Patent Trolls: Their Threat to U.S. Innovation—and the Solutions

“Thoroughly researched and documented, this book should be read by all who are concerned about the decline in America’s competitiveness in the world market.”
—Alex Kozinski, Chief Judge, U.S. Court of Appeals for the Ninth Circuit

A menace is threatening technological innovation in America: the menace of patent trolls. Their modus operandi: Patent trolls make money—big money—through litigation, rather than by creating and selling products or services themselves. Typically, they acquire an overly broad patent and then lie in wait as the market for the patented product or service develops and becomes lucrative. Then they threaten legal action against firms they claim have violated their patent rights, often the most innovative companies in America. The cost to the U.S. economy is staggering, as Independent Institute Research Fellow William J. Watkins, Jr., explains in his new book, Patent Trolls: Predatory Litigation and the Smothering of Innovation.

From 1990 through October 2010, lawsuits initiated by patent trolls destroyed wealth valued at more than $500 billion. One cause of the problem is that trolls have discovered a jurisdiction where it’s especially desirable to file a patent lawsuit: the Eastern District of Texas, where the local rules are plaintiff friendly, the rocket docket keeps defendants on their heels, and an undereducated jury pool leads to Texas-sized damage awards (judgments in the hundreds of millions of dollars are not unheard of). But a more fundamental problem that patent trolls exploit is the outmoded nature of the U.S. patent system: the United States Patent Office issues patents for a uniform term of 20 years, even though the pace of technological innovation is faster in some industries than in others.

How might we slay the patent troll and thereby spark a renaissance of innovation? Reducing the patent term in sectors with shorter product lifespans, such as computer hardware and software, would help by denying trolls the use of older patents to shake down new inventors, Watkins explains. In addition, policymakers should consider creating a patent court system that would weed out junk claims. Watkins also recommends that we learn from the example of Europe, where laws restrict the number of product categories eligible for a patent. If and when lawmakers and courts adopt the numerous sensible reforms that Watkins proposes, the U.S. economy will become a much more welcoming place for the world’s most creative and productive minds, enabling the pace of innovation to quicken and greater prosperity to follow.

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Patent Trolls: Predatory Litigation and the Smothering of Innovation, by William J. Watkins, Jr.

Exposed: How the Explosion of Patent Litigation Threatens the U.S. Economy In the New Independent Institute Book (Bloomberg BusinessWeek; Yahoo! Finance; others, 8/18/14)

Audio Interview: William J. Watkins, Jr. on Patent Trolls, (XMSatellite’s “Innovation Navigation” 6/18/14)

[A slightly different version of this post first appeared in the August 19, 2014, issue of The Lighthouse. For a free subscription to this weekly newsletter of current affairs, public-policy analysis, and event announcements, enter your email address here.]

Carl Close is Research Fellow and Senior Editor for The Independent Institute and Assistant Editor of The Independent Review and editor of The Lighthouse, The Independent Institute’s weekly e-mail newsletter.
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