Patent Sharks

I’ve just finished reading this amazing paper by Gerard N. Magliocca about the 19th-century phenomenon of “patent sharks.” In the 1860s, the Patent Office inaugurated an experiment with eased standards on design patents for farm tools. The result was a flood of low-quality patents, and the emergence of a new character in the patent system: the “patent shark” who would show up in a small town with a fistful of patents and use them to extort money from hapless farmers whose farm tools may have been covered by the shark’s patent portfolio.

Farmers’ groups reacted with outrage and pushed Congress for legislative solutions that will sound eerily familiar to anyone who’s familiar with today’s patent debates: an “innocent user” defense that would shield a farmer who unwittingly uses a patented tool and changes to the rules regarding damages for infringement. These changes were never passed by Congress because they encountered the staunch opposition of the holders of other types of patents, who feared that they would undermine the rights of all patent holders.

The problem was ultimately solved when the Patent Office—and later the Congress—formally restored the higher bar for patentability that had prevailed prior to the Civil War. In other words, the solution to patenting was to abolish the class of patents that had created the “patent shark” problem in the first place. Magliocca suggests that the solution to today’s patent troll problem may be to abolish software and business method patents, the favorite of today’s patent sharks.

He notes several similarities between utility patents in the 19th century and software patents today. But one factor that I don’t think he emphasizes enough is the simple breadth of the subject matter being covered. The best patents—pharmaceutical patents, say—apply to a well-defined industry. Pharmaceutical companies need to monitor pharmaceutical patents in order to determine what they’re allowed to do. In contrast, every business on Earth uses software and “business methods.” Therefore, every business on Earth is a potential target. That means it’s much easier for trolls to find potential victims. It also means that the targets—many of whom don’t think of themselves as being in the software industry or the “business method industry”—will be ill-equipped to respond to the lawsuit.

Precisely the same observation applies to 19th century patent sharks. Because most people in the 19th century were farmers, patents on farm tools were likely to be infringed by millions of individual farmers who lacked the expertise to evaluate the patent and the resources to hire lawyers to defend themselves. Hence, 19th-century farmers, like 21st-century “business method” users, were easy pickings for patent sharks who preyed on their targets’ lack of preparation for patent litigation.

Magliocca closes his paper with the following slightly frustrating observation:

With respect to design patents granted in the past on incremental improvements, there was no real evidence that they helped anyone. The only concrete result was a school of rabid sharks. By contrast, it is hard to say that patents for software or business methods do not spur creativity in a meaningful way. Abolishing these patents may well cause more harm than the trolls do. Without more evidence on the effect opportunistic licensing has on high-tech investment, this analysis cannot rule out the possiblity that there is a justification for these technology patents that breaks the parallel with the design patents that were abolished during the nineteenth century.

To a large extent, I’m sure this is just an instance of academic caution. But while I suppose it’s true that the analysis in the paper “cannot rule out the possiblity that there is a justification for these technology patents,” I don’t think it’s “hard to say that patents for software or business methods do not spur creativity in a meaningful way.” That is, indeed, what the vast majority of software developers will tell you, and it’s also what most software executives would have told you until they started amassing patent portfolios of their own. It is, moreover, strongly suggested by the evidence Bessen and Meurer have amassed on the subject.

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