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How Patent Trolls Are A Tax On Innovation (avc.com)
34 points by brlewis on Feb 15, 2009 | hide | past | web | favorite | 12 comments

> Byron Scholls once told me that the Black Scholls Model isn't widely used because it's right. It's right because it's widely used.

I think the quoter or the author meant: http://en.wikipedia.org/wiki/Myron_Scholes

What if there were a company that insured start-ups against patent trolls? The insurance would be set up in a way that gave the companies a large incentive to pursue the lawsuit fully, and to sue for expenses. For example, the insurance could cover legal costs of the defence suit and expenses lost, and also give a financial incentive to sue the troll for legal expenses (perhaps by matching some percent of any legal fees recovered from the troll).

The idea would be that a company with this insurance would not be a target for trolls, as long as the company made it known they had the insurance policy, because the trolls would realize that the company stands to gain by fighting the troll in court.

The problem is that any time a company trolls, they always have the risk of someone fighting in court. So a company having insurance won't really prevent them from trying.

The patent trolls know that the rational (in the game-theory sense of the word) decision for the victim company is to settle, because the cost of taking it to court (in both legal fees and lost time) exceed the cost of the settlement.

It's like an asymmetric game of chicken. Both players know that the troll has the advantage of having less to lose in a "collision" (a lawsuit), so the troll can count on the victim to "swerve" (settle). If the victim was able to eliminate the cost of a collision, and the troll knew that the cost of a collision to the victim company was eliminated, it would make more sense for the troll to swerve (drop the claim).

(More chicken strategies here: http://mindyourdecisions.com/blog/2009/01/20/4-tips-for-winn... . This strategy is most similar to #3.)

I think that the system has become broken enough that we can now say that the patent system in general has become a tax on innovation.

In its current implementation, it almost always favors the current (and largest) monopoly player, or the legal entity/corporation that doesn't actually make anything but lawsuits.

A strange tragedy of the commons has developed where it makes good sense for any one startup to pay the extortion fee but its exactly the wrong thing to do for the good of the community because it simply funds and encourages more of the same.

It's the same prisoner's-dilemma situation referenced by Thomas Jefferson: "Millions for defense, not one cent for tribute."

On paying legal fees in frivolous cases:

I completely agree this would help in many situations. It isn't easy, though, to determine what constitutes as a baseless claim. Are all claims that seem to be just aggressive litigation deserving of costs? Or just ones from "patent trolls"? If so, what defines a "patent troll"? It isn't always easy to tell who deserves to be punished.

On "Use It Or Lose It":

This is not as easy at it seems. Right now, there are many incentives to file for a patent as soon as the invention has been reduced to practice. In fact, if the invention becomes disclosed, the inventor only has a year in order to secure his patent. This results in patents for technologies which are frequently at the prototype stage. This is a good thing - now, the technology has been described in a publication that is publicly accessible.

Imagine if there was a requirement to "use it" after it was patented... In many cases, that would be impossible: just because something is patented, does not mean it is manufacturable. Furthermore, it may not have a use in a commercial product right after it is patented... Although five years later, it could be an integral part of a product.

In short, requiring the invention to immediately "used" may appear to solve problems, but will probably open up a whole new set of problems.

Note that Wilson's two solutions both have the "side effect" that companies need not pay for IP from outsiders. (The "can only sell to operating companies" proposal means that operating companies need not buy because the inventor can't do anything if they don't buy.)

You're forgetting that in any field that isn't controlled by a monopoly, every single competitor always wants more leverage over the other players.

You're forgetting the "honor among thieves" that is present in every line of work. For example, book publishers don't plagarize from each other.

They only use patents to shut down new competition.

Imagine a world where patents only last 3 years and all closed source code and research had to be made public in that time too.

We'd all have to innovate faster and more consistently to stay ahead of our competition.

We would probably have cured cancer, have infinitely more efficient fuel sources and be able to feed the world.

I think it depends on the industry. If patents only lasted 3 years, high tech may move faster because a 3 year advantage is enough incentive to innovate in an industry that moves fast anyway. I'm not so sure about pharmaceuticals though. 3 years isn't even enough to complete clinical trials, so the companies would effectively have no incentive to innovate at all.

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