Patent law and policy have received a surprising amount of attention from courts and policymakers in recent years. (1) This attention is warranted because innovation policy is critical in determining the pace of innovation and the rate of economic growth. The reform proposals pending before Congress are motivated by widespread reports of abusive patent assertions and fears that patents sometimes stifle innovation. (2)
I favor most of the pending reforms and worry that our patent system, on balance, discourages innovation. But I part company from most reform proponents who focus on harms caused by the frivolous patent litigation mounted by many "non-practicing entities" (NPEs). (3) Instead, I want to focus on deeper flaws in the U.S. patent system that existed before NPEs became very active and that continue today.
In our book Patent Failure, (4) James Bessen and I empirically demonstrated that problems in our patent system predated the flood of NPE litigation that began around 2005. (5) We showed that, on average, the patent system actually taxes innovators in most industries (except, notably, in the chemical and pharmaceutical industries). (6) We attribute this innovation tax to problems of "low patent quality." (7) Though, again, these problems are largely absent in the chemical and pharmaceutical industries, as the patents there are relatively high quality. (8)
There are three kinds of quality problems that reformers have identified. First, there are mistakes by patent examiners and courts. Second, the inventive step--the so-called non-obviousness requirement (9)--in our patent system is too low. This means that valid patents are granted on uninteresting and low-quality inventions. (10) Third--and this is my main concern--is that patents are not sufficiently "property-like." (11) I will use the term "notice failure" to denote this kind of problem.
Initially, most patent-reform activity in the past decade has focused on quality problems caused by patent examination mistakes. (12) These reforms were well intentioned but were not significant enough to have much effect on the innovation tax. More recent reforms focus on mitigating the harm caused when low-quality patents are asserted. (13) Here, there has been a bit more progress. Now, we possibly have a new wave of reform coming that will address notice failure. (14)
Patent notice reform, if it comes at all, likely will come from many sources. Some of the reforms being considered in Congress will improve patent notice and make the patent system more property-like. (15) The U.S. Patent and Trademark Office is considering reforms to make patent ownership more transparent and patent scope more precise. (16) I suspect that much of the significant reform will come from the courts. I hope that scholars will influence Federal Circuit judges and clerks so that judicial lawmaking will be more sensitive to the ways in which an over-reaching patent system can impede innovation. I envision a change in thinking about patents comparable to the change in thinking about antitrust law associated with the "Chicago School" approach to antitrust. (17)
So, what do I mean by "notice failure"? Suppose I own the parcel of land called Whiteacre and there is a neighboring parcel owned by another called Blackacre. Suppose I want to build an office tower on Whiteacre. I hire a surveyor, look at the deeds, and talk to my lawyers. Finally, I build the office tower on Whiteacre. In a property system with good notice, I will have little trouble building the tower on Whiteacre and keeping it off of Blackacre. Notice failure, however, could lead me to accidentally build part of my tower on Blackacre. Good notice allows me to avoid such an accident. If I have reason to build partly on Blackacre, I would negotiate to purchase some of Blackacre in advance. If I want to stay entirely on Whiteacre, I can rely on surveying...