In Today’s Edition Of Non-Lawyers Talking About The Law…

March 23, 2010

We find Pat Choate discussing patent infringement.

He objects to “efficient infringement”, a sub-species of efficient breach.  Essentially, like any corporation, various companies will add up the potential cost of infringing a patent (including an estimate of what they will be forced to pay and the probability they are forced to do so), total up the potential profits, and if the profits outweigh the costs, they breach (in this case, they breach the social contract of the patent system) – intending the whole while to pay if found liable in a court of law.  Where a patent holder’s valuation of a technology and a product creator’s valuation of the same technology vary widely, where (after accounting for the transaction costs of negotiation and litigation) the likely cost of infringement is lower than a patent holder’s asking price for use of a patent, efficient infringement is the result.

Now, you may personally feel that some moral opprobrium should attach to this.  But it’s not a new observation that the law does not feel the same.  Justice Holmes, in his influential turn of the century article “The Path of the Law”, noted that to the ‘bad man’ there is no difference between paying a fine for doing something he was not allowed to and paying a fee to be allowed to do something.  While the notion of efficient breach wasn’t truly refined until the law and economics movement picked it up three quarters of a century later, the essence of it is stated there.  To Intel, to Microsoft, to large corporations in general, infringement is often economically efficient.  To attach morality to this, as Choate does, reads into the law something that simply isn’t there – we don’t legislate morality.  It isn’t immoral to infringe a patent, simply illegal.

Beyond this, the assertion that companies are knowing infringers is at best questionable.  Though the problem of submarine patents has lessened with changes to the law, it still exists – often companies who infringe don’t know of the existence of the original patent.  One of the reasons those large companies are advocating for changes to the system that make willful infringement proof a more stringent requirement is because they’re so often subject to suits by non-practicing entities.  These companies are often some of the largest patent holders in the world – IBM is usually the top recipient of new patents in any given year and has an incredibly valuable patent portfolio.  They’re not interested in making infringement impossible to prove – they’re often the entity suing in infringement cases, and patent litigation typically represents a profit center for them.  They are interested in limiting the scope of willful infringement – for example, as represented by the modifications in the Seagate case, voiding the requirement of a company to conduct expensive patent searches before going ahead with use of a technology, and allowing good faith belief in the invalidity of a patent (as represented by opinion of counsel) to serve as a defense to willfulness.  The changes in law are intended to protect good faith actors.

Further, Choate misunderstands the remedy.  There’s already an extra penalty for efficient infringement.  If his assertion that a company knew of a patent and chose to go ahead and infringe it anyway (predicate assumptions to a situation of efficient infringement) is true in a given case (and not having followed the DataTreasury case, I offer no opinion on the validity of the statement with respect to it) there already is a remedy.  That’s willful infringement.  That’s treble damages (and, of course, the product owner must also pay the patent holder for their patent rights going forward or remove the patented technology from their product).

It may feel wrong to defend a corporation’s infringement, but it’s generally not a bad idea to try to limit the scope of willfulness in patent law – allowing it too much play will do anything but “promote the progress of . . . useful arts”.

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One Response to “In Today’s Edition Of Non-Lawyers Talking About The Law…”

  1. Pat Choate said

    I much enjoyed your comments. Would like to have a conversation with you at some point.

    Pat Choate

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