From Arms Race to Marketplace: The Complex Patent Ecosystem and Its Implications for the Patent System

For years, high-tech companies have amassed patents in order to deter patent litigation. Recently, a secondary market for patents has flourished, making it more likely that patents that would otherwise sit on the shelf will end up in the courtroom. This Article explores the current patent ecosystem, which includes both “arms race” and “marketplace” paradigms, in depth. I distinguish “patent-assertion entities,” entities that use patents primarily to obtain license fees rather than to support the development or transfer of technology, from other types of non-practicing entities. I contrast the patent arms race, whose goal is to provide entities with the freedom to operate, with the marketplace, through which entities have leveraged their freedom to litigate. I detail the participation of product companies as well as non-practicing companies and their intermediaries in the marketplace, and trace the diverse “pathways” traveled by patents from a diversity of sources including failed startups and product companies like Micron, to entities like Round Rock and Intellectual Ventures. Several implications follow. First, the failure of the patent arms race to deter lawsuits from patent assertion entities as well as practicing companies in certain cases means that defensive strategies must be reconceptualized to include new tactics—including prevention, disruption, and coordination—for securing freedom to operate. In addition, if stockpiles of unused patents patent continue to fall into the hands of patent-assertion entities, defensive patenting may ironically have the net effect of increasing, rather than decreasing, litigation risk. Second, conventional notions of patent value need to be revised. The same patent has a much greater “exclusion value”—which I define as the value likely to be extracted from the patent—when held by a patent-assertion entity rather than a company vulnerable to countersuit. A better understanding of what drives the exclusion value rather than the intrinsic value of a patent might help companies predict and potentially avoid technical areas where patent assertion is most likely. Finally, recent history suggests trying to change the system by changing patentee behavior directly, rather than only through legal changes, for example by encouraging quality patenting, improving coordination between patent defendants, and creating a nonprofit organization to accept patent donations in order to encourage companies to make their unused patents available to the public, rather than to patent-assertion entities