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Tagged: patent law

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Human Capital, Tacit Knowledge, and the Limits of Intellectual Property

Orly’s ambitious and thought-provoking book covers a significant amount of intellectual ground. She deftly navigates covenants not to compete, nondisclosure agreements, trade secrets, and intellectual property assignments to provide a compelling argument for the free flow of talent in the modern economy. Orly’s work raises a host of questions that space constraints no doubt prevented her from more fully exploring, and I would encourage her to extend her analyses in subsequent work.

One aspect of Orly’s work that I found particularly intriguing is that it reveals a central irony about information. The title of her book is a play on Stewart Brand’s famous phrase “information wants to be free.” While this statement has a contemporary ring, the observation that information is “slippery” and readily appropriable has a long pedigree and has had significant legal and policy ramifications. As Orly notes, Thomas Jefferson invoked the freely appropriable nature of technical information to help justify exclusive rights on inventions. More formally, economists have long characterized technical knowledge as a public good that is nonrival, nonexcludable, and capable of nearly costless transmission. The “slipperiness” of technical information is now largely taken for granted and provides significant theoretical justification for exclusive rights on knowledge assets. Indeed, IP scholars such as Polk Wagner have argued that information’s natural tendency to slip through cracks and build upon itself should alleviate concerns that strict exclusive rights can bottle up knowledge. Information, after all, wants to be free.

Orly’s account of the talent wars, however, reveals that much information does not naturally want to be free. As Orly recognizes, much technical information is tacit and personal to a particular creator or inventor. Such tacit knowledge takes the form of intangible know-how that is difficult and sometimes impossible to codify. Importantly, even when an invention is disclosed in a patent, much valuable technical knowledge related to that invention often remains tacit and is not formally shared. The inadequacy of patent disclosure and the difficulty of transmitting tacit knowledge create a need for companies licensing patents to somehow obtain this information. This is evident, for example, in university patenting and technology transfer, a field that Orly addresses. Empirical accounts of academic technology transfer show that private companies, in parallel to licensing university patents, often seek direct interactions with faculty inventors precisely to obtain their patent-related tacit knowledge.

The tacit, sticky nature of technical information relates to another theme that permeates Orly’s work: agglomeration economies and the importance of place. In theory, patents adequately disclose the inventions they cover, which has the effect of reducing transaction costs in licensing negotiations. Among other implications, such ex ante disclosure should make licensing negotiations less sensitive to geographic proximity; at least with respect to appropriating technical knowledge, a potential licensee should not have a great need to interact directly with an inventor, for the patent itself discloses the technology. However, empirical studies of academic licensing show that licenses tend to cluster around licensor universities. To be sure, a host of factors helps explain such clustering, from universities’ commitment to local economic development to the spatially concentrated nature of professional networks (a theme that Orly also highlights). But the need for faculty inventors to literally sit down with licensee firms to convey patent-related tacit knowledge also contributes to such agglomeration. While some information can be transmitted by reading a patent a thousand miles away, sometimes transferring patent-related technical knowledge requires side-by-side demonstrations of a new technology or that ever-valuable personal conversation over a cup of coffee.

In subtle ways, Orly’s work thus offers a cogent exposition of the limits of patent law and formal technology transfer. In theory, the patent system provides a public repository of technical knowledge from which all can draw in their innovative pursuits. At the very least, licensees themselves should be able to rely on the disclosure of patents to adapt licensed inventions for commercial use. However, much information is not freely appropriable. Even when an invention is disclosed, much information remains tacit and personal to the inventor. Thus, patents are inherently limited as a vehicle for disclosing and transferring technologies, thereby creating a need for much costlier, geographically constrained, tacit knowledge transfer between individuals.

In a broader sense, Orly’s observations highlight an interesting paradox about the “freedom” of information. In the classic economic account, the ease of appropriating technical information represents a problem. This problem is resolved by subjecting technical information to exclusive rights, thus shoring up incentive to invent. However, Orly’s study reveals that much information is subject to a different problem: it is too difficult to appropriate, as it resists formal codification and disclosure. This creates a need for a different type of policy intervention, one that focuses on enhancing the mobility of the underlying sources of information—people—rather than information itself. Paradoxically, the fact that much information is not truly free provides all the more reason that the talent generating that information should be.

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Proxy Patent Litigation II

Previously I posted on the issue of proxy patent litigation. Basically, mass patent aggregators (entities which own or control a large number of patents that they have acquired from elsewhere) litigate only a few of the patents in their portfolio against a large accused infringer. The litigated patents serve as proxies for the quality of their entire portfolio. If the aggregator is successful on the merits (or at least in preliminary rulings, such as defeating the accused infringer’s motions for summary judgment on invalidity and non-infringement), it strengthens their hand considerably in negotiations for a license for the entire portfolio. The proxy litigation is also only one part of a broader dynamic from the aggregator’s perspective:  the aggregator’s success in court against one practicing entity not only puts it in a stronger bargaining position against that entity, it may also do so with the rest of industry as well (i.e., other firms may be willing to pay more for a portfolio license).

I now attempt to answer a question I posed in my previous post. Specifically, if the court understood the underlying dispute was litigation-by-proxy, would it (or could it) proceed any differently?

I think it is useful to consider this question through the prism of the classic project management triangle. According to theory, a project has three core attributes: speed, quality, and cost. There is tension among the three attributes, and consequently, one can never maximize more than two of them. For instance, if one wants a project of the highest quality in the fastest time, then it can’t be cheap. Alternatively, if one wants a project fast and cheap, then it can’t be of the highest quality.

Now let’s translate the project management triangle into the judicial process. Several core attributes of a case are speed of resolution, depth and thoroughness of the analysis, and accuracy or correctness of the decision. If the project management triangle is correct and applies to the courts, then all three of these can’t be maximized at once. While the court and litigants want speedy, thorough, and accurate justice, not all are possible in a case.

Now turn back to the proxy litigation by patent aggregators. I submit that the optimal level of speed, thoroughness, and accuracy may be different in proxy litigation than run-of-the-mill litigation. The depth and thoroughness of the opinions may be of less importance in proxy litigation because the adjudicated dispute is not the entire dispute between the parties. Accuracy may be more important since the results of the single dispute will be used to determine the value of a larger portfolio.

Thoughts on the analysis?

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Stanford Law Review Online: Anticipating Patentable Subject Matter

Stanford Law Review

The Stanford Law Review Online has just published an Essay by Dan L. Burk entitled Anticipating Patentable Subject Matter. Professor Burk argues that the fact that something might be found in nature should not necessarily preclude its patentability:

The Supreme Court has added to its upcoming docket Association for Molecular Pathology v. Myriad Genetics, Inc., to consider the question: “Are human genes patentable?” This question implicates patent law’s “products of nature” doctrine, which excludes from patentability naturally occurring materials. The Supreme Court has previously recognized that “anything under the sun that is made by man” falls within patentable subject matter, implying that things under the sun not made by man do not fall within patentable subject matter.

One of the recurring arguments for classifying genes as products of nature has been that these materials, even if created in the laboratory, could sometimes instead have been located by scouring the contents of human cells. But virtually the same argument has been advanced and rejected in another area of patent law: the novelty of patented inventions. The rule in that context has been that we reward the inventor who provides us with access to the materials, even if in hindsight they might have already been present in the prior art. As a matter of doctrine and policy, the rule for patentable subject matter should be the same.

He concludes:

“I can find the invention somewhere in nature once an inventor has shown it to me” is clearly the wrong standard for a patent system that hopes to promote progress in the useful arts. The fact that a version of the invention may have previously existed, unrecognized, unavailable, and unappreciated, should be irrelevant to patentability under either novelty or subject matter. The proper question is: did the inventor make available to humankind something we didn’t have available before? On this standard, the reverse transcribed molecules created by the inventors in Myriad are clearly patentable subject matter.

Read the full article, Anticipating Patentable Subject Matter at the Stanford Law Review Online.

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Stanford Law Review Online: In Memoriam Best Mode

Stanford Law Review

The Stanford Law Review Online has just published an Essay by Lee Petherbridge and Jason Rantanen entitled In Memoriam Best Mode. Professors Petherbridge and Rantanen discuss an overlooked element of the Leahy-Smith America Invents Act—the de facto elimination of the requirement that inventors include a description of the “best mode” of practicing their inventions in patent applications:

On September 16, 2011, President Obama signed into law the Leahy-Smith America Invents Act. It embodies the most substantial legislative overhaul of patent law and practice in more than half a century. Commentators have begun the sizable task of unearthing and calling attention to the many effects the Act may have on the American and international innovation communities. Debates have sprung up over the consequences to inventors small and large, and commentators have obsessed over the Act’s so-called “first-to-file” and “post-grant review” provisions. Lost in the frenzy to understand the consequences of the new Act has been the demise of patent law’s “best mode” requirement.

The purpose of this short essay is to draw attention to a benefit the best mode requirement provides—or perhaps “provided” would be a better word—to the patent system that has not been the subject of previous discussion. The benefit we describe directly challenges the conventional attitude that best mode is divorced from the realities of the patent system and the commercial marketplace. Our analysis suggests that patent reformers may have been much too quick to dismiss best mode as a largely irrelevant, and mostly problematic, doctrine.

They conclude:

Even while best mode can produce patent disclosures that have broader prior art effect, it simultaneously can cooperate with the doctrines of claim construction and written description to produce patents with claims that may be construed as having a narrower scope. Detailed descriptions of especially effective embodiments of an invention can have the effect of introducing elements that courts often find, either through the application of claim construction or written description doctrines, to be essential elements of an invention. Competitors that do not employ such essential elements are not infringers. Thus, best mode can further help establish and maintain the public domain by limiting the amount of information restricted by patents, thereby increasing the distance between bubbles of patent-restricted information.

Read the full article, In Memoriam Best Mode by Lee Petherbridge and Jason Rantanen, at the Stanford Law Review Online.