Jaffe, Adam B. and Josh Lerner. Innovation and Its Discontents: How Our Broken Patent System Is Endangering Innovation

This is the paperback edition of a book originally published in 2004. Notwithstanding its title, the book is only indirectly about innovation , as it focuses on the role that patenting plays in this process, with specific reference to the U.S. institutional system. The main thesis is that the U.S. patent system has badly strayed from its intended role and is currently in dire straights, possibly hindering more than spurring innovation. The symptoms include an explosion in the number of patent applications, very large patent grant rates, and ". .. a proliferation of patent awards of dubious merit " (p. 12). Concomitantly, there has been a sharp increase in patent litigation, which carries substantial direct cost for the parties involved, as well as indirect cost for the innovation enterprise: ". .. burgeoning patent litigation is increasingly making lawyers the key players in competitive struggles rather than entrepreneurs and researchers. As the patent system becomes a distraction from innovation rather than a source of incentive, the engine of technological progress and economic growth begins to labor " (p. 13). The authors trace the origin of the current U.S. patent system troubles to two changes introduced by Congress: the creation in 1982 of the Court of Appeal for the Federal Circuit (CAFC) as the only competent forum for judicial appeal of district courts' decisions on patent matters, and the change in the way the U.S. Patent and Trademark Office (USPTO) is funded (from an agency funded by tax revenue to one funded by the fees it collects) implemented in the early 1990s. It is argued that the latter made patent rights too easy to get, whereas the former strengthened patent rights. Taken together, these changes have ignited a vicious circle with perverse incentives in which too many bad patents are issued, true innovators may have to pay ransom settlement to avoid costly litigation on bogus infringement charges, and increasing uncertainty about ownership of innovations may deter needed R&D investment. The book comprises an introduction, laying out the scope of the analysis, and seven chapters. Chapter 1 (Today's Patent System at Work) explains how the patent system works, including introducing the reader to such things as patentable subject matter and the notions of utility, novelty, and nonobviousness. It also discusses some basics of the economic rationale for a patent system and articulates its inherent trade-offs—ex post exclusivity (i.e., limited monopoly rights) as a …