Big Banks and Business Method Patents
The banking industry and the patent system are longstanding American institutions whose histories date back to the founding of this country. Historically, however, the paths of these two institutions rarely crossed. Although financial firms have been increasing their innovative output for decades now, until recently they relied on trade secrecy, first mover advantages, and other business mechanisms to protect and monetize their intellectual property — not patents. Through a convergence of circumstances over the past several years, that pattern has changed. The shift began when the Federal Circuit decided that business methods — banks’ primary mode of innovation — are patentable subject matter. That decision triggered an increase in the number of business method patents issued by the PTO, and, correspondingly, a surge in patent infringement litigation targeting big banks. When the banks found little success in court, their powerful lobby persuaded Congress to include a special carve out for financial patents in the America Invents Act — the comprehensive patent reform legislation enacted in 2011. Meanwhile, as the financial industry sought legislative favor to ward off future infringement suits, many of the big banks built substantial patent portfolios of their own. This Article explores this nascent relationship and considers some potential implications of growing bank involvement in our patent system. It suggests that the intersection of these institutions could yield some benefit, for example by improving the publicly available information regarding financial innovations. Yet, more pointedly, it warns of possible harms, especially if big banks use their political and economic power to disproportionately influence patent reform and innovation policy in the future.
Transaction Costs and Trolls: Strategic Behavior by Individual Inventors, Small Firms and Entrepreneurs in Patent Litigation
The role of individual inventors, small firms and entrepreneurs in the patent courts has become controversial for two, somewhat contradictory reasons. First, there is the view that small parties may be at a serious disadvantage in the courts since they do not have the financial resources to overcome the transactions costs of litigation. However, there is also a fear that some small inventors and licensing firms may be operating as trolls, using the courts as a mechanism to extract economic rents from large companies. Using original court documents to accurately identify the parties, outcomes and disputed patents in cases filed in 2000 and 2002, we explore how the resolution of patent cases relates to the nature of the parties. In particular, we examine whether individual inventors and entrepreneurs are ability to defend their patent rights and whether patent trolls are a significant problem. We find that small parties are quite active in our cohort of cases, constituting nearly half of all plaintiffs. However, most small plaintiffs are suing other small parties. Nonetheless, we also find that about 20% of small plaintiffs are suing defendants with annual sales greater than $500 million. These results indicate that small parties are active in the patent courts and are suing large alleged infringers, but that large infringers are not the primary focus of their activity. However, when small plaintiffs sue large defendants, the vast majority are able to overcome transaction costs and seek judgments against large firms or litigate to a trial. In fact, small firms are the most likely among all plaintiff categories to seek a judgment and are as likely as large firms suing other large firms to litigate to a trial. Thus, the possibility of high damages combined with institutional arrangements, such as contingency fee lawyers, may allow inventors and entrepreneurs to overcome the barriers to enforcement of patent rights. But, this conclusion must be accompanied by an important caveat. In cases with small plaintiffs, various indicators of patent quality, such as the number of claims and the number of backwards citations, increase with the size of the defendant. The same trend is not evident for large or medium sized plaintiffs. Thus, there is some evidence that when suing a large alleged infringer, small parties are only enforcing their most valuable patents, and that the average case may be filtered out. Finally, we explore the role of licensing firms, the most common candidate for the troll moniker. We find that the licensing firms in our cohort of cases - all of which would have classified as small firms as of 2002 - are a very small percentage of all plaintiffs. However, when licensing firms sue large firms, they do not have the same propensity to seek a judgment or go to trial as witnessed for other small firms suing large firms. Thus, our results suggest that patent litigation is not dominated by trolls, but the best candidates for the troll moniker do seem to behave differently in comparison with firms of similar size. However, these results should be evaluated with caution; it may also be that the small numbers of such firms makes it difficult to analyze their behavior.
Livestock Aspects of Feed Grain Policy
It is a signal event that our topic should be included on this program. In recent years, the livestock and poultry economy has scarcely been considered in the making of price and income policy for feed grains. It has been disregarded by pragmatic policy makers. It has been almost equally bypassed by theoretical economists, who usually kibitz freely. Policy for support and target prices for corn, grain sorghums, and other feed grains has been made with an eye almost exclusively fixed on the producers of those crops. The target price has been set relatively high in order to protect crop farmers' income. The latest (and current) loan rate policy has been to hold the rate low. Although a low rate facilitates moving grain into livestock and poultry consumption when crops are abundant, it does nothing to provide buffer stocks for years when crops are short. In addition, a couple of years ago it became administrative policy to dispose of the stocks inherited from an earlier period, even subsidizing their sale abroad. But the foremost example of one-sidedness is the attitude toward release prices. In all the rhetoric heard recently about the peril of holding corn or sorghums in reserve, the scold has been that release prices would not be set high enough. What group can the spokesmen have had in mind? Feed producers, of course! Not feed consumers, that is, livestock and poultry men. It has been a one-sided consideration of a two-sided issue. If all groups are to have equal voice in policy making, how can livestock and poultry interests be so ostracized? The one-sidedness has more impact now that so much livestock and poultry production has become detached from feed supply on individual farms. The livestock-poultry economy is therefore more sensitive to the availability and price of feed. It is in fact a contradiction that historically, livestock and poultry got more attention when they were still closely connected with feed production on the farm. In the early years of farm programs, the "ever-normal granary" was consciously designed to level out the supply and price of feed for livestock and poultry. Now that livestock and poultry have become more commercial and more vulnerable to a volatile feed situation, feed price stabilization has been progressively removed from the councils of farm policy. And the ultimate contradiction is that the alleged price-depressing perils of a feed reserve have been proclaimed in disregard of the fact that the main defense of feed grain producers' incomes is the target price-direct payment mechanism, not support prices. If grains on reserve should cause market prices to be reduced below target level, producers would get bigger direct payments, that is, producers with a base on their farm are protected in that way. Admittedly, production outside such a base would not be eligible for payment.