“The First Patent Litigation Explosion,” C. Beauchamp (2016)

There has been a tremendous rise in patent litigation in the past decade (Bessen and Meurer 2005). Many of these lawsuits have come from “non-practicing entities” – also known as patent trolls – who use their patents to sue even as they produce no products themselves. These lawsuits are often targeted at end-users rather than directly infringing manufacturers, supposedly on the grounds that end-users are less able to defend themselves (see my coauthor Erik Hovenkamp on this point). For those who feel the patent system provides too many rights to patent-holders, to the detriment of societal welfare, problems like these are case in point.

But are these worries novel? The economics of innovation and entrepreneurship is, like much of economics, one where history proves illuminating. Nearly everything that we think is new has happened before. Fights over the use of IP to collude by incumbents? See Lampe and Moser 2010 JEH. The importance of venture capital to local ecosystems? In the late 19th century, this was true in the boomtown of Cleveland, as Lamoreaux and her coauthors showed in a 2006 C&S (as to why Cleveland declines as an innovative center, they have a nice paper on that topic as well). The role of patent brokers and other intermediaries? These existed in the 19th century! Open source invention in the early days of a new industry? Tales from the rise of the porter style of beer in the 18th century are not terribly different from the Homebrew Computer Club that led to the personal computer industry. Tradeoffs between secrecy, patenting, and alternative forms of protection? My colleague Alberto Galasso shows that this goes back to Renaissance Italy!

Given these examples, it should not be surprising that the recent boom in patent litigation is a historical rerun. Christopher Beauchamp of Brooklyn Law School, in a 2016 article in the Yale Law Journal, shows that all of the problems with patent litigation mentioned above are not new: indeed, the true heyday of patent litigation was not the 2010s, but the late 1800s! Knowing the number of lawsuits filed, not just the number litigated to decision, requires painstaking archival research. Having dug up these old archives, Beauchamp begins with a striking fact: the Southern District of New York alone had as many total patent lawsuits filed in 1880 as any district in 2010, and on a per patent basis had an order of magnitude more lawsuits. These legal battles were often virulent. For instance, Charles Goodyear’s brother held patents for the use of rubber in dentistry, using attractive young women to find dentists using the technique without a license. The aggressive legal strategy ended only when the Vulcanite Company’s hard-charging treasurer was murdered in San Francisco by a desperate dentist!

These lawsuits were not merely battles between the Apples and Samsungs of the day, but often involved lawsuits demanding small license payments from legally unsophisticated users. Iowa Senator Samuel Kirkwood: patentholders “say to each [farmer], ‘Sir, pay me so much a mile or so much a rod for the wire…or you must go to Des Moines…and defend a suit to be brought against you, the cost of which and the fees in which will in themselves be more than I demand of you…[O]ur people are paying day by day $10, $15, $20, when they do not know a particle more whether they owe the man a dollar or a cent…but paying the money just because it is cheaper to do it than to defend a suit.” Some of these lawsuits were legitimate, but many were making claims far beyond the scope of what a court would consider infringement, just as in the case of patent troll lawsuits today. Also like today, farmers and industry associations formed joint litigation pools to challenge what they considered weak patents.

In an echo of complaints about abuse of the legal system and differential costs of filing lawsuits compared to defending oneself, consider Minnesota Senator William Windom’s comments: “[B]y the authority of the United States you may go to the capital of a State and for a claim of $5 each you may send the United States marshal to a thousand men, or ten thousand…and compel them to travel hundreds of miles to defend against your claim, or, as more frequently occurs, to pay an unjust demand as the cheapest way of meeting it.” Precisely the same complaint applies to modern patent battles.

A question of great relevance to our modern patent litigation debate therefore is immediate: Why did these scattershot individual lawsuits eventually fade away in the late 1800s? Beauchamp is equivocal here, but notes that judicial hostility toward the approach may have decreased win rates, and hence the incentive to file against small, weak defendants. Further, the rise of the modern corporation (see Alfred Chandler’s Scale and Scope) in the late 19th century changed the necessity of sublicensing inventions to local ligitating attorneys, rather that just suing large infringing manufacturers directly.

Of course, not everything historic is a mirror of the present. A major source of patent litigation in the mid-1800s involved patent reissues. Essentially, a patent would be granted with weak scope. An industry would rise up using related non-infringing technology. A sophisticated corporation would buy the initial patent, then file for a “reissue” which expanded the scope of the patent to cover many technologies then in use. Just as “submarine” patents, held secretly in application while an industry grows, are a major problem recently, patent reissues led to frequent 19th century complaints, until changes in jurisprudence in the late 1800s led to greatly decreased deference to the reissued patent.

What does this history tell us about modern innovation policy? As Beauchamp discusses, “[t]o a modern observer, the content of the earlier legal and regulatory reactions can seem strikingly familiar. Many of the measures now proposed or attempted as solutions for the ills of modern patent litigation were proposed or attempted in the nineteenth century as well.” To the extent we are worried about how to stop “patent trolls” from enforcing weak patents against unsophisticated end-users, we ought look at how our 19th century forebears handled the weak barbed wire and well patents filed against small-town farmers. With the (often economically-illiterate) rise of the “Hipster Antitrust” ideas of Lina Khan and her compatriots, will the intersection of patent and antitrust law move from today’s “technocratic air” – Beauchamp’s phrase – to the more political battleground of the 19th century? And indeed, for patent skeptics like myself, how are we to reconcile the litigious era of patenting of 1850-1880 with the undisputed fact that this period was dead in the heart of the Second Industrial Revolution, the incredible rise of electricity and modern chemicals inventions that made the modern world?

Full article is in Yale Law Journal, Feb. 2016.

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