be better off trolling elsewhere while he still had the bait.

[Trshmnstr, Eau de Toilet]

Examiners are overworked & often have peculiar ideas about what prior art reads on which appl'ns.

"overworked" and "peculiar ideas" are very interesting euphemisms for lazy as hell.

[Derek Khanna]

Both of those suggestions are advised as necessary fixes in the report we published, I hope you check out the rest of the report and let us know what you think of the other suggestions.

[Old Man With Subpoena]

Appreciate you commenting here!

[Old Man With Subpoena]

A few comments on your paper, if I may.

We at Lincoln Labs know that most small tech startups, with exceptions in the hard science fields, rarely file for a patent until they become big and successful.

That hasn't been true of any startup with which I've been associated. Provisionals are the little guy's friend.

When low-quality patents are granted, perhaps better phrased as "poorly-awarded patents," they are a sword for dominant firms to keep competitors from their industries.

Possibly true, but the real beneficiaries include individual trolls and firms that buy up patent portfolios for the sole purpose of litigation, rather than competition. Coincidentally, I was an expert witness in just such a case for Microsoft, who ended up paying out millions in go-away money to an individual for a total bullshit patent. It was cheaper than continuing to pay lawyers (and expert witnesses).

[Old Man With Subpoena]

Create new statutory language to specify that independent creation by others is per se evidence that the patented idea is not "non-obvious" to someone skilled in the art; if others are creating the same idea at the same time or before, then, by definition, that is obvious to someone of that art.

I would disagree. If, for example, thousands of people are researching X and only two come up with the solution, that wouldn't exactly be "obvious."

[Derek Khanna]

If two come up with the solution, and two would like to sell a product and base a business on that solution, then who is the government to come and say, "Person A gets to sell this product. But Person B who also came up with the same thing: we will come to your house, confiscate your invention, destroy your inventory, and issue an injunction legally barring you from selling anything tangentially related to your own research. And if we catch you selling this product, we will bankrupt you." Does that sound equitable to you?

[NotAnotherSkippy]

If two people want to homestead the same property, the one who gets there first gets it. Does thst sound fair to you?

[Old Man With Subpoena]

Don't let the perfect be the enemy of the good. If the existence of A and B as distinguished from the thousands of ciphers who couldn't come up with the great idea suddenly means that it's now public domain, then A and B are both likely to fail- their invention will be sold by XYZ Megacorp to their existing customer base. A and B are unlikely to try being creative again ("Well, that outcome sucked!"), and likely will end up sweeping floors in XYZ's lobby.

There are rules about who owns the IP- either first to conceive (up to a few years ago) or first to file (now). And given the ease and low cost of provisional filings, one, the other, or both will likely file. In your scenario, they both lose. In mine, at least one will win. Better than zero, unless the goal is to squeeze out entrepreneurs in favor of established and sizeable firms.

[Derek Khanna]

This report was reviewed by many of the nation's leading VC's, it was also given to a number of very pro IP people as well to hear their counter arguments, about 100 people in total. Every VC we talked to agreed with this conclusion. Which is why Tim O'Reilly, Brad Feld, USV, and several other prominent VC's all tweeted this out. I have personally led start-ups, I know many other Founders and this has been very true in practice. Further the data also shows that its more than empirocal. Almost all apps and website-based companies eschew patents, until they are big.

Now there are many sectors of the economy, as a note, this observation certainly isn't the case in the hard sciences. But even there, Space X and Tesla, both of which have patents, made them public.

I'm not against patents, but just noting that we shouldn't assume that patents are the method for how all innovation happens, in practice is it a method for how a small percentage of forms of innovation occurs in the market place - while at the same time having a very large cost to other innovators. As I note, this isn't an argument for patents dissolution, but rather for "strict scrutiny" to ensure our patent policy promoted innovation while minimizing the negatives of these monopolies to other innovators.

[mad.casual]

Maybe it's just apprehension about the word 'crowdscource' but it seems like a horrible idea.

Without some barrier to entry, you'll just (still) have Google, Apple, and Amazon's Mechanical Turk petitioning and doing grass-roots type petitioning.

Maybe the people who are so avid about a protecting a with a patent via crowdsourcing should contribute $$ to their inventions?

[Old Man With Subpoena]

The idea is that if something is known outside of the patent literature, someone will be aware of it and can send it to the examiner. That someone might have an interest (e.g., a competitor) or not, but it doesn't matter- the more people who are out looking for prior art, the better for aborting patents that should not ever be issued because of lack of novelty.

If the word "crowdsourcing" worries you, substitute something less trendy.

[OldMexican]

"A patent is a government-granted monopoly" that gives the owner sole right to profit from making or licensig [sic] a product, Khanna explains.

There's NO way around it. Since IP will always and invariably be a government-granted monopoly, you cannot fix the system to stop it from stifling innovation and production. Patents tend to trap the inventor to put all his eggs into one solitary basket while the rest of the world moves on with either better designs or tweaks of his (or hers). The inventor finds him(or her)self in an economic bind, as the decision in front is either using time and resources to defend the patent or continue innovating, in which case having the patent becomes irrelevant.

[NotAnotherSkippy]

You confuse prifuction with invention. Saying you can't use my idea doesn't prohibit you from generating your own novel concepts. And if there is a patent in your way, then you are incentivized to innovate around it which increases the art. The argument that patents suppress innovation was always a silly one.

[mad.casual]

Why do we regard patents on pharmaceuticals as legitimate just because the development process is expensive?

Hasn't it repeatedly been demonstrated that the overwhelming barrier to entry for the pharmaceuticals is from government regulation?

Aren't these the same government regulation that Reason regularly decries as killing people with bureaucracy or being some variant of the long-failed war on drugs?

Did I miss any rhetorical questions? Where's the Judge?

[Derek Khanna]

Pharma is the strongest case for IP protection, not that it's ironclad. There are several good papers on alternative models. You are correct that much of the reason why it's so expensive is FDA type regulation making it expensive.

But if patents are for things with high R &D to help you recoup the externalities of that research, not because you have a right to that patent, because as society we want more high R &D inventions that the free market may not produce otherwise - then pharma is generally a good example of when that is the case.

That being said, there are Pharma examples that are crazy too, like patenting the compounds when a drug breaks down in your body, rather than just the original drug. But in principle, giving a legal monopoly for inventing a new compound, with clear rules for others to not violate, is an example of that which is not a junk patent.

[JFree]

Patents should not be related to the economics of production. That is potentially nothing more than government trying to direct the economy by channeling investments into projects with large up-front costs and too low ROI.

[JFree]

and re pharmaceuticals - it seems to me that these are a perfect example of where FDA approval and patent approval are really the same thing and should probably be combined. The R&D costs are borne in trying to get FDA approval (does the chemical actually work in changing some preexisting specified biology/chemistry of the body - eg reversing the growth of some tumor type). That FDA approval is the only thing that is actually valuable to society - not the protection for the chemical itself

[HenryC]

Most tech patents should be limited to hardware. The real problem with most patents is the patent examiners cannot possibly be experts in all patents and the more patents there are, the less likely the examiner is to get it right. The Amazon one click patent is absurd.

[Will4Freedom]

Just wait until I get my patent for my new wood chipper. You'll see...

[bassjoe]

There should be limits on re-applications following rejections. Currently, companies -- especially those with deep pockets -- can simply refile rejected applications, keep the patent as "pending", and wear down the examiner.

The Apple-Samsung patent dispute was (partly) initiated because Apple finally got an examiner to approve a patent after adding a single word to an application that had been rejected multiple times (I believe the magic word was "continuously"). The word didn't add anything substantive to the application. More likely, the examiner was probably just sick of spending his life on the damn thing. Apple went on to win billions from Samsung.

[Old Man With Subpoena]

Currently, companies -- especially those with deep pockets -- can simply refile rejected applications, keep the patent as "pending", and wear down the examiner.

That has a very limited shelf life. Potential competitors can read the file wrapper and see that it's going nowhere.

[Trshmnstr, Eau de Toilet]

There should be limits on re-applications following rejections. Currently, companies -- especially those with deep pockets -- can simply refile rejected applications, keep the patent as "pending", and wear down the examiner.

In reality, the client starts looking at you very closely come the 2nd RCE. Anything beyond that is "extenuating circumstances only" territory. The Iron Law of patent prosecution is that the Examiner is always lazy. Sometimes the Examiner takes until the 3rd or 4th Office Action to get to actual relevant art. You shouldn't penalize the patentee for getting a thick-skulled/lazy Examiner (which happens quite often).

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[JFree]

I do think that Henry George (July 23 1888 in the Standard) had the correct idea about what patents are (he opposed them). It is a government grant of monopoly over a particular expression of unownable natural law. His example was a windmill - which is nothing more than an engineered expression of how the force of wind against a surface could be controlled and harnessed into power. Constitutionally, it is that latter (laws of physics - harnessed) that is valuable when moved from discovery into production. Not the specific iteration of it.

Henry George was fixated on the 'Single' part of his "Single Tax' (tax structure of a government-granted monopoly on land via land patent) but his core insights on land monopoly (via land patent) carry over to product/design monopoly (via patent).

If there is no 'law of nature' that is being engineered; there is no possible patent protection. This eliminates patent protection for brainfarts and provides a base for valuing patents. It also forces the patent seeker to provide the useful information in the patent literature and restores that as a knowledge base.

Any patent that is granted should cover the costs of protecting the monopoly and any negative externalities - and ALL of those costs are directly borne by the recipient (not the general public). Undermines the core dynamic behind rent-seeking. Prob requires turning patent costs/fees into a royalty since those costs reveal over time.

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[Richard Stallman]

It is a mistake to focus on "trolls", because patents on nontrivial ideas are harmful too. Software should be excluded entirely from patent law: http://www.gnu.org/philosophy/.....fect.html.

Patents do particular harm in three fields: software, medicine, and agriculture, for three different reasons. But they are not a benefit to society in other fields. We could simply abolish them entirely. http://www.luc.edu/media/luced.....allman.pdf

[David Lawson]

I think you do a disservice in dumbing down the content in the Reason video.

First, patents aren't govt granted monopolies. They do not prevent you from marketing a product if you pay the licensing fee for the use of the patent.

Second, you mis-characterize what constitutes patent violation with your "admission" of violating the ridiculous patented cat exercise process. Did you market a competing product (were such a product even possible to create)? Obviously the patent should not have been granted, but in no way could you have violated it.

[LPDave]

More patent trolls: Thomas Edison (light bulbs), Charles Goodyear (vulcanized rubber), Elias Howe Jr. (sewing machine), Samuel Morse (telegraph), William Woodworth (planing machine), Thomas Blanchard (lathe), and Obed Hussey and Cyrus McCormick (mechanical reaper).

But hey, screw those guys, they didn't contribute anything much to society.

[Old Man With Gag Order]

I'm guessing that you don't actually know what "patent troll" means.

[RBS]

OT: Hey White People, It's time to have a conversation about white culture

WTF is 'white culture"?

[AlmightyJB]

Creating patents?

[AlmightyJB]

His examples were all sociopaths (Roof and cops).

[AlmightyJB]

As long as people keep identifying the wrong thing as the problem, there will never be a solution that fixes it.

[Rich]

My brothers and sisters from the majority culture?White Americans?need to have the courage to drive this dialogue, and help us find some answers.

WTF is "the majority culture"?

[John Galt]

A return to requiring the submission of a fully functioning prototype model before qualifying for a patent would be a great place to start meaningful reform.

[AlmightyJB]

"First, kill all the lawyers"

[AlmightyJB]

I don't necessarily have a problem with IP protection. In many ways (probably in the most important ways in a legal sense) it's much like personal property protection. You are simply protecting the fruits of your labor. But yeah, I do agree it has gotten out of hand to the point of ridiculousness. There is a difference between patenting a calculator and patenting using ones index finger to push to buttons.

[x4rqcks3f v2.0]

At least thinking hasn't been patented. Everyone is still free to realize that intellectual property isn't property.

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