In 2012, the U.S. Patent Office instituted the Inter Partes Review (IPR) system—an administrative process allowing parties to challenge the validity of issued patents. If the agency determines a patent was erroneously granted, it is invalidated. IPR was intended as a less expensive alternative to litigating validity, and it serves this purpose. However—like many government programs—it had unforeseen consequences.

Almost any party hoping to challenge a patent can file for IPR; there is no requirement that they have a business interest in the patent. This lack of a standing requirement opened the door to a new type of rent seeking. Invalidity Assertion Entities (IAEs) threaten to use IPR to (attempt to) invalidate a patent, unless its owner pays a “settlement.” Anecdotal evidence shows that they target patents presently being litigated (presumptively because the patentee has the most to lose from invalidation at that time), but IAEs have no actual interest in the subject patent.

When this business model came to light, Congress reflexively proposed to do away with the practice. The legislation didn’t pass, but the negative response wasn’t surprising; rent seekers in patent law (e.g., patent trolls) have a bad reputation. I’ve written on IAEs (here and here), and despite the negative response to their business model, I argue for restraint in legislating to do away with them. As described below (and described fully in my articles), there are potential socially positive externalities that may arise from their business practices.

Erroneously granted patents create an unjustified deadweight economic loss, which is remedied when IAEs invalidate such patents (per their business model). Moreover, IAEs are likely to target weak (probably invalid) patents, which are commonly asserted by patent trolls. The weakness of these patents incentivizes their owners to avoid validity challenges (and to pay to do so), making them a prime target for IAEs. In fact (as I set out here), incentives exist for IAEs to generally target patent trolls, which is socially beneficial because it discourages future troll activity.

To be clear, I don’t think IAEs are a panacea for all of patent law’s problems. And I recognize the possibility that IAEs will engage in a nuisance-value business model (e.g., targeting all patents being litigated), though I’ve argued that this isn’t likely. My position is simply that—despite the fact that IAEs engage in rent seeking—it is possible that they are a social benefit.