Legal Entrepreneurship

15 January 2008 at 6:51 pm stevphel 1 comment

| Steve Phelan |

I just had lunch with the general counsel of an internet retailer, which is headquartered here in Las Vegas. He was bemoaning the fact that the biggest headache in his job is patent infringments…

I naturally thought that it must be difficult to hunt down those infringing his company’spatents but instead it turned out he was referring to those attempting to sue his company for patent infringement. It seems that every little device on their website, from the shopping cart checkout procedure to customer reviews and recommendations is a potential (or actual) lawsuit. It appears that entrepreneurs are buying up the patents of defunct dotcom companies and then filing lawsuits against large companies who appear to breach their newly acquired patents (often on very spurious or tenuous grounds).

Large companies have the resources to fight these entrepreneurial lawsuits (or pay to settle), but midsize firms lack these deep pockets. Several companies are now seeking patent lawsuit reform but these moves are being resisted by big pharma because they are keen to maintain flexibility in the system to defend their own patents.

I suggested that he might want to examine the incentive structure that makes these entrepreneurial lawsuits (aka fishing expeditions) so appealing. One approach may be to automatically award costs against plaintiffs when suits have been deemed to lack merit and to make attorneys personally liable for such costs (ouch!). I would be keen to hear any other suggestions for creating incentives to deter nuisance suits but preserve the legal rights of those with legitimate patent violations.

Entry filed under: Entrepreneurship, Evolutionary Economics, Former Guest Bloggers, Institutions.

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1 Comment Add your own

1. spostrel | 16 January 2008 at 6:34 pm

The only solution is to get the PTO to stop awarding patents that are so obvious that the same idea is independently stumbled on by every person that works in the area. Jeff Bezos once admitted he was embarrassed by Amazon’s patent on “one-click” checkout, but said he had to play by the rules as he found them; he proposed shorter patent life for e-commerce patents as a reform. I think it would be better simply to refuse such patents on the grounds of obviousness. And a retroactive proof of obviousness would be evidence of widespread independent rediscovery.