Back in December 2014, at Michelle Lee’s first confirmation hearing before the Senate Judiciary Committee, Senator Mazie Hirono (D-HI) succinctly pointed out that “one person’s patent troll is another person trying to protect his or her patent.” Thus, as like so many issues in the law, the questions surrounding the so-called patent troll debate are not nearly as straightforward as you may have otherwise been lead to believe.
In order to bring some empirical rigor to the debate, Stephen Haber, a political scientist from Stanford University, recently published the results of a study he completed that explains exactly why so-called patent trolls play a vital role in the innovation ecosystem. He explains that patent assertion entities, who are the ones most often labeled as patent trolls, play a vital role as an intermediary. Essentially, Haber explained to me that when an intermediary ceases to provide value, the intermediary ceases to exist. Thus, the very fact that an intermediary does exist in the marketplace suggests some valuable role.
The full transcript of our interview can be read at Understanding the valuable role played by Patent Trolls. What follows are excerpts from our discussion that highlight Haber’s findings.
Haber explains why he and co-author Seth Werfel were curious about patent trolls.
We observe so many PAEs and we observe that individual inventors assign their patents to those PAEs. This suggests that PAEs are serving an intermediary role in the market…
A classic example of an intermediary is a bank, which connects savers and borrowers who would have difficulty writing and enforcing loan contracts directly: the savers don’t know anything about the borrowers, and they are not expert at the legalities of writing and enforcing financial contracts. The borrowers do not know the savers, and they have no way of credibly committing to repay the loans, because they know that the savers are not experts at contract enforcement. The bank does, however, know both groups and it is expert at contract enforcement. Note that it does not produce anything: it serves an intermediary function between the savers and the borrowers. So this basic principle of economics motivated us to look at the potential intermediation role played by PAEs.
Haber explains that patent assertion entities may well be a nuisance to manufacturers, but like other intermediaries, they play an vital role.
The U.S. economy is full of intermediaries everywhere you look. But for some reason we have demonized the intermediaries in the market for innovation. Think of it this way: Most people buy their groceries at a grocery story. That grocery store does not grow any of the vegetables, raise the meat, nor catch the fish. It is simply an intermediary.
Now I can see why from the point of view of a manufacturer, the PAE may be a nuisance. But from the inventor’s point of view, the PAE is a valuable intermediary.
Haber explains that in the late 19th Century, the intermediaries who emerged were called “patent sharks,” but that no one serious argues today that they did anything to impede the rate of innovation during the industrial revolution.
These patent brokers and patent lawyers were denounced for promoting a lot of litigation, but no reasonable person today thinks that the proliferation of lawsuits and patent sharks in the latter half of the 19th century impeded U.S. economic development or the rate of innovation.
Tags: PAE, patent, patent assertion entities, patent troll, patent trolls, patents, Stephen Haber
You share in the PLI Practice Center community, so we just ask that you keep things civil. Leave out the personal attacks. Do not use profanity, ethnic or racial slurs, or take shots at anyone's sexual orientation or religion. If you can't be nice, we reserve the right to remove your material and ban users who violate our Terms of Service.