Patent Gridlock Suppresses Innovation

It's true that defining intellectual property is hard at a time when new technologies upset the traditional ways of protecting rights, as debates over digital piracy make clear. But in the case of patents, poorly defined property rights for inventions are leading even the biggest companies to take desperate measures, including banding together to protect themselves against claims of increasingly broad and vague patents.

Both sides may be right. New empirical research by Boston University law professors James Bessen and Michael Meurer, reported in their book, "Patent Failure," found that the value of pharmaceutical patents outweighed the costs of pharmaceutical-patent litigation. But for all other industries combined, they estimate that since the mid-1990s, the cost of U.S. patent litigation to alleged infringers ($12 billion in legal and business costs in 1999) is greater than the global profits that companies earn from patents (less than $4 billion in 1999). Since the 1980s, patent litigation has tripled and the probability that a particular patent is litigated within four years has more than doubled. Small inventors feel the brunt of the uncertainty costs, since bigger companies only pay for rights they think the system will protect.

These are shocking findings, but they point to the solution. New drugs require great specificity to earn a patent, whereas patents are often granted to broad, thus vague, innovations in software, communications and other technologies. Ironically, the aggregate value of these technology patents is then wiped out through litigation costs.

Information Age - WSJ.com

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