3 ms·

Along the lines of hakfoo's response below, this would naturally happen any time you're dealing with enhancements to a larger ecosystem (i.e. complementary good

Along the lines of hakfoo's response below, this would naturally happen any time you're dealing with enhancements to a larger ecosystem (i.e. complementary goods) - the sale price of certain products can be profitably set to almost zero if they encourage buying more expensive, or at least higher-margin, things. A specific example: patentable improvements to consumer-grade inkjet printers might be disincentivized under this scheme, because the real money is in selling ink to locked-in buyers. I think there are some more fundamental problems with using sale price as the base of computation. What's "final" sale? Is it the price my company sells for wholesale? If I own my own vertically-integrated distribution network and sell direct to consumers, do I now owe the patent holder more per item? Am I incentivized to put my retail stores behind a shell company to bake the "final" sale price earlier in the pipeline? On that note, what's to stop me from doing so recursively? I could set up a "manufacturer" entity that produces the patented widget at a loss, paying the minimum licensing fee, and then an "assembler" entity that packages it into a meaningful product and actually makes all the profit. I suppose to some extent this is the same problem as deciding when to impose sales tax, so maybe the same regulation works there, but it feels trickier. That's also setting aside what I expect are deal-breaking practical problems having to do with components. Most actual products are not patented in their entirety. If you use a patented design that improves one component of a $400 machine, is the license fee based on a fraction of $400? Do I owe the patent holder more per unit if I assemble my product with a high-quality aluminum shell instead of a cheap plastic one? If I have to use 5 different patent ideas to make that machine, do I pay all 5 owners the same fraction? If not, then who decides the respective fee for each one? (As an example, a modern smartphone probably makes use of hundreds of patents - think about how many patented bits of circuitry there are just in the radio and modem.)

mjevans 6y ago
Addressing the middle point (which you've labeled a fundamental problem)... I am not a patent lawyer (or even a lawyer generally). However I believe the stopping point is exhaustion. A license for X would be demanded when the first sale that uses X happens. If the IP is related to the formulation or formation of part of a capacitor then the payment for such is part of the price of that good and is not required or taken again at any other stage (other than in the price of the components already included in the BoM). Similarly, the price is reflected in the first transfer of the good, not in any final consumer sale of the unit.
- GeneralMayhem 6y ago
  >the price is reflected in the first transfer of the good, not in any final consumer sale of the unit. Right, so this is trivially exploitable, as I described. Set up two entities. One of them makes the capacitor and "sells" them at cost, or lower, to the second one. The license fee will now be based on that deflated price. Arguably it's fraud, but proving that - and the extent to which it's out of the ordinary, since manufacturers do sell each other things at discounted bulk rates all the time - would be a nightmare. Even if you close that loophole (e.g. with perfect fraud enforcement (ha)), you're incentivizing inefficiencies by punishing vertical integration. What if it's cheaper (less labor, less waste, less machinery, easier logistics, ...) to produce a whole circuit as one unit rather than building the capacitors first and then assembling? If the license price depends on the first transfer point, then the circuit manufacturer is better off wasting money and resources to isolate the patent-dependent components so that they can be transferred independently, with the licence fee coming out of that small price. Otherwise, they'd have to pay a fraction of the entire final product, which is presumably much greater.
mjevans 6y ago
Re: 5 different IPs. That's already covered for the COMPULSORY LICENSE, which would have the terms that society agrees are the absolute maximum that could be charged. Lets say this is 25% of the sale price. That is, society says that at most 25% of the sale, not profit, price is allowed to cover IP costs. In your fictional example of 5 different involved patents the legal framework incentivizes the 5 patent holders and those who desire their patents to negotiate a split. Re the other question: no patent fees in sub-assemblies aren't counted, those things were already on the market as whole units. However a large corporation that is integrated across manufacturing many things (which presumably also has other market distortions like a huge IP portfolio anyway) would be able to count it, if they were also making those sub components. Yes that seems unfair to me, but it's a reflection of a different broken system and should be addressed there.
- GeneralMayhem 6y ago
  >Lets say this is 25% of the sale price. That is, society says that at most 25% of the sale, not profit, price is allowed to cover IP costs. In your fictional example of 5 different involved patents the legal framework incentivizes the 5 patent holders and those who desire their patents to negotiate a split. I'm not sure I'm following the story here. So we have compulsory licenses, which are to be set as no more than 25% of the licensee's sale price. Let's assume that the licensee accurately knows all of the patented ideas they plan to rely on. The prospective licensee needs to set aside 25 cents of every dollar to be paid to patent holders. So far, so good (although I don't think you'll be able to find a number that's satisfactory; see below). Now what do they actually do with those 25 cents? They can't unilaterally send it to any of the patent holders, because apportionment needs to happen. You can't require that they pre-negotiate a split among the patent holders, because that would defeat the point of a compulsory license by allowing one or more patent holders to drag out negotiations. You could set up a third-party entity (i.e. a government agency) whose job it is to hold all the payments in escrow and manage the negotiations among the patent holders, but that would require said entity to either bear the risks of dealing with bad-faith negotiators or be willing to make unilateral judgments based on the merits of an individual case - and given how well the USPTO does with bad-faith actors now, I don't think I trust them to take on an expanded role that would require dramatically more technical expertise and judgment. re: 25% - I know you didn't mean to put any weight behind that particular number, but I also don't think there is any such number that would be universally reasonable. Again, I don't think many commercial products consist solely of the implementation of a single idea. Even if you're only basing your product on one patent, presumably you're also adding your own thought to make it marketable, and the amount that that new thought contributes is variable per product. If you set the license fee ratio very high, then patent holders of small ideas can unduly enrich themselves by demanding most of the revenue for something to which they contributed only a small part. (That degenerates to the current situation - you can think of the current situation as having a "compulsory license" with a price that's often somewhere above 100% of sale price, since you can always proceed without a license, at the cost of a lawsuit that would recover the price plus punitive damages.) On the other hand, if you set it too low, then you open the door to blatant copying. And note that this isn't just a matter of picking something "in the middle" - no matter where you put the line, bad-faith actors will change their behavior to exploit it in one direction or another, or both.

mjevans 6y ago

Addressing the middle point (which you've labeled a fundamental problem)... I am not a patent lawyer (or even a lawyer generally). However I believe the stopping point is exhaustion. A license for X would be demanded when the first sale that uses X happens. If the IP is related to the formulation or formation of part of a capacitor then the payment for such is part of the price of that good and is not required or taken again at any other stage (other than in the price of the components already included in the BoM). Similarly, the price is reflected in the first transfer of the good, not in any final consumer sale of the unit.

GeneralMayhem 6y ago
>the price is reflected in the first transfer of the good, not in any final consumer sale of the unit. Right, so this is trivially exploitable, as I described. Set up two entities. One of them makes the capacitor and "sells" them at cost, or lower, to the second one. The license fee will now be based on that deflated price. Arguably it's fraud, but proving that - and the extent to which it's out of the ordinary, since manufacturers do sell each other things at discounted bulk rates all the time - would be a nightmare. Even if you close that loophole (e.g. with perfect fraud enforcement (ha)), you're incentivizing inefficiencies by punishing vertical integration. What if it's cheaper (less labor, less waste, less machinery, easier logistics, ...) to produce a whole circuit as one unit rather than building the capacitors first and then assembling? If the license price depends on the first transfer point, then the circuit manufacturer is better off wasting money and resources to isolate the patent-dependent components so that they can be transferred independently, with the licence fee coming out of that small price. Otherwise, they'd have to pay a fraction of the entire final product, which is presumably much greater.

mjevans 6y ago

Re: 5 different IPs. That's already covered for the COMPULSORY LICENSE, which would have the terms that society agrees are the absolute maximum that could be charged. Lets say this is 25% of the sale price. That is, society says that at most 25% of the sale, not profit, price is allowed to cover IP costs. In your fictional example of 5 different involved patents the legal framework incentivizes the 5 patent holders and those who desire their patents to negotiate a split. Re the other question: no patent fees in sub-assemblies aren't counted, those things were already on the market as whole units. However a large corporation that is integrated across manufacturing many things (which presumably also has other market distortions like a huge IP portfolio anyway) would be able to count it, if they were also making those sub components. Yes that seems unfair to me, but it's a reflection of a different broken system and should be addressed there.

GeneralMayhem 6y ago
>Lets say this is 25% of the sale price. That is, society says that at most 25% of the sale, not profit, price is allowed to cover IP costs. In your fictional example of 5 different involved patents the legal framework incentivizes the 5 patent holders and those who desire their patents to negotiate a split. I'm not sure I'm following the story here. So we have compulsory licenses, which are to be set as no more than 25% of the licensee's sale price. Let's assume that the licensee accurately knows all of the patented ideas they plan to rely on. The prospective licensee needs to set aside 25 cents of every dollar to be paid to patent holders. So far, so good (although I don't think you'll be able to find a number that's satisfactory; see below). Now what do they actually do with those 25 cents? They can't unilaterally send it to any of the patent holders, because apportionment needs to happen. You can't require that they pre-negotiate a split among the patent holders, because that would defeat the point of a compulsory license by allowing one or more patent holders to drag out negotiations. You could set up a third-party entity (i.e. a government agency) whose job it is to hold all the payments in escrow and manage the negotiations among the patent holders, but that would require said entity to either bear the risks of dealing with bad-faith negotiators or be willing to make unilateral judgments based on the merits of an individual case - and given how well the USPTO does with bad-faith actors now, I don't think I trust them to take on an expanded role that would require dramatically more technical expertise and judgment. re: 25% - I know you didn't mean to put any weight behind that particular number, but I also don't think there is any such number that would be universally reasonable. Again, I don't think many commercial products consist solely of the implementation of a single idea. Even if you're only basing your product on one patent, presumably you're also adding your own thought to make it marketable, and the amount that that new thought contributes is variable per product. If you set the license fee ratio very high, then patent holders of small ideas can unduly enrich themselves by demanding most of the revenue for something to which they contributed only a small part. (That degenerates to the current situation - you can think of the current situation as having a "compulsory license" with a price that's often somewhere above 100% of sale price, since you can always proceed without a license, at the cost of a lawsuit that would recover the price plus punitive damages.) On the other hand, if you set it too low, then you open the door to blatant copying. And note that this isn't just a matter of picking something "in the middle" - no matter where you put the line, bad-faith actors will change their behavior to exploit it in one direction or another, or both.