The risk of undervaluing IP protection

Critics of the US patent system have called for a change in the way damages are calculated in patent infringement lawsuits. But the system that Congress is considering will have a detrimental effect on the US manufacturing sector, says Monsanto’s Thomas E Kelley

According to the Bureau of Economic Analysis at the Department of Commerce, corporate profits decreased in the US by $136bn in the last four quarters. In such an environment, you would hardly expect Congress to pursue laws that jeopardise jobs or research and development (R&D) investment, but that’s exactly what it appears to be contemplating.

A large percentage of US patents are issued to manufacturers, and two-thirds of the value of the modern manufacturer lies in its intangible assets. A healthy manufacturing sector requires effective recourse for the theft of IP. Without that safe haven for creativity, US manufacturing would be adversely affected in critical ways, such as a reduced motivation to conduct R&D and invest in personnel, plant and equipment in the US.

In 2008, a group of large information technology and financial services companies sought controversial changes to existing patent law. One provision in particular – adopting apportionment of damages – favoured these companies by making it cheaper to use someone else’s lawfully protected IP without needing to negotiate a licence.

‘YOU WOULD HARDLY EXPECT CONGRESS TO PURSUE LAWS THAT JEOPARDISE JOBS OR RESEARCH AND DEVELOPMENT INVESTMENT, BUT THAT’S EXACTLY WHAT IT APPEARS TO BE CONTEMPLATING’

Last year, a chorus of opposition from inventors and manufacturers eventually stopped the controversial changes in the Senate, but the issue is expected to come up before Congress in early 2009. Before that debate built up any steam this year, an ad hoc coalition of US-based manufacturers, the Manufacturing Alliance on Patent Policy (MAPP), commissioned an economic analysis of the potential effects of adopting apportionment of damages. The members of MAPP felt that this issue was too vital to be influenced by anecdote and hyperbole alone, and that it deserved an analytic consideration of how jobs, research investment and the broader economy would be impacted by adopting apportionment of damages.

Calculating damage
Scott Shane, a respected economics professor at Case Western Reserve University in Ohio, examined the apportionment provision in the 2008 patent legislation that was approved by the US House of Representatives.

As a foundational matter, Shane asked whether and to what extent the apportionment legislation would reduce typical patent damage awards and, if patent damage awards were reduced, what will be the economic impact on patent owners. To answer the question, he surveyed a randomly selected group of over 900 law firm patent attorneys. The attorneys were asked what effect they believed the legislation would have on patent damages. They replied that it would lead to a substantial decline in patent damages; in fact, a median of survey respondents indicated that average patent damage awards would decline between 20% and 39%.

To put Shane’s findings in economic terms, the outcome of such a change in patent law would be: the loss of between 51,000 and 298,000 US manufacturing jobs; reduction in the value of US public companies of between $38.4bn and $225.4bn; a $34.4bn to $85.3bn markdown in the value of US patent assets at a time we need to increase the value of IP in the US; the reduction in R&D investment of between $33.9bn and $66bn per year, which would negatively offset any positive effects in the stimulus plan; and to hurt industries employing the most people in order to favour those employing fewer.

Those of us who work for companies that invent products and use the patent system to protect a substantial R&D investment support an efficient and fair patent system. We strongly support reforms that strengthen the US Patent and Trademark Office and provide its staff with the resources they need to improve patent quality. We urge Congress to take up only those reforms that benefit from broad and diverse consensus, as opposed to pursuing controversial changes that benefit certain companies at the expense of others and the US economy.


Thomas E Kelley is patent counsel at Monsanto and a member of the Manufacturing Alliance on Patent Policy (MAPP). To read MAPP’s report on damage apportionment, visit www.mfgpatentpolicy.org


This article first appeared in IP Review, issue 25