In this Article, we suggest that it might be possible to improve the value of patent challenges even without increasing their accuracy. Put simply, we propose raising the stakes involved in patent litigation. A patent owner who prevails at trial should collect enhanced rewards, above and beyond the damages the owner would normally be paid in compensation for the infringement. A patent owner whose patent is invalidated at trial should be forced to pay significantly enhanced penalties. At first glance, our proposal might seem entirely counterintuitive. If patent adjudications are riddled with errors, one would think that it would be preferable to lower the stakes involved, rather than increase them. Scholars and courts have generally confined themselves to that approach.
Yet contrary to the conventional wisdom, we demonstrate that enhanced rewards and penalties can correct many of the flaws inherent to patent challenges even without affecting the accuracy of the adjudications themselves. They accomplish this by restoring patent holders’ net expected trial outcomes to appropriate levels. Enhanced rewards would compensate holders of valid, valuable patents for the risks they run at trial. This would incentivize the optimal amount of research and innovation, as well as continued research on the most socially valuable inventions. At the same time, enhanced penalties would reduce or eliminate invalid patent owners’ opportunities to earn positive returns at trial, vastly diminishing their incentives to assert their invalid patents in the first place.
The enhanced rewards and penalties we propose would thus allow our imperfect patent system to mimic one in which courts erred less frequently. Patent owners—be they genuine innovators or patent trolls—and their competitors would behave as if they could rely upon the courts to reach the correct outcome in essentially every case. The system would generate substantial benefits to innovation and competition at minimal cost. Where direct efforts to improve judicial accuracy have failed, raising the stakes of patent cases might yet succeed.