Efficient Infringement: A Patent System Challenge

Welcome to Innovation Café, where we explore the complexities of the innovation ecosystem. Today, we’re tackling a controversial and troubling issue in the world of intellectual property: efficient infringement.

What Is Efficient Infringement?

Efficient infringement occurs when a company decides it’s financially advantageous to infringe on a patent rather than pay licensing fees. Instead of negotiating with the patent owner, these companies calculate that:

The cost of potential litigation is lower than the licensing fee.
The patent owner, especially a small inventor, might not have the resources to pursue legal action.
Even if caught, the penalties are unlikely to outweigh the profits made from infringing.
If the risk of paying royalties or being sued becomes too high, the infringer can use the IPR system (called a “patent death squad” by the former Chief Judge of the Federal Circuit Court of Appeals, which hears all patent appeals in the United States) to invalidate the patent. Because defending an IPR can easily cost half a million dollars, small companies and independent inventors may be forced to simply let the patent be killed because they cannot afford to defend it.

It’s a calculated gamble that exploits weaknesses in the patent enforcement system.

Why Does Efficient Infringement Happen?

High Costs of Litigation
- Patent lawsuits are notoriously expensive, often costing millions of dollars and taking years to resolve. Small inventors and startups frequently lack the resources to sustain such battles.
Low Damages for Infringement
- Even when infringement is proven, courts may award damages that are less than the licensing fees the infringer would have paid.
Power Imbalance
- Large corporations have legal teams and financial resources that dwarf those of individual inventors, making it difficult for small patent owners to challenge infringement.

The Ethical Dilemma

Efficient infringement raises significant ethical and systemic concerns:

Unfair Advantage: Big companies profit from inventions without compensating the inventors who created them.
Erosion of Innovation: If inventors can’t protect their creations, they will lose motivation to innovate.
Undermining the Patent System: The patent system is designed to encourage and reward innovation. Efficient infringement challenges its core principles by incentivizing bad behavior.

What Can Be Done?

Strengthen Patent Enforcement
- Policymakers could introduce penalties that make infringement riskier and less profitable, such as enhanced damages for willful infringement.
Lower Litigation Costs
- Efforts to reduce the cost and complexity of patent litigation could level the playing field for small inventors.
Support for Small Inventors
- Programs that provide legal assistance or funding for small inventors could help them defend their patents.
Alternative Dispute Resolution
- Encouraging mediation or arbitration as alternatives to full-scale litigation can make resolving patent disputes more accessible and less costly. In addition, a patent small claims process where maximum damages are capped in exchange for lower litigation costs remains a consideration.

Final Thoughts

Efficient infringement highlights a troubling imbalance in the patent system that disproportionately affects small inventors. Addressing this issue is essential to maintaining a fair and effective system that fosters innovation.

Gary Shuster
Innovation Café