My colleague, Ben Gornall, Patent and Trademark Consultant, has continued our earlier discussion.  My initial post was “IP Litigation as a(n Illegal) Business Model“, to which Ben commented here.  I replied with “Patent Assignment: Trolling the Gap between Potential and Actual Usefulness“, and Ben e-mailed me his more detailed analyses.  I apologize, mainly to Ben, for my delay in posting them.  Without further introduction, here are Ben’s replies in two parts:

Part 1:

Patent rights can be acquired in a variety of ways and standing is a preliminary issue that helps weed out frivolous cases; however, a legitimate assignee or exclusive licensee ought to have standing to sue true infringers of its valid patent regardless of the number of times the underlying patent has changed hands. It’s all about creating liquidity and certainty in the market. The value of a patent and the resultant incentive to invent will be much greater if the prospective purchaser expects to be able to readily monetize that patent.

You raise a legitimate question as to how much of that value goes to the inventor versus subsequent holders of the patent. It’s a matter of Coasian bargaining and it’s somewhat analogous to the question of how much value goes to the founder of a company versus subsequent investors. There may not be perfect information available to facilitate optimal bargaining and inventors would be well advised to seek professional valuation of their patent before jumping at the first offer they receive. A small investment in a professional patent valuation can help position the individual inventor to negotiate a much better price.

Regarding licensing fees as “hush-money” for infringement damage settlements; that may be a way for some litigants to save face rather than admitting that they are settling. The key issue is not whether they whitewash the settlement by calling it a licensing agreement but whether the underlying legal basis for the settlement is itself justifiable. Punitive damage awards for infringement may sometimes appear excessive but they in part counterbalance the fact that many infringers successfully escape prosecution entirely, and they help to ensure an adequate level of deterrence and caution on the part of would-be infringers. There is an easy way to minimize the risk of having to pay expensive settlements for infringement damages: do a prior art search for patents and published applications before marketing a new product and if necessary negotiate a license at the outset.

Its also true that patents can outlive the usefulness of the underlying inventions; but in those cases it shouldn’t matter whether the patents remain valid since no one will have reason to continue practicing them. Much of the rationale for requiring inventions to be useful in order to be patentable is so as not to divert the scarce resources of the patent office into examining useless things. Requiring ongoing usefulness as part of continued validity of patents would require costly ongoing re-evaluation of patents with no material benefit to offset those costs.

Trademarks differ from patents in that there is no need to incentivize their creation. Their purpose is simply to distinguish traders from others in the marketplace and if they don’t serve that purpose there is little point in continuing to prevent other traders from using them. There could be potential value in future use of those marks but there is no social benefit in allowing companies to capture that value by continuing to hold monopolies over words that they aren’t using.

Going back to my original comment: patents are a necessary evil tolerated to encourage innovation. In order to achieve this law must remain objective and continue to provide valuable and well-defined protection to patent holders.