Patent Schisms

• Author: Clark D. Asay
• Position: Associate Professor of Law, BYU Law School. J.D., Stanford. M.Phil, University of Cambridge
• Pages: 45-92

Patent Schisms Clark D. Asay * ABSTRACT: Parties frequently obtain patents for one purpose, only to use those patents for another. This Article calls such divergences between parties’ initial motivations to obtain patents and those patents’ predominant uses later on “patent schisms.” Because traditional patent law theories typically treat the purposes of patents as static, scholars have neglected to explicitly examine patent schisms and the reasons behind them. This is so despite the pervasiveness of patent schisms in a variety of important contexts. Those contexts include the patenting behaviors of early-stage companies, later-stage companies, so-called “patent trolls,” and universities. In fact, patent schisms lie at the heart of some of the most controversial patent law topics, including whether patents should be considered a form of personal property or, instead, as a regulatory right. This Article examines patent schisms and adds to the patent literature in three principal ways. First, it provides an account of the ubiquity of patent schisms in a variety of important settings. Second, it articulates three theories explaining how and why patent schisms arise. These hypotheses include the proposition that patenting an invention often creates economic and psychological incentives to ultimately use that patent in defiance of a party’s original motivation to obtain the patent. Finally, the Article examines the normative and theoretical implications of the pervasiveness of patent schisms and the explanations behind them. These include briefly assessing whether treating patents as a form of personal property is the correct approach to ensuring that the patent system serves its constitutional purpose of promoting the progress of “science and the useful arts.” I. INTRODUCTION ............................................................................. 46 II. THE PURPOSES AND USES OF PATENTS .......................................... 50 A. W HY P ARTIES O BTAIN P ATENTS ............................................... 50 B. H OW P ARTIES U SE P ATENTS ..................................................... 52 1. Early-Stage Companies .................................................. 53 * Associate Professor of Law, BYU Law School. J.D., Stanford. M.Phil, University of Cambridge. Thanks to Stephanie Plamondon Bair and Paul Stancil for helpful comments on earlier drafts of this Article. 46 IOWA LAW REVIEW [Vol. 104:45 2. Established Companies .................................................. 55 3. Patent Trolls ................................................................... 57 4. Universities ..................................................................... 59 III. EXPLAINING PATENT SCHISMS ....................................................... 66 A. U NDER P RESSURE .................................................................... 66 1. Economic Pressure ........................................................ 66 2. Psychological Pressure ................................................... 70 B. C HANGING C IRCUMSTANCES ..................................................... 73 C. I NTRA -O RGANIZATION H ETEROGENEITY .................................... 78 IV. IMPLICATIONS ............................................................................... 81 A. P ATENT D YNAMISM ................................................................. 82 B. E MPIRICAL W ORK ON THE P URPOSES B EHIND P ATENTING ........... 89 V. CONCLUSION ................................................................................ 91 I. INTRODUCTION Why parties pursue patents and how parties ultimately use those patents are often treated as two sides of the same coin. For example, when Apple recently asserted several of its mobile-device patents against Samsung in high-stakes patent litigation, 1 one might view that assertion as evidence that Apple initially obtained the patents in order to fend off purported copyists such as Samsung. 2 Or, when high-tech companies use patents defensively to deter patent assertions against them, scholars might ascribe the party’s motives for pursuing such patents as simply that: to better protect their freedom to operate. 3 Yet while the reasons parties pursue patents and the ultimate uses of those patents may often be in sync, in many other cases they are not. A startup company, for instance, may obtain patents primarily in order to attract venture capital funding. 4 But later on, if the start-up becomes a public company, that company may view its patents primarily as assets to be monetized through licensing or litigation. 5 As another example, a large 1. For some partial history of this case, see Adam Liptak & Vindu Goel, Supreme Court Gives Samsung a Reprieve in Apple Patent Case , N.Y. TIMES (Dec. 6, 2016), https://www.nytimes.com/ 2016/12/06/technology/samsung-apple-smartphone-patent-supreme-court.html. 2 . See, e.g. , Jeanne C. Fromer, Expressive Incentives in Intellectual Property , 98 VA. L. REV. 1745, 1750–52 (2012) (describing predominant patent law theory articulating this view). 3. Colleen V. Chien, From Arms Race to Marketplace: The Complex Patent Ecosystem and Its Implications for the Patent System , 62 HASTINGS L.J. 297, 303–10 (2010) (describing the development of defensive uses of patents). 4. Clarisa Long, Patent Signals , 69 U. CHI. L. REV. 625, 644–45 (2002). 5. IBM is a good example of a company that has significantly repurposed many of its patents for monetization as it changed its IP strategy. See John C. Dvorak, IBM Is the World’s Biggest Patent 2018] PATENT SCHISMS 47 public company may churn out patents primarily in order to build a large defensive patent portfolio, but later on decide that the best use for many of those patents lies in aggressive patent monetization efforts. 6 Hence, why parties obtain patents and how they ultimately use those patents are distinct events with often differing motivations. Yet despite the likely frequency of such schisms in purpose, scholars have devoted little explicit attention to analyzing why and how such schisms develop. 7 Scholars have spent considerable time proposing a number of distinct theoretical purposes that patents may serve. 8 In doing so, scholars have recognized one aspect of the patent system’s dynamism. 9 But scholars up till now have neglected to explicitly focus on another important dimension of that dynamism: that patent owners frequently toggle between heterogeneous uses of the same patent throughout its roughly twenty-year lifecycle. 10 This Article takes up that task. Scholars have also spent considerable time analyzing discrepancies between patent law’s purported purposes and patent law as implemented, including ways in which patents are used in defiance of those purposes. 11 But this Article, rather than focusing on discrepancies between patent law’s purposes and whether patents are currently serving those purposes, instead homes in on schisms between a patent owner’s own motivation in pursuing a patent and how the patent is ultimately used. Furthermore and importantly, it seeks to explain how and why these discrepancies arise, which questions scholars have, at most, only implicitly addressed. These questions are important for at least three reasons. First, as Part II will explore, discrepancies between the purposes for which parties obtain patents and the ultimate uses of those patents—what I will hereafter refer to as “patent schisms”—appear to be pervasive in a variety of important settings. Troll , PCMAG (May 4, 2016, 8:00 AM), http://www.pcmag.com/article2/0,2817,2493155,00.asp (describing the transition of IBM from a product producer to a patent licensing outfit). 6 . See generally Jeremy W. Bock, Patent Quantity , 38 U. HAW. L. REV. 287 (2016) (discussing the propensity of large firms to engage in “patent harvesting”). 7. For an example of scholarship that comes close, see generally Jeanne C. Fromer, Should the Law Care Why Intellectual Property Rights Have Been Asserted? , 53 HOUS. L. REV. 549 (2015) (assessing discrepancies between the purposes of patent law and how some parties actually use their patents). 8 . See infra Section II.A. 9 . See generally, e.g. , Colleen V. Chien, Opening the Patent System: Diffusionary Levers in Patent Law , 89 S. CAL. L. REV. 793 (2016) (exploring ways by which to make the patent system more conducive to dynamic uses of patents). 10 . Id. at 815–17. 11 . See generally, e.g. , JAMES BESSEN & MICHAEL J. MEURER, PATENT FAILURE: HOW JUDGES, BUREAUCRATS, AND LAWYERS PUT INNOVATORS AT RISK (2008) (arguing that patent law as implemented threatens the very purposes for which patents are intended and proposing judicial solutions to this crisis); DAN L. BURK & MARK A. LEMLEY, THE PATENT CRISIS AND HOW THE COURTS CAN SOLVE IT (2009) (describing how patents often fail to promote innovation except in a few industries); Fromer, supra note 7. 48 IOWA LAW REVIEW [Vol. 104:45 Hence, it is vital to highlight this trend and examine the potential causes of it. Second, patent schisms lie at the heart of some of the most important patent law controversies today. Consider, for instance, the topic of patent assertion entities or, more colloquially, “patent trolls”—patent owners that don’t make products or services, but sue others that do. 12 A frequent complaint against patent trolls is that they abuse the patent system for their own monetary benefit without providing offsetting societal benefits. 13 In other words, the patent trolling has little to do with recouping costs associated with the inventive activity underlying the patent—the purpose for which the patent was presumably obtained in many cases—but instead simply consists of rent-seeking. Defenders of patent trolls, on the other hand, often claim that patent trolls’ activities help inventors obtain the financial rewards they need in order to continue innovating. 14 Hence, the fight between the two sides is in large measure a fight over...