Tuesday, May 16, 2006

Injunctions, Monopolies, and the Free Market

Yesterday's ruling gives courts full discretion over whether an injunction should be issued when a valid patent is infringed. Why is this so monumental? It boils down to economics.

Prior to this ruling, a non-practicing patent holder (sometimes referred to as a 'patent troll', but also including small inventors without the resources to commercialize their inventions) was simply using the injunction to get monetary compensation from the infringer. An infringer was forced to the "negotiating" table with the patent holder by power of the injunction. The patent holder's task was then to find the highest price that the infringer could bear, and extract that price from the infringer.

Some have argued that this was a fair and efficient process -- the courts didn't have to decide dollar amounts, but left it to the two parties to work out on their own.

But this hides an important economic principle in free markets: that markets, not monopolies should determine prices, and that competition is always good for the market.

In the case of patents, a monopoly has been granted to the holder by the government. Allowing the holder of those patents to then seek rent with that monopoly power, without any oversight, gives holders of patents absolute price control. It gives the holder the power to maximize profits. It gives the holder of the patent power that no owner of physical property posesses, powers that no manufacturer of physical products can ever posess. It elevates patents to a status above actual property.

By allowing courts to use discretion in determining when not to issue an injunction against a patent infringer, the Supreme Court has opened up the possibility for much fairer damages to be awarded to patent holders whose only goal is to be fairly compensated for their inventions. By issuing this rulling, they are telling lower courts that they must not abdicate their responsibility to ensure that damages are fair; when a non-practicing patent holder has won their case against an infringer, the two parties must now argue in front of a judge over what they think an appropriate compensation dollar amount should be, and an impartial third-party (the judge or jury) must make a decision on damages taking those arguments into account.

No more does the non-practicing patent holder get to strong-arm its prey into submission. Fairness is at the heart of every just legal system. The Supreme Court, in issuing this ruling, has understood how unfair monopoly power can be when used solely as a tool of extortion. And it has recognized that patent holding firms have been abusing the courts in this way for years, and that the legal system must change so as not to encourage such corruption in the future.


Blogger Robert said...

right on Jackson.

While I definitely don't agree with the way we handle patents, I still see the validity of their original intention.

Could non-disclosure agreements effectively provide the benefits of patents without the abuse? When you are disclosing information to large groups of people, is there any means to enforce such agreements effectively?

9:46 AM  

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