Patent protection is a commonly overlooked - but significant - form of protection in the fashion industry. While this form of intellectual property (“IP”) provides creators with nearly 20 years of protection for certain designs, allowing them to fend off copyists, patents tend to be much more expensive and time consuming than trademarks and copyrights, making them less popular among most brands. However, as we’ve seen in a number of recent lawsuits, they can prove to be a huge asset to design brands. Just ask adidas.
But all is not well on the patent front. A new study, co-authored by Harvard Business School professor Lauren Cohen, Professor Umit Gurun of the University of Texas at Dallas, and Dr. Scott Duke Kominers, a Junior Fellow at the Harvard University Society of Fellows, examines the sharp rise in patent litigation in the United States during the past decade, with 2015 marking one of the highest patent lawsuit counts on record.
For the uninitiated, patents are a form of IP that are granted by the United States to an inventor, to exclude others from making, using, selling or importing an invention throughout the United States without the inventor's consent. They take the form of design patents (those based on decorative, non-functional features), utility patents (inventions of new and useful processes, machine, manufacture, or composition of matter, or new and useful improvements thereof), or plant patents (new and distinct, invented or discovered asexually reproduced plants including cultivated sports, mutants, hybrids, and newly found seedlings, other than a tuber propagated plant or a plant found in an uncultivated state). Paris-based design house, CÉLINE, for instance, has a design patent that covers the design of its Case bag (pictured above). YSL enjoys patent protection for a number of its handbag designs. Missoni's famed zig-zag prints are patent protected. And the list goes on.
In theory, the rise in patent litigation could reflect growth in the commercialization of technology and innovation, as lawsuits increase proportionately as more and more companies turn to IP protection to safeguard their competitive advantages. In reality, however, it's a rather different story. The report points out that the majority of recent patent litigation has been driven by non-practicing entities (“NPEs”) – firms that do not generate any products containing the patents at issue, but instead amass patent portfolios just for the sake of enforcing IP rights and profiting in connection with them.
Cohen, Gurun, and Kominers’ report suggests that NPEs — in particular, large patent aggregators — on average act as "patent trolls," suing cash-rich firms, seemingly irrespective of actual patent infringement, thereby having a negative impact on innovation activity at targeted firms. They estimate that after settling with NPEs (since most cases don’t actually make it tot trial), companies tend to reduce their research and development (“R&D”) investment by more than 25 percent. These results, Cohen, Gurun, and Kominers say, indicate a need to change U.S. IP policy, particularly to screen out trolling early in the litigation process.
However, change has been somewhat slow. Since 2010 the U.S. Congress has considered more than a dozen bills aiming to reduce patent trolling, with most of the proposed policy changes focus on after-the-fact punishments for bringing lawsuits that are declared to be frivolous (or "extraordinary") after court proceedings. For example, H.R. 9, the "Innovation Act," which is currently on the docket, provides for mandatory fee-shifting for patent lawsuits that the courts determine are not "reasonably justified." In reality, however, the average costs of patent litigation are large ($1 million to $4 million) and the process is drawn out. Even with the prospect of post-trial fee shifting, patent litigation targets may thus find it cost-effective and less disruptive to simply settle with NPEs, even in unfounded lawsuits. According to the authors, this is not a sufficient solution.
So, what should be done? Cohen, Gurun, and Kominers say that policies should screen out trolling at or before the time of patent assertion. The authors recommend advance review procedures that would provide preliminary evaluation as to whether the plaintiff's infringement claims are reasonable, and whether the asserted patents are of high quality. Such advance review could cripple trolling, they conclude – pre-litigation review can separate good NPEs (and, more generally, good patent lawsuits) from bad.
Legitimate infringement claims will be encouraged, whereas trolling will be screened out. This would greatly benefit innovative companies and help them propel the U.S. economy to greater heights.