sshane.jpgScott Shane, Ph.D., Professor of Economics at Case Western Reserve University, wrote up a detailed report on why the changes in the way damages are calculated in patent infringement lawsuits being asked for in various patent reform bills is wrong-headed.

As reformers have proposed to change the method of calculating damages from a common-law methodology which equally considers a variety of factors to a statutory methodology putting “apportionment,” above all else, Shane feels that such an apportionment-centric system of damages will likely have several adverse effects, including the following:

  1. Reduction in U.S. patent value of between $34.4 billion and $85.3 billion.
  2. Reduction in value of U.S. public companies of between $38.4 billion and $225.4 billion.
  3. Reduction in R&D of between $33.9 billion and $66 billion per year.
  4. Between 51,000 and 298,000 U.S. manufacturing jobs put at risk.
  5. Industries employing fewer people favored over those employing more people.

Why would an apportionment-centric system of patent damages reduce the value of patented technology?  Patents are a negative right; they give the patent holder the right to exclude others from practicing that invention.  To do this, the patent holder must be willing to enforce his/her patent by bringing legal action to either seek an injunction or collect damages in the event of infringement.  Because injunctive relief is increasingly difficult to obtain following the U.S. Supreme Court’s decision in eBay vs. MercExchange (2006), the value of a patent is best determined as a function of the amount of damages one can collect if one wins an infringement lawsuit.  Reducing the amount of damages reduces the value of patents, and reducing the value of patents reduces the value of patented technology.

Meanwhile, IBM has tried to see if it can get a patent on everything on earth after it became the first company to ever obtain more than 4,000 in a single year — more than Microsoft and Intel combined (from IFI Patent Intelligence).  IBM picked up 4,186 U.S. patents in 2008, while Microsoft and Intel received 2,030 and 1,776, respectively.  Samsung was in second place with 3,515 patents issued.

The report was prepared for the Manufacturing Alliance on Patent Policy, an ad hoc coalition created to share information with policy makers concerning the effect of patent policy on American manufacturing (including advanced metals, aerospace, automotive technology, chemicals, electronics, information technology, nanotechnology and others).

You can see the whole report here.

Peter Zura’s 271 Patent Blog has a review of patents issued in 2008.  More info at: “IFI Patent Intelligence Analysis of 2008’s Top US Patent Recipients Suggests America May Be Losing Dominance.”

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