EXCLUSIVE INTERVIEW
William J. Watkins Jr.: Our Patent Mess and the Misery of Its ‘Trolls’
By Anthony Wile - January 18, 2015

Introduction: William J. Watkins, Jr. is a research fellow at The Independent Institute. His books include Judicial Monarchs: Court Power and the Case for Restoring Popular Sovereignty in the United States and the Independent Institute book, Reclaiming the American Revolution: The Kentucky and Virginia Resolutions and Their Legacy (Palgrave/Macmillan). He received his B.A. in history and German summa cum laude from Clemson University and his J.D. cum laude from the University of South Carolina School of Law. He is a former law clerk to Judge William B. Traxler, Jr. of the U.S. Court of Appeals for the Fourth Circuit, and he has served as Assistant U.S. Attorney, Associate at Womble Carlyle Sandridge & Rice and Associate with Leatherwood Walker Todd & Mann. Mr. Watkins is the recipient of the R. Glen Ayers Award for Historical Writing and the CALI Award for Contracts I, Civil Procedure, Problems in Professional Responsibility. His scholarly articles have appeared in the South Carolina Law Review, The Independent Review, Duke Journal of Constitutional Law and Public Policy, Christian Science Monitor, Forbes, Daily Caller, USA Today, Washington Times and numerous other publications.

Daily Bell: Hello, there. Tell us a little about how you came to be a research fellow at The Independent Institute.

Bill Watkins: I first stated working with The Independent Institute in the late 1990s when I was doing research on the Kentucky and Virginia Resolutions of 1798. I published an article in The Independent Review on the resolutions, and with some encouragement from some of my friends, that developed into a book-length work, the book Reclaiming the American Revolution, which The Independent Institute along with Palgrave/MacMillan published. That is how I started my affiliation with The Independent Institute in the late '90s and we've been working together ever since.

Daily Bell: What are the core topics you address at The Independent Institute? We see on your page there a list of articles as well as links to your blog posts in The Beacon.

Bill Watkins: I particularly write and research issues dealing with the law from a wide variety of angles, from Supreme Court case law and examining decisions that come out from the Supreme Court to more mundane issues that affect, say, our health care system, civil rights statutes, a number of things. Typically, the law is my specialty with them.

Daily Bell: You were formerly a law clerk, an assistant US attorney and a legal associate in private practice. What's your opinion of the legal system in the US as it is now? Is it broken?

Bill Watkins: When you look at our torts system, especially, there are significant problems. We have moved from a negligence regime where if someone breached a duty of care to another person then they could be held liable for the resulting damages for that breach. That's fairly basic, fairly straightforward. What we are seeing now is a move more toward the idea of strict liability. Of course, strict liability is most often associated with products liability cases but we see this whole concept permeating our legal culture.

Strict liability, of course, means you don't have to prove that an individual was negligent, i.e., that they breached a duty of care, that they did something that they should not have done or did not do something that they should have done. Instead, the fact that the problem exists or an injury exists is quite simply often enough for a person to be held liable. You don't look for a mistake to be made. It's really just a shifting provision of who pays. Should the consumer, for example, have to pay for his injury or suffer the consequences for his injury that results from the use of a product even though there was no negligence in the design or manufacture of the product or is a company with deep pockets better suited to pay? Unfortunately, the latter conclusion is where we have been moving.

Daily Bell: Should the system be simplified? Privatized?

Bill Watkins: I think when you look at privatization of some areas of the law you have that. For example, you see a lot of arbitration provisions being put into contracts. Rather than being subjected to the vagaries of the American torts system the parties agree that if there's a dispute or claim, whether it be a tort or a contract, that that would be adjudicated by an arbiter chosen by the parties that they agree on.

That's a way that we see many people opting out of the legal system. It's much less expensive to do arbitration so that's good for both parties and typically it's a much quicker process. In some courts it can take a lot of time to move a case along. This voluntary privatization, if you will, seems to be very popular.

Daily Bell: Is mediation also being used more often now and is that helping to mitigate some of that shift?

Bill Watkins: Mediation is used frequently. Typically, mediation is in the context of there's already been a lawsuit filed in the court system. Many courts now are imposing what we call mandatory mediation. That is, before a case can go to trial or really move forward towards a trial the parties are required to agree on a private mediator, pay the cost of that mediator, whatever he or she charges an hour, and go and make a good faith effort to settle the case. My experience is mandatory mediation has been very successful in the jurisdictions where it is used.

The best example of that is just the number of jury trials that there are. In my experience, in the days before mandatory mediation you had a large number of cases going to trial, jury verdicts. Today, not so much. Most cases – I would venture up into the 97, 98 percent of cases, civil actions that are filed – are resolved short of a jury trial and many of those cases are resolved in mediation. So though the state might require mediation, it's really not a state-imposed remedy. The parties and the mediator independent of the court work on a resolution and very frequently reach that resolution.

Daily Bell: What else could be done to fix or improve the justice system as it is now?

Bill Watkins: I think one thing that could be done, and we've seen this in a few cases, is caps on punitive damages as well as on what we call non-economic damages, that is, pain and suffering. It's one thing where the damages are fairly clear-cut. Someone, say, is out of work for a year. If there yearly wage is $100,000, that's $100,000 in damages. That's easily calculable.

However, when you get into the intangible losses, the pain and suffering and then to the punitive element, that is not so easily calculated. You have had some jurisdictions – Alabama is typically viewed as one of the worst – where you have some runaway verdicts, if you will, where you have huge amounts of punitive damages and non-economic damages that really don't seem to bear a good relation to what the actual injury was.

I think one reason for this is this desire for class warfare that's increasing in our culture, this perception that you see in the news media and from politicians that there's this broad class of individuals that are seeking to oppress the ordinary working citizen. As they just heap coals on this fire, often when individuals find themselves on a jury they act in accordance with what they're hearing in the news and the media and try to take it out on corporations or those who they think are powerful or well-to-do.

Daily Bell: Any Supreme Court cases we'll want to be watching carefully this year?

Bill Watkins: There have been some opinions issued where the Court has tried to impose some limits on punitive damages. For example, State Farm v Campbell was a case where the Court overturned an Alabama punitive damages award. That essentially indicates that when punitive damages go higher than, say, a single digit multiplier, if you will, when you're talking about 10, 15, 20 times what the actual damages are, that that is suspect and warrants careful review. There have been some cases out there where the courts have tried to address that. I cannot think of any that are coming up this term.

Daily Bell: Other Supreme Court cases you're watching this year, particularly those that address issues of civil liberties?

Bill Watkins: This year we do have, civil liberties-wise, the case Reed v Town of Gilbert, which deals with free speech, such as political signs and advertisements and that type of thing. That could have some widespread implications on what is protected speech, what is commercial speech and that type of thing.

I think another thing that would be interesting from a civil liberties aspect is the Rodriguez case, where the Court's considering whether a police officer conducting a traffic stop can have a drug-sniffing dog right there outside the suspect's car even if the traffic stop has been completed and the officer doesn't have any lawful justification to do the sniff. Is it okay if he just has the dog present and can do a quick run around the car? Those will be some interesting cases to watch and see how those turn out.

Daily Bell: We've been watching the cannabis industry for some time now and have been covering changing laws and regulations around the world in our weekly Sunday Cannabis Sector Report. Is that an area you'd care to comment on?

Bill Watkins: I think that's probably going to be a growing market. Right now it's a very safe market. I really don't anticipate that with the next presidential election. Even if, say, a Mitt Romney or Jeb Bush were elected, I don't see them upsetting the apple cart, if you will. The exceptions the Justice Department has made for what's going on, for example, in Colorado right now, where there are many storeowners that are violating the federal Controlled Substances Act. They could be arrested by agents right now but for federalism reasons the attorney general has put on hold enforcement to let them conduct this experiment in legalization.

With all the money that's been invested and put into this, the growing industry, I think a new president would be hard-pressed to turn back that. I would guess in the next 10 to 20 years we'll probably see similar legalizations in I'd guess half the states.

Daily Bell: Let's talk about your most recent book, Patent Trolls: Predatory Litigation and the Smothering of Innovation (2014), which addresses the issue of these "Non-Practicing Entities" that are "stifling innovation," as you say. Tell us about your book and summarize your main concerns.

Bill Watkins: That's correct. We have this issue now with patent law where we have a number of entities out there that aren't making any products, don't want to make a product but what they want to do is acquire dated patents, older patents, and then come up with a legal claim that some other company has infringed this dated patent by creating some new process or device.

Now, the trolls really are just looking for money. They want their target companies to pay them royalties for the use of their patent and they will, of course, take them to court and sue. Very often they've garnered some pretty big verdicts there. So the problem is you have entities that don't look to do anything productive, to make any device or process, but really exist solely to sue innovative and productive members of society.

Daily Bell: Explain how these actions are smothering innovation. Are there specific industries that are being most heavily impacted? The book description states, "The cost to the economy is staggering." How staggering?

Bill Watkins: It's really a problem specifically in software, the computer industry, because, one, as you know, technology is increasing at such a tremendous rate that a patent or even a software program that was created, say, four or five years ago is useless today. There have been innovations, new technologies and things are marching forward that way.

The problem, as I see it, is we have a uniform patent term, typically 20 years, for very different industries. For example, 20 years might make sense with all the R&D and such that goes on and soft costs with, say, coming up with a new pharmaceutical. It doesn't make any sense in software. It's this idea that the value of yesterday's newspaper is not much. The value of many of yesterday's software programs, or at least from three, four years ago, is not much. But with these lengthy patent terms for old software products, it's just an invitation for the trolls to litigate, to seek targets and to extort money there.

Software is the big problem. Of course, living now in the information age that we're in, that's a big problem to our economy. Much of our innovation is based off this new technology and it proves a major problem as we're trying to go forward when we have a situation where the trolls can easily engage in litigation. And they are winning awards in a lot of districts.

Now, you asked about the damage to the economy. There have been a number of studies out there that have looked at this and looked at how innovation is stifled. One study that measured lost wealth, and that was measured by looking at the decline in the company market capitalization caused by patent lawsuits, concluded that from 2007 to October 2010 the losses averaged over $83 billion per year in 2010 dollars, which, of course, equals over a quarter of the US industrial R&D spending per year. That's one figure that's been out there and many believe that that's a fairly conservative figure. This is real money that's adding up with the troll litigation.

Daily Bell: You refer to "an outmoded patent system that is fundamentally ill suited for the modern economy." What is it specifically about this present system that makes it possible for the patent trolls to continue causing this kind of damage and how can that be stopped?

Bill Watkins: I think a lot of that goes back to this whole idea of the one-size-fits-all patent system. That's the problem. That can't work today with different sectors of the economy requiring different time periods to develop products. We just can't treat it all the same.

Daily Bell: If that were changed, the trolls would be out of business, so to speak?

Bill Watkins: It would certainly help things. I suggest in the book, rather than a 20-year patent term how about a 2-year or 5-year term for software? That would give innovators some patent protection there during the reasonable life of their software product but it wouldn't allow the trolls to, say, go to a bankruptcy auction and buy a 10-year-old patent for pennies on the dollar and use that for another 10 years to extort companies and litigate.

Daily Bell: Many people are now licensing their software and other intellectual under Creative Commons and other more open-source licensing formats. Is that a way around the problem you're addressing?

Bill Watkins: Yes, that is, and there have even been some scholars out there who even argue that when it comes to patents and patent rights, for the national good the federal government should essentially buy those and then put that technology out there for public consumption, where companies could use that freely in developing and that there could be some great innovation there.

Of course, some libertarians have gone so far as to call for banning or outlawing patents. Even Thomas Jefferson made the observation that an idea is, if you will, a public good; it doesn't belong to just one person alone and it should be disseminated for the good of all, that it's not something you can necessarily have a property right in. So there are some interesting arguments that have been made to abolish the system altogether.

Daily Bell: Some would surely argue that can't possibly be done, as the Chinese would get information and destroy the US with it, that national security would be in peril without patents.

Bill Watkins: That's certainly an argument that's not without weight. China itself has just recently incorporated sort of a state patent troll that is funded with billions of dollars and the mission of that patent troll is to essentially sue American companies and try to force them out of the market while Chinese companies may use whatever technology they can to improve their product and garner the full market share. So yes, that is a serious issue.

Daily Bell: Is there an argument being made that the UN should globalize this and oversee it, centralize it, for the good of the whole world? Naturally, we wouldn't be a fan of such an idea but as globalized regulation expands in so many areas, it seems likely this is one being made. Any teeth to it, if so?

Bill Watkins: Yeah, you do have some one-worlders that would go that way but right now the patent system includes the European patent office, our patent office and obviously China's the big market folks look at and Asia. With all the money at stake I think that's really a pipe dream. I think that there's just too much money at stake where none of the major players would be willing to give up their say, their piece of the action, if you will.

Daily Bell: What would happen without patents, if somehow patents on any products were just done away with entirely?

Bill Watkins: If you did away with them, I think arguably the cost to the consumer would go down because it would be much easier for companies to build a product or engage in a process without having to worry about litigation while they're engaged in protracted research and the costs that come. That would be the rosy side of it.

Of course, the danger of that is whether anyone would want to go to all of the effort and work to invent something, a product or process, and not be assured that they're going to reap some economic reward through a patent. There's really a great unknown there.

Daily Bell: Briefly summarize for us, if you would, your other two books, also on very interesting topics: Judicial Monarchs: Court Power and the Case for Restoring Popular Sovereignty in the United States (2012) and Reclaiming the American Revolution: The Kentucky and Virginia Resolutions and Their Legacy (2004).

Bill Watkins: My previous book before Patent Trolls was Judicial Monarchs, subtitled Court Power and the Case for Restoring Popular Sovereignty in the United States. Essentially, the book addresses this argument that the Supreme Court is intended to be and has been since Marbury v Madison the final arbiter on the Constitution. I argue that scholars have misinterpreted Marbury and what John Marshall was trying to do in that case. I argue that he was not trying to elevate the Supreme Court to some super-branch of the federal government but was merely trying to maintain equality with Congress and the president, which was in line with Jefferson's own departmentalist view that all three branches are servants of the people and therefore co-equal, and that the final authority on the Constitution is the people themselves rather than any branch of government.

To do this, I go back and put Marbury in context by looking at state court decisions on judicial review from the 1780s and early 1790s. Those decisions are all grounded in ideas of popular sovereignty and I use that as a basis for the re-examination of Marbury v Madison.

My first book was Reclaiming the American Revolution: The Kentucky and Virginia Resolutions and Their Legacy. In that, I examine these two documents crafted by Jefferson and Madison that were a response to a crisis in American civil liberties, the Alien and Sedition Acts, which made criticism of the national government a crime and essentially put many unwarranted restrictions on immigrants to the United States. I look at those documents as a sort of fundamental statement of I guess you could say the states' rights view of the Constitution or the Compact Theory of the Constitution. I look at how those principles have been grabbed onto and used by states, north as well as south, and even contemporary examples, looking at some of the medicinal marijuana laws that were coming about in the late '90s and the early 2000s. Of course, we could add to that today. A good example would be the legalization in Colorado and so forth. That's sort of a summary of both of those books.

Daily Bell: Do you identify a specific turning point in the United States at which the states' rights view of the Constitution really was lost?

Bill Watkins: That's a hard question to answer because you have just such building of momentum over the years. In fact, I'm working on another book that The Independent Institute has under review right now. It is ostensibly titled Confederation v Constitution: The Wisdom of the Anti-Federalists. I argue in that book that many of the anti-federalists' worries and fears about the new federal constitution were proved true and perhaps it was a defective document in itself that was bound to lead to centralization of power, that there would naturally be this ratchet effect in central power based on the fundamental structure of the Constitution, James Madison and others' arguments to the contrary.

Daily Bell: We'll be watching for that publication and would like to have you back to talk about it once published. Thanks for your time today.

After Thoughts

Thanks to Mr. Watkins for this insightful interview and for confronting a difficult issue in his recent book. Bluntly speaking, our main questions regarding the dysfunctional US patent system is whether or not it ought to be abolished and whether if it were abolished, innovation would be reduced or expanded.

This is not the way that most opponents characterize patent reform. It is a lot easier to conceive of regulatory reconfiguration than outright removal. And yet how much will regulatory reform really accomplish?

The trouble with modern regulatory democracy, as we have often seen, is that regulations are inevitably prone to reconfigurations that benefit the powerful. The stakes are especially high when it comes to patents because of the money that accrues to successful innovation. Sadly, that money is now also accruing to entities, he explains, who've contributed nothing but litigation and misery.

Mr. Watkins summarizes the choices thus:

If the patent system were abolished, he says, "arguably the cost to the consumer would go down because it would be much easier for companies to build a product or engage in a process without having to worry about litigation while they're engaged in protracted research and the costs that come."

But he foresees it would be problematic as well. "Of course, the danger of that is whether anyone would want to go to all of the effort and work to invent something, a product or process, and not be assured that they're going to reap some economic reward through a patent. There's really a great unknown there."

Can the market deliver more optimal results than a legislature? We'd bet that minimizing patent law considerably (if one cannot abolish it altogether) would result in an explosion of innovation and utilization. We've already seen this to some extent with, for instance, free and open-source software licensing.

We often wonder how much more satisfying society would be if the many regulations and laws that restrict progress and retard competition – in money, technology and other areas – were done away with as much as possible.

Someday, perhaps, we hope to find out, at least to a degree – especially as concerns relatively new (legal) industries. One that comes to mind is cannabis.

We hope that state of affairs continues and that somehow the US's horrible patent law structure gets rationalized. We know Mr. Watkins does, too.

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