 Hi, I'm Brooke Chatterton, Intellectual Property Lawyer at Protocol Labs. Was it a big firm before this, before Monica saved me from the legal coal mines? Excited to be here. Matt? Yeah, my name's Matt Sumner. I'm a Lawyer at Protocol Labs as well. Before this, I was at SCAD and doing intellectual property transactions mostly. I have always had an interest in science and technology, and so I'm happy to be here with you all. So let's get started. We're happy to kick off this workshop by discussing what patents are, why they are what they are, and how they're not necessarily living up to what we'd love them to be. So welcome to the imperfect bridge across the innovation chasm. So I'll hand it over to Brooke to talk about why we have patents. Awesome. So just starting at the top to promote the progress of science and useful arts, which is our base in the Constitution for having our intellectual property system, which is super cool to put at the top of a talk because the framers were thinking about these ideas when they were writing our Constitution, which is very cool. And if you're a legal nerd like I am and many of the lawyers are here, we like to talk about those things. But why do we have them? We need some mechanism to bridge the gap in between academic progress to get us to a functional technology. And we use the patent system, which primarily relies on economic incentives to do that. To take a little flow through how patents are supposed to work, the inventor has a great idea. They know that there is a product that will fit a need in the markets, and they are so excited about introducing this idea, but they're scared. They want to invest their own capital, they're going to invest their own time, but they're worried that if they introduce this idea into the marketplace, someone else will snap it up and all of their time and efforts and ideas will be for naught. So that's where patents step in. They grant a limited term monopoly to buy time for the product development, and also to increase the chances of the inventor getting a good return on investment. And that stimulates the good flow of capital because the inventor is reassured that they can put their capital in time in and it attracts external capital because venture capitalist companies are see the patent and they're like, okay, this is a good signal for me to invest into this inventor and his new idea. A corollary to this is these new inventions are shared quickly and in depth by the public patent filing. So that's, you know, it's an instruction manual of how we do a thing that goes into the public realm. Hopefully other researchers and inventors are reading those patents, and then they are able to further develop technology because they're building on those innovations that are published patents. Next, we're going to zoom out a little bit, talk a little bit about more incentives. So over to you, Matt. Thank you. So as Brooke said, let's zoom out. The goal of the patent system, as you mentioned, to promote science and the useful arts. Are we doing that? How do we do that now? We're currently using a proxy, right, of widgets, essentially. We're saying, let's push out these widgets into the market in order to push humanity forward. And that is a proxy. It's not an exact corollary to what we're really trying to do here. And so we do that through, as Brooke mentioned, economic incentive. What else could we use to, as incentives, to get what we want? It doesn't necessarily have to be widget sales. It could lead to widget sales. But what else do people use as incentives elsewhere in the system, not necessarily just with patents. Let's take a look. So one thing that we've talked about in recent days is reputation, recognition. In academia, this is very important. People publish or perish. They want to be seen as experts in their field. A lot of people publishing are tenured. So they're secure economically. And they still want to, they still are incentivized to build on knowledge because they want to be seen as experts. It either makes you feel good or whatever it is psychologically. You want that. There's also religious or political motivation. So the US government doesn't wait around for the private sector to be motivated by the patent system to sell them weapons. So what do they do? They fund things like DARPA. They fund other projects, pour billions of dollars into them to make technology move forward. Everybody can have their opinion whether that's good or bad, but that is something that can be done. One third way that we'll talk about is altruism or at least perceived altruism. So if you feel like you want to donate to cancer funding, for instance, you can donate to funding for rare diseases. Pharmaceutical companies otherwise may not be incentivized through the patent system or otherwise to develop these drugs and have them save a thousand lives a year because they'd have to charge a million dollars a pill or whatever. So let's zoom back in though because cash is king, right? So let's talk about how we currently work in the patent system using economic incentives and some ways that we're implementing it, perhaps not as well as we can. Awesome. So problem one, transaction costs. So fundamentally, the patent system does introduce some frictions into the marketplace. There's time frictions. There's money frictions. So if you're an inventor, it costs a lot to get a patent and it takes a while, which is just kind of the name of the game. What's worse is the litigation costs associated with like the only real winners here are the lawyers, which is great for the lawyers in the room and it's probably terrible for society to be honest. But there are costs to defend if you own a patent or if there's a vague patent out there to challenge that patent is, you know, infinite dollars essentially. That's why I've included more dollar signs and I've seen on any restaurant in this slide. And the example here is the smartphone wars. I mean, over 10 years of litigation, billions of dollars wasted. And there are like three losers in that the consumers lost because your phone is probably slightly more expensive because those costs are internalized and passed on to the consumer. The shareholders lost out of all those public companies, you're supposed to distribute your profits to your shareholders, there's less profits to go around. And kind of worst of all is society is worse off society. Like if we're pushing humanity forward with technology, no one cares like what shape your phone is, like we're spending time arguing about these little things and not using that R&D funding to advance society. The corollary to that is we're writing these patents to write good patents and not to advance our technology as far as we can. There's just a lot of just frictions that are brought up in this system that are not ideal. Second of all is duration of patent terms. So in the US for utility patents, you're looking at a 20 year standard. There is some exceptions to that in the pharma space, but for the most part, it is not industry specific. So what that means is you're treating a pharma product the same as like a bare bones solution. So it makes sense when you have a lot of R&D expense, for example, in pharma to have that really long term monopoly for 20 years, just because there's a significant amount of R&D, and there needs to be a significant tail in order to capture a significant, like a fair return. If you have like a SaaS solution, I know some of the engineers in the room could probably mock up a product in a couple of days that they could get a patent on. And that's being treated the same way as like a whole team of like very intense scientists with the clinical trials. And that just doesn't seem like the right way to allocate capital. So at the end of the day, capital is not going to be allocated efficiently, because we're treating everything the same. Back to Matt for the next problem. Thank you. Yeah, so problem hard to tell who owns what, right? So there are approximately a zillion patents in existence, right? What does that mean? It means that you don't know where your patent lies and where you're restricted in relation to others. Or it's very hard to know. It's very costly going back to transaction costs. Not only is it costly to figure out, you are worried about being sued. So going back to what Brooke was saying, if you're worried about being sued, you're maybe not going to pursue what the patent grants you the ability to do. Or you're going to do it in a way that avoids litigation. That is not ideal. That is not optimizing for moving technology forward, right? Oh, yeah. So one element to this, right? There are very vague patents out there. When patents are vague, this is like the worst of all worlds, right? Because you don't know what you have and don't have. You're constantly under the threat of litigation. That's not great. So one reason why we have these vague patents and like a million zillion patents out there, there's a bit of a principal agent problem here, right? So the USPTO and the government may have all the best intentions in terms of what patents they're granting and when and to whom. That doesn't mean that we're getting that. The patent examiners are incentivized to be granting these patents. They're incentivized because oftentimes they're not paid maybe what they should be to not fall victim to these incentives. So therein lies a bit of an internal issue there, but it's actually leads to many bad outcomes. It leads to a bunch of these issues. So our last problem, everybody's favorite patent trolls. And thanks to the EFF for this image of a beautiful troll. So patent trolls, if you're not familiar, are NPEs or non-practicing entities. They're typically shell companies. They acquire patents and then they extract value. They're rent seekers essentially. They extract value through the threat of infringement lawsuits or the lawsuits themselves. So this is not good, right? Like you're going back, a lot of this goes back to transaction costs, right? Like you are worried that you're going to be sued by a patent troll. Like if you have enough money and you're making a product, you're the target of going to be the target of a patent troll. They may have a case against you. You may not know because the patent might be vague. So you're maybe going to pay them off. This is really bad. This is bad for attracting VC investment, right? Because those investors aren't going to want to send their money away to pay to a patent troll once you get successful enough. And patent litigation is notoriously expensive, just putting that out there. So that is the conclusion of our problems, of our talk about what the patent system is, why it is that way, and some issues with how it's implemented. So we'll open it up to questions and thank you.