A Modest Proposal to Fix the Patent System
Imagine you spend a few months writing a great new software program. Your early adopters love it, and you begin to sell your new product on the Internet. You use the funds from early sales to found a company and you are on your way as a successful entrepreneur. Everyone wins: you, your customers and the society you live in (through the taxes you generate if nothing else).
And then everything comes to a screeching halt. You start to receive cease and desist demands from lawyers representing patent holders who claim you are infringing on their intellectual property. How can this be? You've never heard of these people or their patents. You didn't copy anything of theirs. You check out the patents in question, and the legal language is so impenetrable that you can't even work out what they are claiming monopoly over.
Because they can shut your company down, these patent holders demand exorbitant fees. Of course you can always engage in legal action, but the costs will be massive and the deck is stacked against you because an issued patent is presumed valid.
There are even companies, known as trolls that specialize in buying patents and shaking down legitimate companies.
These types of problems have led to a rising tide of discontent and criticism of the patent system. Unfortunately, simply dismantling the system is not practicable. Despite the best wishes of idealists, our economy is tightly interwoven with intellectual property rights and consequential investment decisions and licence agreements. Remove one part of such a complex system and you risk massive destabilization of the entire economy.
The author proposes a much more modest patch to the patent system, based on fixing only what is observably broken. There are two basic problems:
- the ability for a patent holder to demand unreasonable licence fees, and
- the ability for a patent holder to withold a licence entirely.
The solution is an involuntary licence regime. Patent holders would remain free to negotiate any terms they like. However, anybody would also be free to take out a statutory licence on any patent by paying, say, a 10% royalty on the sales price of the infringing product. If there were more than one patent infringed, then the royalty would be split equally between claiming patent holders.
Why base the royalty on sales price? Because it is simple to calculate and not subject to Hollywood accounting.
What if a patent holder doesn't agree with their share of the 10%? Their right to sue is preserved. But they don't get to sue the licensee, they sue the other patent holders instead. The licensee is protected, so long as they pay the proper fee.
This involuntary licence scheme fundamentally rebalances the patent system to reduce the likelihood of it being used in anti-competitive or innovation stifling ways. It preserves the rights of patent holders to benefit from their public disclosure, while encouraging the entry of new innovators and entrepreneurs into the market.