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The confluence of two significant developments in modern patent practice leads me to write a paper with such a provocative title.
The Rise of Patent Holdup
The first development is the rise of holdup as a primary component of patent litigation and patent licensing. You can call this the troll problem if you like. I prefer to think of it as the holdup problem. But whatever we call the problem, it seems quite clear that more and more patent litigation is being filed, and significant money is being made, by nonmanufacturing entities – entities that don't themselves actually make the product and in many cases don't actually engage in developing the technology very far at all. Many of these entities also engage in tactics that allow them to lay low and then take a mature industry by surprise once participants in the industry have made irreversible investments. The holdup or troll problem is particularly significant in component-driven industries, notably information technology (IT), where the problem is compounded by the fact that a product developer such as Intel that must aggregate thousands of different inventions into its semiconductor chip is vulnerable to holdup by any one of the thousands of inventors. Patent owners in those component industries can capture far more than the intrinsic value of their invention, because under long-standing patent law patent owners have the right not just to sue and get paid the percentage of the value contributed by their invention but to enjoin the sale of Intel's entire chip until it can design a new chip that avoids infringing that patent, something that might take years and require investing billions of dollars in a new fabrication plant. These factors have combined to produce the growth industry of the new millennium: patent holdup. Hundreds of companies are engaging in efforts to capture not just the value of what you contributed to as an invention, but a disproportionate share of somebody else's product.
The United States Patent and Trademark Office is tasked with the job of reading patent applications and determining which ones qualify for patent protection. It is a herculean task, and the Patent Office pursues it subject to enormous informational and budgetary constraints. Nonetheless, under current law, courts are bound to defer to the Patent Office's decisions regarding patent validity. That is a mistake. Deference to previous decisions is appropriate in instances where those previous decisions have a high likelihood of being accurate. But to grant significant deference to the initial process of patent review is to defer to an unavoidably and significantly inaccurate signal. Put bluntly, early patent review is not reliable and is unlikely to become so. In this chapter, we explain why and propose the creation of a two-tier system of patent validity, with a strong presumption being given to patents after they have been subject to any of a number of intensive review procedures, but only a weak presumption being awarded as a matter of course on patent issuance.
Introduction: The “Bad Patent” Problem
The United States Patent and Trademark Office (PTO) is tasked with the job of reading patent applications and determining which ones qualify for patent protection. It is a herculean task. One problem is resources. About 450,000 patent applicantions are processed annually. As of Fall 2009, there are 1.2 million unexamined applications in the PTO's backlog. To accurately evaluate the merits of all of those purported inventions would cost billions.
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