JOHN W. SCHLICHER

PATENTS, PATENT LITIGATION, PATENT DISPUTE RESOLUTION AND

SETTLEMENT, LICENSING, ANTITRUST, LAW AND ECONOMICS

 

 

John W. Schlicher, “Improving the Patent System by Removing Legal Obstacles to Agreements,” 31 Alternatives (The Newsletter of the International Institute for Conflict Resolution  and Prevention) 1 (January 2013)(Articles)

 

Excerpts

 

The patent system operates by three processes.  The patent office issues patents.  The federal courts enforce patents.  People and companies make agreements about patents.  Which process is most important to achieving the purpose of the system? 

General news media commentary focuses largely on patent infringement actions in the courts, typically actions involving widely used products, hundreds of millions dollar in damages, and millions more paid to the attorneys.  Occasionally, reporters also discuss the limitations of the patent office.  See, e.g., “The iEconomy Part 7: A System in Disarray, The Patent, Used as a Sword,” New York Times (Oct. 8, 2012)(available at http://nyti.ms/TiZ749). 

Similarly, lawyers are predisposed by training, experience and their perceived interests to focus on the patent office and courts.  Lawmakers, being mostly lawyers, share this disposition.  The recent America Invents Act (P. L. 112–29, 125 Stat. 284-341 (2011)) reflects this bias.  After 30 years of talk and lobbying, Congress changed the law on government processes and decisions.  Congress did nothing about longstanding legal obstacles to agreements between patent owners and companies which use patented inventions.

This is unfortunate, because agreements contribute more to achieving the purpose of the patent system than the patent office and the courts.  The patent office simply decides initially which patents exist and the scope of rights granted.  Those patents may not be enforced without an opportunity for a court to review whether those patents were properly issued and whether particular activities and products are subject to patent rights.

The law, however, does not require court decisions.  People affected by patents have the option of foregoing the courts and acting on decisions of their own--decisions embodied in agreements.  As measured by volume, revenue, and profits, these agreements play a far larger role in the system than court decisions.

For this reason, the most productive way to improve the patent system is to change the laws that create unnecessary obstacles to agreements.  Part 2 of this article next month will describe some of those laws. The patent reformers ignored them.  People engaged in dispute resolution should give them some attention.

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Agreements Play a Larger Role than Patent Litigation.  While patent litigation is common, the companies and business people involved overwhelmingly find settlement agreements and licenses more efficient--meaning more profitable--than litigation.

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Agreements have at least five advantages over litigation.

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If all patent disputes had to be resolved by litigation to the bitter end, the patent system could not function and would be abolished.  The patent system makes a positive contribution, and survives, only because business people avoid or resolve privately an extraordinarily high percentage of potential and actual disputes.

For that reason, we would expect the law to develop at every opportunity to facilitate and encourage patent agreements.  At the most abstract level, the law says the policy in favor of settlement of litigation applies to patents.  The law, however, developed in ways that discourage private resolution of patent disputes, particularly by the most efficient form of settlement, a license prior to a lawsuit.

To secure the benefits of settlement and license agreements, the law should facilitate the discussions needed to negotiate agreements, provide sensible incentives for patent owners and product suppliers to reach agreements, enforce these agreements, and limit enforcement costs and risks.  These are some of the ways the law does not.

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The laws that pose unnecessary barriers to resolving patent disputes should be changed.  Changing these laws would encourage agreements and avoid litigation and administrative procedures, costs and risks.  The courts devised every law mentioned in this article.  None were required by the Patent Act or any other act of Congress.  Therefore, the courts have the power to correct these and, indeed, most other legal obstacles.

Judicial change, however, comes slowly and with considerable institutional resistance.  Unfortunately, legislation is probably needed to achieve many of them.  Also unfortunately, the America Invents Act, P. L. 112–29, 125 Stat. 284-341 (2011), tries to improve the patent system only by more government rather than a better way,  More agreements.