Tag: Patent

Why Patent Reform is Essential

 It turns out the scam that was Theranos was heavily supported by what experts would call bullsh%$ patents:

When Patent Office Director Michelle Lee gave that speech, Theranos appeared to be one of the most impressive companies in Silicon Valley. But later that year, the public learned that Holmes hadn’t “proven” anything. Whistleblowers told The Wall Street Journal that Theranos wasn’t even using its own devices for most of its blood testing. Holmes had apparently spent more than a decade building a company based on unrealistic or outright false claims about its revolutionary technology.

For any disaster as large as Theranos, there’s plenty of blame to go around, of course. Both Holmes and former COO Sunny Balwani now face federal fraud charges. Theranos’ star-studded board of directors failed to do adequate oversight. Walgreens ignored warning signs before launching its in-store partnership. Some VCs and journalists were too eager to believe Theranos’ unproven claims.

But the patent system also played an important, and often overlooked, role in the situation. The USPTO gave out patents much too easily, giving Theranos early credibility it didn’t deserve. Theranos then used these patents to attract staff, investors, and business partners. The company would last for 10+ years and burn through half a billion dollars before the truth finally emerged.


But Holmes found a more receptive audience at the USPTO. She says she spent five straight days at her computer drafting a patent application. The provisional application, filed in September 2003 when Holmes was just 19 years old, describes “medical devices and methods capable of real-time detection of biological activity and the controlled and localized release of appropriate therapeutic agents.” This provisional application would mature into many issued patents. In fact, there are patent applications still being prosecuted that claim priority back to Holmes’ 2003 submission.

But Holmes’ 2003 application was not a “real” invention in any meaningful sense. We know that Theranos spent years and hundreds of millions of dollars trying to develop working diagnostic devices. The tabletop machines Theranos focused on were much less ambitious than Holmes’ original vision of a patch. Indeed, it’s fair to say that Holmes’ first patent application was little more than aspirational science fiction written by an eager undergraduate.

So how did Holmes’ unrealistic application lead to real patents, like US Patent No. 7,291,497? If you look through that patent’s application history, you can see that the examiner did review it closely. The examiner made two non-final rejections and two final rejections before eventually allowing the claims. (At the USPTO, a “final” rejection is not really final). The rejections were based on prior art and other technical grounds. What the examiner did not do, however, was ask whether Holmes’ “invention” actually worked.

Two legal doctrines are relevant here. The “utility” requirement of patent law requires that the invention work. And the “enablement” requirement means that the application has to describe the invention with enough detail to allow a person in the relevant field to build and use it. If the applicant herself can’t build the invention with nearly unlimited time and money, it does not seem like the enablement requirement could possibly be satisfied.


To answer Professor Grimmelmann’s rhetorical question [What could go wrong with patents being handed out on the “honor system”?] —Theranos is what could go wrong. Holmes’ original patent application became a key part of the company’s mythology. For example, an infamous Fortune article from 2014 reverently tells the story of Holmes staying up late to write her application and suggests that Theranos was founded on that original vision. And if you had visited Theranos’ website in 2014, you would have found an “Our Mission” page that said Holmes left Stanford to “build Theranos around her patents and vision for healthcare.”

Yet more than a decade after Holmes’ first patent application, Theranos had still not managed to build a reliable blood-testing device. By then the USPTO had granted it hundreds of patents. Holmes had been constructing a fantasy world from the minute she started writing her first application, and the agency was perfectly happy to play along.


Business Insider wrote that if Theranos had come up with a “killer application” for microfluidics, “that may explain its reluctance to show the patented details that make its technology unique.” This sentence shouldn’t make sense, because patents are public by nature. So “patented details” should be public.

The sentence only makes sense when you realize that the patent bargain is utterly broken. The people who work within the patent system realize it. That’s why no one raised red flags when Theranos received hundreds of patents without telling the scientific community how its machines actually worked.

This is important:  With a very few national security exceptions, patents MUST be public, and of sufficient detail to allow a, “Person having ordinary skill in the art,”  to reproduce the invention.

It is SUPPOSED to be a part of the deal when you award an exclusive license, but the US patent office almost never rejects a patent on being incomprehensible bullsh%$, as it should.

We desperately need to raze the USPTO to the ground, and rebuild it from scratch.

I Approve of Apple’s Actions

Even better, it’s offering jobs to employees from those stores at stores across the district boundaries:

Apple has confirmed its plans to close retail stores in the Eastern District of Texas — a move that will allow the company to better protect itself from patent infringement lawsuits, according to Apple news sites 9to5Mac and MacRumors, which broke the news of the stores’ closures. Apple says that the impacted retail employees will be offered new jobs with the company as a result of these changes.

The company will shut down its Apple Willow Bend store in Plano, Texas as well as its Apple Stonebriar store in Frisco, Texas, MacRumors reported, and Apple confirmed. These stores will permanently close up shop on Friday, April 12. Customers in the region will instead be served by a new Apple store located at the Galleria Dallas Shopping Mall, which is expected to open April 13.

Apple did not comment on the stores’ dates of closure or the new store’s opening.


The Eastern District of Texas had become a popular place for patent trolls to file their lawsuits – which may be filed where the defendant committed the infringement. However, a more recent Supreme Court ruling has attempted to crack down on the practice. The court ruled that patent holders could no longer choose where to file.


The Apple store closures could have had a notable impact on area jobs, had Apple not offered new positions to its retail staff. 

I’m surprised that more businesses have not taken similar actions, given the thoroughly dysfunctional nature of this court district.

Amazon is Evil, Part Many

Amazon applied for a patent that would literally put its workers in cages.

Following a mild media sh%$ storm, they are now saying that this was, “A bad idea,” and that they would never do this.

Yeah, right:

No one ever said working at Amazon was a relaxed experience. The e-commerce giant is well known for its taxing workplace culture, but putting warehouse workers in cages seems a bit extreme, even for Amazon.

But a patent, granted by the U.S. Patent and Trademark Office to Amazon in 2016, would make that dystopian cubicle a reality. The patent shows a cage built for a human working in robot work zones, a small work station atop a robot trolley like the kind already used in Amazon warehouses to move shelving. The patent was highlighted in a study by two artificial intelligence (AI) researchers, New York University distinguished research professor Kate Crawford and director of the research lab Share Foundation Vladan Joler. In their analysis, Crawford and Joler noted “an extraordinary illustration of worker alienation, a stark moment in the relationship between humans and machines.”

When the study was reported by news outlets including The Seattle Times, there was (predictable) blowback on social media. Amazon senior vice president of operations Dave Clark even weighed in on Twitter, explaining that even “bad” ideas are submitted for patents, and that the company has no plans to implement the cages.

Yeah, right.

They are saying, “Never,” but I am hearing, “And I would have gotten away with it too, if it weren’t for you meddling kids!”

Court Rules against Dressing up as an Indian

In a unanimous decision, an appellate court has resoundingly rejected the legal claim that sovereign immunity, as argued by a Native American tribe, can act as a shield for a patent review process.

On July 20, the United States Court of Appeals for the Federal Circuit found in a 3-0 decision that the inter partes review (IPR) process is closer to an “agency enforcement action”—like a complaint brought by the Federal Trade Commission or the Federal Communications Commission—than a regular lawsuit.

IPR is a process that allows anyone to challenge a patent’s validity at the United States Patent and Trademark Office—it was used famously in 2017 to reject the “podcasting patent.”

“This win is a victory in our ongoing efforts to stop patent abuses by brand companies and to help drive access to more affordable medicine,” Mylan CEO Heather Bresch said in a statement on July 20.

“Today’s ruling reaffirms that Allergan’s attempt to leverage the Saint Regis Mohawk Tribe for patent protection represents another inappropriate tactic to delay the availability of generic medicines for patients who need them.”
This case, Saint Regis Mohawk Tribe, Allergan Inc. v. Mylan Pharmaceuticals et al, really began in September 2015. That was when Allergan, a pharma company, sued rival Mylan, claiming that Mylan’s generics infringed on Allergan’s dry eye treatment known as Restasis.


By 2016, Mylan initiated the IPR. But Allergan, in an attempt to stave it off, struck a strange deal, transferring ownership of the six Restasis-related patents to the Saint Regis Mohawk Tribe, based in Upstate New York, near the Canadian border.

As part of that deal, Allergan paid $13.75 million to the tribe, with a promise of $15 million in annual payments—if the patents were upheld, that is. (According to The New Yorker, Allergan stood to make $1 billion annually for its monopoly product.)


The Mohawk Tribe attempted to end the IPR, citing sovereign immunity, which was denied. The tribe struck at least one other similar deal with a firm known as SRC Labs, which sued Amazon and Microsoft.

Due to the July 20 ruling, Mylan’s IPR process will now go forward.

The inter partes review (IPR) process is an administrative review of patents that is faster, cheaper, and far less amenable to lame-ass patents than the federal courts.  (Particularly those federal courts in the Eastern District of Texas.)

This is yet another blow against the business of patent trolling.

They Got a Patent for What?

Yes, in 2000, some troll secured a patent on the ability to pause a recorded lesson, because ……… computers!!! gross incompetence.

This is profoundly dysfunctional:

The Electronic Frontier Foundation has stepped up to represent a small, independent online language teacher who has been threatened with a lawsuit by a British publisher that claims the teacher is infringing an American patent issued back in 2000 for a particular audio-based teaching technique.

What’s the secret sauce? Amazingly, the use of a pause button to temporarily stop the lesson.


A Virginia attorney, Christopher Foley, representing publisher Hodder & Stoughton, recently demanded that Eleftheriou halt any publication of audio lessons in the United States or face a potential lawsuit.

Hodder & Stoughton claims to represent the “exclusive licensee” of a patent originally granted to a now-deceased French teacher, Michel Thomas. The Polish immigrant, who lived for decades in the United States, claimed that he could teach anyone the basics of a European language that had commonalities with English to anyone in “a matter of days or a week.” He attracted numerous celebrity clients, including Woody Allen and Bill Murray.

Eleftheriou said that he was not “reproducing” Thomas’ method, adding that “nothing else [is] as well thought-out” as Eleftheriou’s own technique.

But however effective Thomas’ teaching technique may or may not have been, it was not patentable, according to a scathing letter sent on July 2, 2018 by Daniel Nazer, an EFF attorney who is representing Eleftheriou.

Seriously, whoever approved this patent should be fired.

This wasn’t even a pre Alice software patent.  This was just completely negligent.

It’s Called Monopoly Rents and Oligopolies

The good folks at the New York Times have noted that healthcare costs in the US started rising sharply relative to other developed nations around 1980.

Ignoring the obvious error (Dean Baker notes that the increase in US medical inflation started in the 1970s, not the 1980s) the history is clear: this began with a major push toward deregulation that began under the Carter administration, along with largely successful efforts to privatize what had been publicly owned research and development.

The walk-back from meaningful antitrust enforcement, and to deregulate many aspects of the market economy, along with efforts to privatize federally funded research progressed rapidly during the late 1970s, culminating with the disastrous Bayh-Dole act, which had the effect of handing government research to private entities.

Later, under the Reagan administration, the break-neck pace of these changes further accelerated.

It became the wild west, and a very opaque one at that, and to paraphrase former banking regulator Bill Black, if looting is possible, it has already happened.

What’s more the proceeds of the looting are almost immediately reinvested in rent seeking activities like campaign donations, to embrace and extend the regime.

Rinse, lather, repeat.

I Don’t Often Express Admiration for the Indian Justice System, But………

The recent ruling by the Indian Supreme Court saying that seeds cannot be patented is good for the Indian people, and not just because it is bad for Monsanto:

In an another legal blow to Monsanto, India’s Supreme Court on Monday refused to stay the Delhi High Court’s ruling that the seed giant cannot claim patents for Bollgard and Bollgard II, its genetically modified cotton seeds, in the country.

Monsanto’s chief technology officer Robert Fraley, who just announced that he and other top executives are stepping down from the company after Bayer AG‘s multi-billion dollar takeover closes, lamented the news.


Monsanto first introduced its GM-technology in India in 1995. Today, more than 90 percent of the country’s cotton crop is genetically modified. These crops have been inserted with a pest-resistant toxin called Bacillus thuringiensis, or Bt.

Citing India’s Patents Act of 1970, the Delhi High Court ruled last month that plant varieties and seeds cannot be patented, thereby rejecting Monsanto’s attempt to block its Indian licensee, Nuziveedu Seeds Ltd., from selling the seeds.

Because of the ruling, Monsanto’s claims against Nuziveedu for unpaid royalties have been waived, as its patents are now invalid under Indian law. Royalties will now be decided by the government.

Indian environmentalist Vandana Shiva, who is known for her fierce activism against corporate patents on seeds, called the top court’s move a “major victory” that opens the door “to make Monsanto pay for trapping farmers in debt by extracting illegal royalties on BT cotton.”

Of the various extensions of IP, none is more concerning, and more unethical, than the expansion of patents to abrogate the rights for farmers to replant their own seeds.

Patent Trolls Lose Before Supreme Court

The 2012 America Invents Act created the inter partes review process which allowed for challenges to patents in an administrative, rather than a lawsuit, making challenges to patents faster and cheaper.

The patent trolls took it to court, saying that Congress could not delegate the court’s patent authority in this way, and the Supreme Court just shot them down in well-deserved flames:

The Supreme Court on Tuesday upheld the constitutionality of a process for challenging low-quality patents. Since its creation in 2011, this “inter partes review” (IPR) process has dramatically lowered the cost of defending against frivolous patent litigation.

The process allows an executive branch agency—not the courts—to revoke a patent after it has been granted. Critics claim that runs afoul of the Constitution’s requirement that only the courts can deprive people of their property.

But the Supreme Court didn’t buy it. In a 7-2 decision written by Justice Clarence Thomas, the nation’s highest court ruled that patent rights were fundamentally a government-granted privilege that could properly come with strings attached. One such condition is the risk that the patent office might change its mind and invalidate a patent that it had previously approved.

The ruling preserves one of defendants’ most potent weapons against patent trolls. Challenging a patent in court can cost millions of dollars. As a result, prior to 2011, it often made sense for defendants to settle a patent case even if they believed that the patent wouldn’t stand up in court.

But then Congress passed the America Invents Act, which created a new administrative process called inter partes review. That process cuts the cost of challenging a patent down to the low six figures. It has shifted the playing field for patent litigation, allowing the targets of frivolous patent lawsuits to fight back without going broke in the process. The new Supreme Court ruling puts that process on a firm constitutional footing, which should make life difficult for patent trolls for years to come.


But Oil States sued, arguing that the Constitution requires an IPR-like process to occur in the judicial branch—not in an executive branch agency like the patent office. Executive branch agencies do not have the independence of judges, and they don’t necessarily offer all of the due-process protections provided to litigants by the judicial system.

While the argument was officially over the difference between the executive and judicial branch, this was really a dispute about the nature of patent rights. Are patents fundamentally a government-granted monopoly (a “public right,” in legal jargon), or are they a form of private property akin to a home or car?

The Constitution provides robust legal protections, including a guarantee of due process through the judicial branch, to private property: a law allowing a federal agency to take someone’s home or business without the approval of the courts would be unconstitutional.

But it doesn’t make sense to extend that same level of protection to government-granted monopolies. After all, the public interest may require curtailing or eliminating these kinds of monopolies in the future.

“Congress can grant a franchise that permits a company to erect a toll bridge but qualify the grant by reserving its authority to revoke or amend the franchise,” the court’s majority wrote, citing a 101-year-old precedent on the topic. “The same is true for franchises that permit companies to build railroads or telegraph lines.”

This is why the case is important: It is a refutation of the entire idea of “Intellectual Property”, that has come to the fore recently:

None of these rulings was explicitly about whether patents are monopolies or property rights. But the question implicitly shapes how courts think about these kinds of questions. Monopolies are generally viewed with skepticism; property rights are not. “Allowing petitioners to patent risk hedging would preempt use of this approach in all fields and would effectively grant a monopoly over an abstract idea,” the Supreme Court wrote in its 2010 ruling on patenting abstract ideas.

Tuesday’s ruling is important in its own right, as it preserves a process that has had a real impact on the patent-litigation problem. But it’s also a barometer of how the Supreme Court’s justices are thinking about the patent system more generally. The fact that seven of the nine justices continue to view patents as a government-granted franchise, not a form of property rights, suggests that the high court’s more-than-decade-long smackdown of pro-patent jurisprudence could continue for years to come.

The Federal Circuit, aka the “Patent Court” has been mishandling, and expanding, patents for years, and the Supreme Court has been pushing back for about a decade against the excesses of the Federal Circuit.

This one is significant, because it throws a brick through the “Intellectual Property” window.

Yes Virginia, You Can Call Them “Patent Trolls”

In New Hampshire, at least:

A New Hampshire state court has dismissed a defamation suit filed by a patent owner unhappy that it had been called a “patent troll.” The court ruled [PDF] that the phrase “patent troll” and other rhetorical characterizations are not the type of factual statements that can be the basis of a defamation claim. While this is a fairly routine application of defamation law and the First Amendment, it is an important reminder that patent assertion entities – or “trolls” – are not shielded from criticism. Regardless of your view about the patent system, this is a victory for freedom of expression.

The case began back in December 2016 when patent assertion entity Automated Transactions, LLC (“ATL”) and inventor David Barcelou filed a complaint [PDF] in New Hampshire Superior Court against 13 defendants, including banking associations, banks, law firms, lawyers, and a publisher. ATL and Barcelou claimed that all of the defendants criticized ATL’s litigation in a way that was defamatory. The court summarizes describes the claims as follows:

The statements the plaintiffs allege are defamatory may be separated into two categories. The first consists of instances in which a defendant referred to a plaintiff as a “patent troll.” The second is composed of characterizations of the plaintiffs’ conduct as a “shakedown,” “extortion,” or “blackmail.”

These statements were made in a variety of contexts. For example, ATL complained that the Credit Union National Association submitted testimony to the Senate Committee on the Judiciary [PDF] that referred to ATL as a “troll” and suggested that its business “might look like extortion.” The plaintiffs also complained about an article in Crain’s New York Business that referred to Barcelou as a “patent troll.” The complaint alleges that the article included a photo of a troll that “paints Mr. Barcelou in a disparaging light, and is defamatory.”

The court also ruled that challenged statements such as “shakedown” and comparisons to “blackmail” were non-actionable “rhetorical hyperbole.” This is consistent with a long line of cases finding such language to be protected. Indeed, this is why John Oliver can call coal magnate Robert Murray a “geriatric Dr. Evil” and tell him to “eat sh%$.” As the ACLU has put it, you can’t sue people for being mean to you. Strongly expressed opinions, whether you find them childish or hilariously apt (or both), are part of living in a free society.

Justice Tucker’s ruling is a comprehensive victory for the defendants and free speech. ATL and Barcelou believe they are noble actors seeking to vindicate property rights. The defendants believed that ATL’s conduct made it an abusive patent troll. The First Amendment allows both opinions to be expressed.

Let me just say, “Patent Trolls Eat Sh%$.”

Have You Ever Wondered Why the USPTO Approves So Many Crap Patents?

It’s because patent examiners are paid for approving crap patents:

The book Innovation and Its Discontents, by Adam Jaffe and Josh Lerner, was first published in 2004. We’ve cited the book frequently around here, as it did a bang up job describing structural problems with our patent system (and the judicial review of patents). There were a few big points that it made about why our patent system was so fucked up, and a big one was the incentive structure that heavily incentivized approving patents rather than rejecting them.

Specifically, there were two big ideas mentioned in the book about the US Patent & Trademark Office: (1) that because Congress forced the USPTO to fund itself from fees, it had the direct financial incentive to encourage more patent applications, and a good way to do that is to approve a lot more patents and (2) individual examiners were rated and reviewed based on productivity scores on how many patent applications they completed — and it is much faster and less time consuming to approve a patent, rather than reject one. That’s because once you approve a patent it’s completed and gone from your desk (and into the productivity metrics as “completed”). But, if you “reject” a patent, it’s not done. Even though the USPTO issues what it calls “Final Rejections” there’s nothing final about it. The patent applicant can keep going back to the well over and over again, making minor tweaks on the application, requiring the examiner to go through it again. And each time they do, that hurts their productivity ratings. As an additional “bonus” — the USPTO actually makes significantly more money when it grants a patent, because in addition to application fees, there are also issuance fees and renewal fees.


Now there’s a new study with even more empirical evidence showing how the Patent Office’s entire structure is designed to incentivize the approval of crap patents (first highlighted by Tim Lee over at Ars Technica). The paper is by professors Michael Frakes and Melissa Wasserman, and they used FOIA (yay!) to get data on millions of patent applications between 1983 and 2010. The key point with that date range is that Congress only switch the USPTO over to funding itself off of fees in 1991 — so the researchers could look at before and after data. It also allowed them to look at different cross sections within the data.

So, for example, the researchers looked at whether or not there was evidence that the USPTO approved more patent applications when there was a big backlog. The answer: hell yes!

Specifically, we compared the Agency’s patent grant rate across different groups of applicants based on the tendency of their associated technologies to file repeat applications; importantly, we performed this across technology comparison for two groups—defined by their average tendency to file repeat applications—before and after periods of budgetary shortfall and increases in application backlog. Our findings suggested that when the Patent Office begins to face mounting backlogs, it appears to act on its incentive to grant patents at higher rates for technologies that are associated with higher rates of repeat application.11 In figure 1, we replicate a figure from Frakes and Wasserman (2015), demonstrating that the Patent Office indeed began to grant at differentially higher rates for high repeat-filing technologies during the mid-1990s, a moment in time when the Patent Office’s application backlog began to increase considerably year-by-year. Again, this analysis is alarming because it suggests that factors other than the underlying quality of applications are affecting the Patent Office’s decision to allow patents.

Then there’s a separate question of whether or not the USPTO has a higher approval rate for “profit-maximizing” patents. That is: not all patent fees are the same. Smaller entities get to pay reduced fees. Big companies pay full freight. If the USPTO is being incentivized by fees… then it’s likely to approve big company patents faster. And… that’s what happened. The study also looked at whether or not the USPTO more readily approved patents in categories where there were higher renewal rates — meaning a much higher likelihood of generating future fees from renewals. Take a wild guess what they found in both of those studies?

Once again, we see the words of Upton Sinclair in action, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Somehow or Other, They Are Going to Get Rat F%$%Ed

The Indian pharmaceutical company Laurus Labs is planning to start selling low cost HIV drugs in the US as they come off patent:

Among the coconut plantations and beaches of South India, a factory the size of 35 football fields is preparing to churn out billions of generic pills for HIV patients and flood the U.S. market with the low-cost copycat medicines.

U.S. patents on key components for some important HIV therapies are poised to expire starting in December and Laurus Labs Ltd. — the Hyderabad, India-based company which owns the facility — is gearing up to cash in.

Laurus is one of the world’s biggest suppliers of ingredients used in anti-retrovirals, thanks to novel chemistry that delivers cheaper production costs than anyone else. Now, its chief executive officer, Satyanarayana Chava, wants to use the same strategy selling his own finished drugs in the U.S. and Europe. He predicts some generics that Laurus produces will eventually sell for 90 percent less than branded HIV drugs in the U.S., slashing expenditures for a disease that’s among the costliest for many insurers.


“The savings for U.S. payers will be so huge when these generic combination drugs are available in the U.S.,” he said in an interview at the factory outside the Southern Indian city of Visakhapatnam. Payers will save “billions of dollars,” he said.

The patent expiries are starting this month when Bristol-Myers Squibb Co.’s Sustiva loses protection. Gilead Sciences Inc.’s Viread follows next month. Both companies didn’t respond to requests for comment.

Would expect to see another round of evergreening, along with regulatory and judiciary road blocks to stop this.

After all, it’s only people’s lives, and the profits must be protected.

I’m Not a Big Fan of Politicians Going After Judges, but Rodney Gilstrap is the Exception to this Rule

The Federal District Court for the Eastern District of Texas is notorious for its support of patent trolls, and Judge Rodney Gilstrap is notorious for this even among the judges in that district.

Personally, he has literally been the judge presiding about ¼ of all patent cases in the United States.

He also has a history of taking Supreme Court solutions and applying them in remarkably bad faith.

Case in point, when, in Alice Corp. v. CLS Bank International, the Supreme Court ruled that patents that just added a computer to ordinary activities are invalid, Gilstrap required that defendants ask for his permission before filing to have a patent dismissed, which appears to functionally eviscerate the Supreme Court ruling, which calls for a quick dismissal of bogus patents:

For companies that get hit with lawsuits over obvious patents, the best chance they’ve got to fight back is last year’s Supreme Court decision in Alice v. CLS Bank. Now patent defendants are often able to get a judge’s opinion at an early stage of the case about whether the patent was too obvious to grant in the first place.

Patent cases still aren’t cheap, but for those willing to fight, Alice is turning the tide in defendants’ favor—just not in East Texas.

US District Court Judge Rodney Gilstrap, who presides in Marshall (pop. 25,000), hears more patent cases than any other judge in the country. He has gone out of his way to place additional barriers in the way of defendants seeking to knock out bad patents under Section 101 of the patent laws. That’s the section that Alice relates to, which the Supreme Court said should be used to knock out “do it on a computer”-style patents.

Recently, Gilstrap published an order saying any defendant who wants to file an early motion under Section 101 “may do so only upon a grant of leave from the Court after a showing of good cause, which shall be presented through the letter briefing process.”

 Under pressure, he subsequently partially reversed himself, but it’s still pretty out of line.

It’s gotten so bad that, in TC Heartland v. Kraft Foods, the Supreme Court specifically tightened up on venue requirements, requiring suits be filed only, “Where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”

Well, now Gilstrap has decided that having a single employee working from his home constitutes a “Regular and Established Place of Business.”

Yet under the new rules, Gilstrap still wouldn’t let Cray out of the district. Cray’s only tie to the district was a single salesperson, who worked out of his home in the Eastern District. In the judge’s view, though, that was enough to find that Cray had “regular and established” business in the Eastern District and would have to face trial.

Gilstrap’s controversial interpretation of the TC Heartland decision has been scorned by lawmakers who have supported patent reform efforts. In a hearing about the US patent system last week, Rep. Darrell Issa (R-Calif.) said Gilstrap’s move “rejects the Supreme Court’s unanimous decision” and was “reprehensible.”

I do not know what Gilstrap’s angle is, it could be something as benign as his desire to bring revenue (office rentals, hotel and hospitality, etc.) into Marshall, TX, or it could be that he hopes to get a lucrative partnership in an IP lawfirm when he retires, or maybe he’s just a nut who gets off on being the center of attention.

Whatever the case might be, it is clear that something is very wrong, and the chairman of the House Judiciary Committee and the IP Subcommittee have both condemned the judge:

Two members of the House judiciary committee have criticised Judge Rodney Gilstrap for his interpretation of TC Heartland v Kraft Foods, going as far as to suggest that he is putting the needs of the Eastern District of Texas above serving justice.

Speaking at a House judiciary committee hearing on patent law last week, Republican Darrell Issa described Judge Gilstrap’s recent interpretations of the Supreme Court’s TC Heartland decision—which limited the filing of infringement suits to the plaintiff’s state of incorporation—as “an act I find reprehensible”.

House judiciary committee chairman Bob Goodlatte, without naming Judge Gilstrap, said in his opening statement at the hearing: “Unfortunately, one judge in this district has already re-interpreted both the law and the unanimous Supreme Court decision to keep as many patent cases as possible in his district in defiance of the Supreme Court and congressional intent.”

The hearing came as defensive patent aggregator Unified Patents reported a 50 percent drop in disputes seen in the Eastern District of Texas in the first half of 2017.

Issa said at the hearing: “Only two weeks ago, Judge Gilstrap interpreted the TC Heartland decision in a way that rejects the Supreme Court’s unanimous decision and at least, for the time being, ensures that as many of the cases as possible will remain in his court room.”

Not only do I approve of calling out this judge, I approve of Darryl Issa* calling out the judge by name.

As an FYI, this nutjob wasn’t appointed by a ‘Phant.  Obama appointed him,

I’d really like to know what’s his deal though.

*I cannot believe that I just said that.  Issa is a nasty ratf%$# and he was for a long time before he went into politics.

More IP Shenanigans

The Department of Defense is planning to grant the pharma giant Sanofi an exclusive license to manufacture and market a vaccine for the Zika virus that the US Army has developed:


It concerns something really exciting and important: a vaccine that shows great promise against the devastating Zika virus, which can cause microcephaly, blindness, deafness, and calcification of the brain in children whose mothers were infected during their pregnancy. If effective, such a vaccine could be a tremendous boon not just for developing countries, but for Western ones too, since the Zika virus has already begun to spread in the US, and Europe. The vaccine was developed at the Walter Reed Army Institute for Research, and the Department of the Army funded its development. Great news, you might think: the US public paid for it, so it’s only right that it should have low-cost access to it. Moreover, as an act of compassion — and to burnish its international image — the US could allow other countries to produce it cheaply too. But an article in The Nation reports that the US Army has other ideas:

the Army is planning to grant exclusive rights to this potentially groundbreaking medicine — along with as much as $173 million in funding from the Department of Health and Human Services — to the French pharmaceutical corporation Sanofi Pasteur. Sanofi manufactures a number of vaccines, but it’s also faced repeated allegations of overcharges and fraud. Should the vaccine prove effective, Sanofi would be free to charge whatever it wants for it in the United States. Ultimately, the vaccine could end up being unaffordable for those most vulnerable to Zika, and for cash-strapped states.

The Knowledge Ecology Institute (KEI), led by Jamie Love, made a reasonable suggestion to ensure that those most at need would have access to the drug at a reasonable price. KEI asked that, if Sanofi does get an exclusive deal, it should be obliged to make the vaccine available at an affordable price. The Army said it lacked the ability to enforce price controls, but it would ask those nice people at Sanofi to commit to affordable pricing on a voluntary basis. According to The Nation, those nice people at Sanofi refused. Speaking of nice people at Sanofi, the article notes the following:

When there is an entire Web page dedicated to listing Sanofi’s problems going back to 2009, you really have to wonder why the US Army is so keen to give the company a monopoly on this promising new treatment. The usual argument for the sky-high prices of drugs is that firms must be rewarded for taking on the financial risk of drug development, otherwise they won’t proceed, and the world would be the poorer. Except, of course, in this case that risk was entirely borne by the US public, which paid for the early stage development of the vaccine with their taxes. So Sanofi risked nothing, but now looks likely to reap the benefits by being allowed to price the vaccine out of the reach of the people who most need it. You might think there ought to be a law against this kind of behavior. It turns out that there is:

KEI’s Jamie Love pointed out that under the Bayh-Dole Act of 1980, it is already illegal to grant exclusive rights to a federally owned invention unless the license holder agrees to make it available at reasonable pricing. But that provision has rarely, if ever, been enforced.

Now would be a really great time to start enforcing that law.


I’m inclined to believe that Bayh Dole is a bad law, and it has been made far worse through the rather lackadaisical attitude toward applying any sort of public benefit to technologies that were developed at public expense.

It would be nice if  the law’s march in rights, which allow for compulsory licensing, had been applied even once.

0 for 6 This Session

For the 6th time, the Supreme Court has reversed a decision from the Federal Circuit (Patent Court):

Yesterday the Supreme Court vacated in part and reversed in part the U.S. Court of Appeals for the Federal Circuit’s decision in the consolidated patent cases Sandoz v. Amgen and Amgen v. Sandoz, completing the specialized circuit’s dismal 0-for-6 record in patent cases at the court this year.

The case involved another skirmish in the long-running battle between research pharmaceutical companies, which tend to seek more intellectual property and regulatory protections for their innovations, and generic pharmaceutical companies, which typically seek to curb intellectual property and regulatory protections.


Sandoz emerged as the clear victor in the case, winning the right to bring “biosimilar” versions of complex biologic drugs to market sooner and also gaining a small but potentially important procedural right for future litigations.


The first specific legal issue in the case was whether, when Sandoz filed an FDA application to market a biosimilar to Amgen’s biologic drug, Amgen was entitled to obtain Sandoz’s application. On this question, the court provided only a partial answer. It held that Amgen could not get a federal injunction to force Sandoz to turn over the application.

The Federal Circuit had also reached that conclusion, but the Supreme Court did not agree with the lower court’s reasoning. Although the Federal Circuit held that federal injunctive relief was foreclosed by Section 271(e) in the Patent Act (35 U.S.C. § 271(e)), the Supreme Court relied exclusively on 42 U.S.C. § 262(l)(9)(C), which is the provision in the Biologics Act that authorizes research pharmaceutical companies such as Amgen to sue for declaratory injunctions if generic companies such as Sandoz do not turn over their biosimilar applications.


The second issue decided by the court was whether Sandoz provided Amgen the proper notice of its intent to market a biosimilar. The Biologics Act requires companies seeking to market biosimilars to provide notice to the first biologics company “not later than 180 days before the date of the first commercial marketing of the [biosimilar] product licensed [by the FDA].”

Sandoz sent Amgen notice while its biosimilar application was still pending before the FDA, and the Federal Circuit held that Sandoz had provided the notice too early. The court of appeals believed that the notice would have “to follow [FDA] licensure, at which time the product, its therapeutic uses, and its manufacturing processes are fixed.”

That holding of the Federal Circuit was the financial crux of the case. A delay of 180 days (approximately half a year) can mean hundreds of millions of dollars in additional revenue for a drug company that retains exclusivity over the original biologic. The Federal Circuit’s ruling meant that any company seeking to market a biosimilar would have to stay out of the market for the entire time of the FDA’s licensing process plus another 180 days after the FDA issued the license.

The Supreme Court reversed the Federal Circuit on this issue and held that “the applicant may provide notice either before or after receiving FDA approval.” To the justices, that result followed from the language of the statute, which imposes only a “single timing requirement” (180 days before commercial marketing of the biosimilar) not “two timing requirements” (after FDA licensure and 180 days before commercial marketing).

To simplify this, once again the Patent Court went with a position that favored the IP holder that had no justification in the statute (they do a lot of that), and then SCOTUS slapped them down.

It’s getting to be a regular thing, because the United States Court of Appeals for the Federal Circuit is completely out of control.  Case in point, this court has literally allowed for the patenting of a rainy day.

This court really needs to be shut down, and its judges transferred to Dancing with the Stars or somesuch.

Once Again the Supreme Court Smacks Down the United States Court of Appeals for the Federal Circuit

In its ruling in Impression Products, Inc. v Lexmark International, Inc., the Supreme Court once again issues a unanimous ruling overturning an over-broad interpretation of patent asserted by the United States Court of Appeals for the Federal Circuit (Aka the “Patent Court”)

A week ago they overruled the Patent Courts rules allowing plaintiffs to sue in the most gonzo patent venue in the nation, and this time they explained to the court that patent exhaustion is mandatory, not optional.

For the lay person, patent exhaustion means that the patent holder only gets one bite of the apple, so (for example) if a chip is manufactured either by the patent holder or by a manufacturer who pays license fees, they cannot charge the person who bought that chip to put in their widget.

In this case, Lexmark was using its patent to enforce a license to prohibit reselling the cartridges by toner refilling firms.

The Patent Court ruled that the patent exhaustion was basically a “default rule” which only applied to the degree that there were no other related restrictions, and the Supreme Court called bullsh%$ on this in no uncertain terms, noting that the Federal Circuit’s interpretation would mean that used car dealers and auto mechanics could be locked out of business with this interpretation.

Once again, SCOTUS was unanimous in its repudiation of an excessively expansive views of patents:

Looking for a landmark ruling on patent exhaustion, the patent community got just that in the Supreme Court’s decision this morning in Impression Products, Inc. v Lexmark International, Inc. The court has been deciding a steady diet of patent cases for much of the last decade and has been rejecting the U.S. Court of Appeals for the Federal Circuit’s rulings in those cases almost routinely; the Federal Circuit is now 0 for 5 in the current term, by far the worst record of any of the federal courts of appeals. Most of those decisions reflect a cautious reluctance on the part of the court to say more than is necessary to decide the case before it, founded on an evident reluctance to wreak far-reaching and destabilizing consequences on the innovative markets for which patent doctrine is so important. In this case, by contrast, the opinion of Chief Justice John Roberts displays a confident and assertive verve, full of quotable maxims certain to populate the U.S. Reports for decades to come. More surprisingly, the opinion attracted the votes of all the eight active justices except for Justice Ruth Bader Ginsburg (who dissented only from the court’s resolution of the cross-border question discussed at the end of the post).

The case involves the doctrine of “exhaustion,” under which a patentholder’s rights to enforce its patent ordinarily are “exhausted” with regard to any particular object at the moment the patentholder sells the object. As applied to this case, for example, Lexmark’s rights to control the use of its patented refillable print cartridges would be “exhausted” when it sells those cartridges to retail buyers, even if Lexmark conditions the sale on the promise that the buyer will not refill the cartridge. That, at any rate, is the argument of Impression Products, which makes a business out of refilling Lexmark cartridges in violation of those agreements. Lexmark’s argument, by contrast, supported by a quarter-century of Federal Circuit precedent, is that modern commerce requires that innovators have the flexibility to devise contracting structures that segment the market into separate sectors, each of which gets a different price commensurate with the uses to which products will be put in that sector.

The court could hardly have been more unequivocal in its broad embrace of a mandatory doctrine of exhaustion. For the court, the doctrine seemed to devolve ineluctably from the first principles of the law of patents:

When a patentee chooses to sell an item, that product is no longer within the limits of the monopoly and instead becomes the private, individual property of the purchaser, with the rights and benefits that come along with ownership. A patentee is free to set the price and negotiate contracts with purchasers, but may not, by virtue of his patent, control the use or disposition of the product after ownership passes to the purchaser. The sale terminates all patent rights to that item.

The court praised the “impeccable historic pedigree” of the exhaustion doctrine, tracing its lineage back to the common law’s refusal to permit restraints on the alienation of chattels.” With a flourish of rhetorical excess, the court suggested that post-sale conditions on alienation “have been hateful to the law from Lord Coke’s day to ours and are obnoxious to the public interest. The inconvenience and annoyance to the public that an opposite conclusion would occasion are too obvious to require illustration.”


In the end, though, the opinion shows a Supreme Court persuaded that the Federal Circuit did not merely err in some detail or nuance, but was as fundamentally misguided as it was when it came up with the venue rules discarded just last week in TC Heartland LLC v. Kraft Foods Group Brands, LLC. At bottom, when the court is minded to destroy the status quo, it knows how to do it, and this opinion provides a textbook exemplar. It will take years before we can observe the transactional structures that will emerge to protect the interests that have relied on the Federal Circuit’s lax rules about patent exhaustion. About the only thing we can say about them is that it will be harder, much harder, to implement them than it was before this sure-to-be-landmark decision.

Had this decision been directed by Quentin Tarantino, this opinion would have involved Samuel L. Jackson saying, “Motherf%$#er,” loudly and repeatedly.

The Federal Circuit really needs to be shut down.  It is a complete clusterf%$# that has literally supported the patenting of a rainy day.

It is a court of hammers, which naturally see everything as a nail.

More of This

Content delivery network Cloudflare was subjected to an attempted shakedown by patent trolls, and not only did they not back down, they filed a complaint with the troll’s state bar:

Cloudflare, the Internet security company and content delivery network, was founded more than seven years ago but miraculously hadn’t ever been hit with a patent infringement lawsuit from a non-practicing entity (commonly referred to as a “patent troll”) until this March.

Rather than pay a nuisance settlement, Cloudflare is going all-out to fight Blackbird Technologies LLC, a company founded by two former big-firm lawyers that has amassed dozens of patents and filed more than 100 lawsuits. Cloudflare CEO Matthew Prince says Blackbird is a classic “patent troll,” albeit one with a new, and potentially dangerous, twist on its business model.

In addition to filing its responsive papers in court today, Cloudflare also has sent letters to state bar regulatory committees in Massachusetts and Illinois, asking them to investigate Blackbird further.

In an extensive blog post this morning, Prince says that in addition to beating a patent he views as invalid, he intends to look into Blackbird’s operations further “and expose how patent trolls really operate.” By Cloudflare’s count, Blackbird has filed 107 cases since 2014, making it “one of the most prolific trolls in the United States.”

Prince goes on to say that “Cloudflare will not settle this case and doesn’t plan to settle any patent troll case, ever.” In addition, Cloudflare will spend $50,000 to crowdsource prior art that could invalidate Blackbird’s patents. By issuing the prior art “bounty,” Cloudflare seeks not just to invalidate the patent asserted against Cloudflare, but of any of the 37 other patents and applications owned by Blackbird.


That puts Blackbird squarely in the much-criticized business model sometimes derided as “patent trolling”—buying a patent, holding it in a shell company, filing a batch of lawsuits, and then (presumably) splitting the settlement revenue with the inventor.

There’s a new twist, though. Blackbird Technologies LLC is now the patent holder and also appears to be directly owned by the attorneys who are litigating the case—Verlander and her cofounder, Chris Freeman.

In Prince’s view, Blackbird is really a law firm and so shouldn’t be allowed to act as its own client. “As far as we can determine, Blackbird produces no products or services which it makes available to the public,” writes Prince. “Rather, it offers litigation services and is in the business of filing lawsuits.”

Blackbird’s vaunted “new model” is “to distort the traditional Attorney-Client relationship,” according to Prince, simply buying a client’s claims rather than actually taking the person on as a client.

(emphasis mine)

We really need to find a way to shut down these parasites.

BTW, quoting from the aforementioned blog post:


Worse still, Blackbird is a new, especially dangerous breed of patent troll. Like the dinosaur in the latest Jurassic Park movie, a synthetic combination of Tyrannosaurs and Velociraptor, Blackbird combines both a law firm and intellectual property rights holder into a single entity. In doing so, they remove legal fees from their cost structure and can bring lawsuits of potentially dubious merit without having to bear any meaningful cost. In other words, Blackbird’s new breed of entity is specifically designed to add leverage and amplify the already widely maligned problem of patent trolling.


Blackbird Technologies has filed 107 cases since September of 2014, making it one of the most prolific trolls in the United States. Its website links to a “News” item titled “4 Frequent Filers of IP Suits to Watch this Year” which highlights Blackbird as “a newer entrant on the list of top patent plaintiffs, coming in at fourth place with 48 suits last year in the District of Delaware spanning a wide range of technologies.” Some of the patents at issue include: Bicycle Pet Carrier, Buttock Lift Support, Sports Bra, and Method for Managing a Parking Lot. A complete list of Blackbird’s patents is available here. Although they have been very aggressive about filing such claims, they have still not taken a single case through trial. And only a couple of those cases made it to the claim construction phase, where the Court defines the meaning of the patents at issue. Instead, many of Blackbird’s cases have been resolved shortly after filing, suggesting that these cases were never about legal rights or claims but were instead about creating the impetus for a nuisance settlement in the face of significant litigation costs.


Blackbird Technologies has filed 107 cases since September of 2014, making it one of the most prolific trolls in the United States. Its website links to a “News” item titled “4 Frequent Filers of IP Suits to Watch this Year” which highlights Blackbird as “a newer entrant on the list of top patent plaintiffs, coming in at fourth place with 48 suits last year in the District of Delaware spanning a wide range of technologies.” Some of the patents at issue include: Bicycle Pet Carrier, Buttock Lift Support, Sports Bra, and Method for Managing a Parking Lot. A complete list of Blackbird’s patents is available here. Although they have been very aggressive about filing such claims, they have still not taken a single case through trial. And only a couple of those cases made it to the claim construction phase, where the Court defines the meaning of the patents at issue. Instead, many of Blackbird’s cases have been resolved shortly after filing, suggesting that these cases were never about legal rights or claims but were instead about creating the impetus for a nuisance settlement in the face of significant litigation costs.

They actually sued Netflix over the concept of mailing DVDs.

These people don’t just need to be out of business.  They need to be disbarred for “acquiring a proprietary interest in the subject matter of litigation”,* and for, “sharing fees or firm equity with non-lawyers.”

They should also be jailed for fraud, because their use of these patents is clearly deceptive.

*Violation of Rule 1.8(i).
Violation of Rule 5.4(a) or 5.4(d).


The Supreme Court has finally ruled on the venue shopping by patent trolls:

The US Supreme Court ruled (PDF) today on how to interpret the patent venue laws, and the controversial business of “patent trolling” may never be the same.

In a unanimous decision, the justices held that the US Court of Appeals for the Federal Circuit, which handles all patent appeals, has been using the wrong standard to decide where a patent lawsuit can be brought. Today’s Supreme Court ruling in TC Heartland v. Kraft Foods enforces a more strict standard for where cases can be filed. It overturns a looser rule that the Federal Circuit has used since 1990.

The ruling may well signal the demise of the Eastern District of Texas as a favorite venue for patent lawsuits, especially those brought by “patent trolls,” which have no business outside of licensing and litigating patents.

The TC Heartland case will affect the entire tech sector, but the parties here are battling over patents on “liquid water enhancers” used in flavored drink mixes. TC Heartland, an Indiana-based food company, got sued by Kraft Foods in Delaware, then sought to move the case back to its home turf. Neither the district court judge nor the Federal Circuit would allow such a transfer.


Not a word about “patent trolls” appears in today’s 13-page opinion, but it’s no secret that do-nothing patent holders were the issue at the heart of the contentious debate over patent venue. Plenty of companies had reason to complain about the Federal Circuit’s rule, and they let their concerns be known. A brief (PDF) signed by 48 Internet companies and retailers asked the Supreme Court to uphold the “restrictive patent venue statute” that Congress had approved, and to “stop forum shopping.” Trade groups representing bankers, realtors, and big software companies also supported TC Heartland.

The Texas attorney general, joined by 16 other states, filed a brief (PDF) as well, noting the incredible concentration of patent cases in the Eastern District of Texas. The AGs sided with TC Heartland, writing that they “have an interest in protecting their citizens from abusive claims of patent infringement, which businesses and residents confirm are a drag on economic growth.”

Finally, the Electronic Frontier Foundation, Public Knowledge (PDF), and Engine Advocacy (PDF) chimed in, complaining that the venue rules had empowered “patent assertion entities” to the detriment of small innovators.

The Eastern District of Texas figures prominently because federal judges have the ability to set their own rules, and the judges in this district are basically the patent trolls bitches.

There are blocks of offices in east Texas that are empty but have tenants.  They are rented by venue shopping trolls.

Putting an end to this is a good first step in ending patent abuse.

I Know that Correlation is not Causation

Historical patent data

Patents vs economic growth

But it does appear that there is a negative correlation between the number of patents and economic growth:

Recently I discussed a paper by David Autor, David Dorn, Gordon Hanson, Gary P. Pisano and Pian Shu. The paper noted that as competition from China increased, innovation by US firms, measured by patent output, decreased. I believe the result, but started to wonder… are patents a good measure of innovation? Do patents drive economic growth?

I don’t know how to measure innovation, but I can look at the relationship between patents and economic growth. We being by looking at patents per capita. I found patent data going back to 1840, and population to 1850. The graph below shows patents per capita beginning in 1850. (All data sources provided at the end of this post.)


If it kind of looks to you like patents are not driving economic growth, well, it kind of looks like that to me too. In fact, if anything, the lines seem to be more negatively than positively correlated. In years where there are more patents, the subsequent growth rate in real GDP for capita over a ten year period seems to go down. Conversely, fewer patents in one year seem to be associated with more growth over the next ten years.

This is not a surprise.

Patents are increasingly an instrument for extracting monopoly rents with no meaning productive activity, as such they are increasingly parasitic.

Nathan Myhrvold Needs to Be Fired ……… Out of a Cannon ……… and into the Sun

Nathan Myhrvold, former CTO at Microflaccid, now owns and runs Intellectual Ventures, the most egregious patent troll in the world.

Myhrvold has always maintained that his company fosters advancement, citing a lab, which has never actually made anything, and asserting that its patents actually have merit.

An appeals court has disagreed observing that simply adding, “Do it on a computer,” to an existing process does not make it a unique and patentable invention:

Intellectual Ventures boasts of having more than 30,000 patents—but you’d have to look for a long time to find one that can hold up under real scrutiny.

After staying quiescent for years, IV opened up a barrage of lawsuits to enforce its patents in 2010. But the companies that decided to stand up to IV rather than buckle under have been faring well, as judges have found the patents that IV has chosen to enforce in court less than impressive. It’s a telling sign about the giant patent-holder’s collection. Given the opportunity to pull just about any patent out of its huge collection, one would assume the company would choose the best of the lot. But much of it appears to be exactly the kind of easy handouts from the dot-com boom era that have been called out by critics of “patent trolls.”

Earlier this week, Intellectual Ventures lost two more major patent cases at the nation’s top patent court. It lost a case against Erie Indemnity Company and several other insurers, which had stood accused of infringing US Patent Nos. 6,510,434, 6,519,581, and 6,546,002. The same judges also tossed patents asserted against banking company Capital One. All were found invalid under the Supreme Court’s Alice Corp. precedent, which barred many patents that describe basic business processes and add computer jargon.

While we are at it, we should also fire the US Patent Court (technically the United States Court of Appeals for the Federal Circuit) into the sun, which has expanded IP well beyond what is necessary to foster creativity.

This sh%$ is out of control, and while some rent seeking is acceptable to encourage creativity, this is just parasitic.

Monopolies Are Always Bad

The only question is whether or not the alternative is worse.

First we have the case study of the results AT&T’s 1956 anti-trust consent decree, where it was required to release its patents to the general public:

To answer these questions, we study one of the most important antitrust rulings in US history, namely, the 1956 consent decree against the Bell System. This decree settled a seven-year old antitrust lawsuit that sought to break up the Bell System, the dominant provider of telecommunications services in the US, because it allegedly monopolised “the manufacture, distribution, and sale of telephones, telephone apparatus and equipment” (Antitrust Subcommittee 1958: 1668). Bell was charged with having foreclosed competitors from the market for telecommunications equipment because its operating companies had exclusive supply contracts with its manufacturing subsidiary Western Electric and because it used exclusionary practices such as the refusal to license its patents.

The consent decree contained two main remedies. The Bell System was obligated to license all its patents royalty free, and it was barred from entering any industry other than telecommunications. As a consequence, 7,820 patents, or 1.3% of all unexpired US patents, in a wide range of fields became freely available in 1956. Most of these patents covered technologies from the Bell Laboratories (Bell Labs), the research subsidiary of the Bell System, arguably the most innovative industrial laboratory in the world at the time. The Bell Labs produced path-breaking innovations in telecommunications such as cellular telephone technology or the first transatlantic telephone cable. But as Figure 1 shows, 58% of Bell’s patent portfolio had its main application outside of telecommunications because of Bell’s part in the war effort in WWII and its commitment to basic science. Researchers at Bell Labs are credited for the invention of the transistor, the solar cell, and the laser, among other things.


Our research shows that compulsory licensing increased follow-on innovation that builds on Bell patents. We measure follow-on innovation by the number of patent citations Bell Labs patents received from other companies that patent in the US. We find that in the first five years, follow-on innovation increased by 17%, or a total of around 1,000 citations. Back-of-the-envelope calculations suggest that the additional patents other companies filed as a direct result of the consent decree had a value of up to $5.7 billion in today’s dollars.3

More than two-thirds of the increase in innovation can be attributed to young and small companies and individual inventors unrelated to Bell. This is in line with the hypothesis that patents can act as a barrier to entry for small and young companies who are less able to strike licensing deals than large firms (Lanjouw and Schankerman 2004, Galasso 2012, Galasso and Schankerman 2015). Compulsory licensing removed this barrier in markets outside the telecommunications industry, arguably unintentionally so. This fostered follow-on innovation by young and small companies and contributed to long run technological progress in the US.

Patent exclusivity frequently hinders, rather than helps, progress in the short term.

More generally, consequences of our increasingly monopolistic economy are, explained in detail by Barry C. Lynn:

There are many competing interpretations for why Hillary Clinton lost last fall’s election, but most observers do agree that economics played a big role. Clinton simply didn’t articulate a vision compelling enough to compete with Donald Trump’s rousing, if dubious, message that bad trade deals and illegal immigration explain the downward mobility of so many Americans.

As it happens, Clinton did have the germ of exactly such an idea—if one knew where to look. In an October 2015 op-ed, she wrote that “large corporations are concentrating control over markets” and “using their power to raise prices, limit choices for consumers, lower wages for workers, and hold back competition from startups and small businesses. It’s no wonder Americans feel the deck is stacked for those at the top.” In a speech in Toledo last fall, Clinton assailed “old-fashioned monopolies” and vowed to appoint “tough” enforcers “so the big don’t keep getting bigger and bigger.”

Clinton’s words were in keeping with Bernie Sanders’s attacks on big banks, but went further, tracing how concentration is a problem throughout the economy. It was a message seemingly tailor-made for the wrathful electorate of 2016. Yet after the Ohio speech, Clinton rarely touched again on the issue. Few other Democrats even mentioned the word monopoly.

The pity is that Clinton’s stance wasn’t simple campaign rhetoric. It was based on a substantial and growing body of research that confirms that consolidation is at the root of many of America’s most pressing economic and political problems.

These include the declining fortunes of rural America as farmers struggle against agriculture conglomerates. It includes the fading of heartland cities like Memphis and Minneapolis as corporate giants in coastal cities buy out local banks and businesses. It includes plunging rates of entrepreneurship and innovation as concentrated markets choke off independent businesses and new start-ups. It includes falling real wages, as decades of mergers have reduced the need for employers to compete to attract and retain workers.

Monopoly is a main driver of inequality, as profits concentrate more wealth in the hands of the few. The effects of monopoly enrage voters in their day-to-day lives, as they face the sky-high prices set by drug-company cartels and the abuses of cable providers, health insurers, and airlines. Monopoly provides much of the funds the wealthy use to distort American politics.

It comes as no surprise that when Reagan packed the Supreme Court in the 1980s, he chose Robert Bork and Douglas Ginsburg:  They both cut their teeth on the academic side of anti-trust law, which had been captured, largely through things like endowing chairs, by the right wing actors

They transformed the consensus, and the black letter law, on anti-trust from the idea of protecting a free and open market to a narrow view where regulation can only be justified through the showing of direct harm and immediate harm to consumers.

This has unleashed monopolies, and monopolies unleashed have lots of money to spend on politicians, which leads to more support for monopolies. (Our recent trade deals have been about expanding the reach of pharma and content monopolies, for example.)

Rinse, lather, repeat.