Innovation and Its Discontents

Adam Jaffe and Josh Lerner argue that the American patent system stopped supporting innovation and started obstructing it, and they trace the change to two institutional decisions of the early 1980s. The first was the creation in 1982 of the Court of Appeals for the Federal Circuit, which consolidated patent appeals in a single specialised court that proved markedly more favourable to patent holders. The second was the shift of the Patent and Trademark Office to funding from applicant fees, which gave examiners an institutional interest in granting rather than refusing.

The consequences they document are a sharp rise in patent grants, declining average patent quality, the extension of patentability to software and business methods, and the growth of litigation as a business strategy. They describe firms accumulating patents defensively so they have something to countersue with, and they describe entities that produce nothing and exist to extract settlements. They support this with data on grant rates, litigation volumes and examiner time per application, which they estimate at under twenty hours.

Their proposals are procedural rather than radical: give examiners more time and better information, create a genuine post-grant opposition process so that challenges do not require litigation, and reduce the presumption of validity for patents that received little examination. Several of these were partly adopted in the America Invents Act of 2011, after the book, and the subsequent Supreme Court decisions on software patentability in Alice and on injunctions in eBay changed the environment further. The book's diagnosis of the incentive structure remains accurate; its description of the current legal position does not.