Patent Assertions: Are We Any Closer to Aligning Reward to Contribution?

Posted by Social Science Research Network

Patent Assertions: Are We Any Closer to Aligning Reward to Contribution? Fiona M. Scott Morton (Yale) & Carl Shapiro (University of California)

Abstract: Today, there is tremendous uncertainty about this industry’s future, and that itself holds this industry back. Developments in the electricity industry in recent years have brought the industry to a cross-road. While the move to competitive markets has fostered enormous benefits, somThe 2011 America Invents Act was the most significant reform to the United States patent system in over fifty years. However, the AIA did not address a number of major problems associated with patent litigation in the United States. In this paper, we provide an economic analysis of post-AIA developments relating to Patent Assertion Entities (PAEs) and Standard-Essential Patents (SEPs). For PAEs and SEPs, we examine the alignment, or lack of alignment, between the rewards provided to patent holders and their social contributions. Our report is mixed. Regarding PAEs, we see significantly improved alignment between rewards and contributions, largely due to a series of rulings by the Supreme Court. Legislation currently under consideration in Congress would further limit certain litigation tactics used by PAEs that generate rewards unrelated to contribution. We also see some notable developments relating to SEPs, especially with the recent reform to the patent policies of the IEEE, a leading Standard-Setting Organization (SSO) and with several recent court decisions clarifying what constitutes a Fair, Reasonable and Non-Discriminatory (FRAND) royalty rate. However, other steps that could better align rewards with contributions on the SEP front have largely stalled out, particularly because other major SSOs do not seem poised to follow the lead of the IEEE. Antitrust enforcement in this area could further improve the alignment of rewards and contributions.