On March 10, 2015, 40 economists and law professors signed a letter explaining to Congress that the data that keeps being cited to justify HR 9, otherwise known as “the Innovation Act,” is “flawed, unreliable and incomplete.” The professors suggest Congress proceed cautiously, particularly given the numerous misleading and flawed studies that make “highly exaggerated claims regarding patent trolls.”
As the letter explains, one of the “studies” that is often cited as proof that patent trolls cost U.S. businesses $29 billion a year is pure fiction, has been debunked, and the authors of the study have retreated significantly from their clearly erroneous conclusions. I have explained this issue in detail, as have others.
Among the misrepresentations relied upon to achieve the $29 billion figure is counting transactions where property rights are acquired as a “cost,” which is simply not appropriate under any accounting model. Indeed, the payment for transfer of rights is exactly what the patent system is set up to encourage, making it all the more bizarre that the study mischaracterized those payments as an economic “cost.” Further, the authors defined patent trolls to include operating companies, which ensures that the estimate they reached is both extraordinarily high, but also lacking in credibility. Further still, it is well known that there is abusive patent litigation and bad actors, yet this particular study did nothing to define the problem or identify the nefarious actors, instead claiming that virtually all patent sales or patent licensing hinders U.S. businesses. Finally, the study is flawed because it relies on an excruciatingly small sample, namely the SEC filings from 10 publicly traded NPEs. The reliance on such a small sample size is hard to accept given the fact that the authors so broadly defined NPEs as to include independent inventors, universities, R&D companies and even some operating companies.
Although this professors’ letter does not mention it, another recent “study” is equally problematic and is already being used by those who support drastic patent reform. This latest challenge concludes that patent licensing contributes nothing to innovation. The authors go as far as to say that this holds true even when universities engage in licensing. There are a variety of problems with this paper. Perhaps the largest problem is that the authors rely on subjective evidence rather than volumes of objective evidence that contradict the self-serving responses from those who are licensing rights they are already alleged to be infringing. Collective bias seems a far more likely answer to explain the “near unanimity” found in the survey results.
Those familiar with university licensing will find the claims in the paper about universities difficult to accept. Licensed university technology has resulted in over 10,000 start-ups being formed and many thousands of new commercial products created since 1980. Prior to Bayh-Dole being enacted, zero drugs were commercialized from underlying university research. Since Bayh-Dole, over 150 new drugs have reached the market that are directly related to university research. See “The Role of Public-Sector Research in the Discovery of Drugs and Vaccines,” The New England Journal of Medicine, February 10, 2011. If the authors had cross-checked their subjective survey results against objective data, they would have discovered that in FY 2012 alone, 591 new commercial products were created using university technology, and another 719 new commercial products were created in FY 2013. Furthermore, a recent report concludes that university technology has been responsible for $1.18 trillion in economic activity in the U.S.
There will be much more to write in the coming days, but for today, here is the press release and the letter sent to Congress, along with the names of those professors who are questioning the orthodoxy surrounding the patent debate.
Tags: Congress, Innovation Act, patent, Patent Reform, patents
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