[Ip-health] The Cost of Ideas - in the Economist

Mon Nov 22 12:21:07 2004

THE COST OF IDEAS
Nov 11th 2004 - The Economist

It is becoming ever more apparent that the patent system isn't working

INTELLECTUAL property is the cornerstone of the modern knowledge
economy. But one of the main forms of intellectual property, the
patent--a temporary monopoly designed to provide an incentive to
innovate--is increasingly being found wanting, even as the number of
applications soars at patent offices around the world. America's patent
system has "become sand rather than lubricant in the wheels of American
progress", argue Adam Jaffe and Josh Lerner in a new book, "Innovation
and its Discontents: How our broken patent system is endangering
innovation and progress and what to do about it" (published by Princeton
University Press). The world's patent system remains splintered along
national lines, yet the system's defects are felt everywhere.

"Patent offices are under incredible pressure," says Dominique Guellec,
the chief economist at the European Patent Office in Munich.
Applications at many patent offices have doubled in the past ten years,
and the average length of each submission has increased by 50%. The
average quantity of work required to examine an application is three
times greater than it was a decade ago. "Of course that can't be neutral
in terms of quality," says Mr Guellec.

 In recent years, the scope of patents has broadened to encompass new
technologies, as well as software, and in some instances business
methods. Meanwhile, the legal power of patents, once awarded, has
increased, and they are more zealously sought. This, combined with an
alleged decline in the quality of patents--that is, how accurate their
claims are and whether they are truly novel or non-obvious--is deeply
troubling, especially as, once awarded, a patent is hard to revoke.

PATENTLY ABSURD
In America, several controversial business-method patent awards, notably
Amazon's one-click payment process, have fuelled the perception that the
Patent and Trademark Office (PTO) is under strain. A study by M-CAM, an
intellectual-property consultancy, found that over 30% of patents make
duplicate claims, raising questions about their validity. America's PTO
dismisses the criticism as anecdotal. "We're seeing lots of new
industries being born, that is why there are a lot more patent
applications," says Mary Critharis of the PTO.

The number of patent applications to the PTO is growing at around 6% a
year. The wait for a decision is on average 27 months--and much longer
for complex applications in advanced sciences. Last year, the PTO
received around 350,000 applications and currently has a backlog of over
half a million to review. It is a global concern: foreigners account for
around half of all patents granted.

Similar growth is occurring elsewhere, including in countries that
previously showed little interest in intellectual property. Applications
to China's patent office increased fivefold from 1991 to 2001. As
countries such as China, South Korea and India spend more on research
and development, they are filing more patents.

The mission creep of America's patent system into more contentious areas
is also spreading elsewhere. Later this month, the European Council of
Ministers will discuss draft legislation on harmonising policy on
computer-implemented innovations. Many small software companies in
Europe, as well as "open-source" software developers that make
non-proprietary software, oppose the initiative. They fear that it is a
first step towards adopting controversial software patents, already
awarded in America, which could block different implementations of the
same features. Were further proof needed that this may not be an
entirely positive development, look no further than the mighty software
monopolist, Microsoft, whose chairman, Bill Gates, has called on
employees to increase the number of patents that the company files.

The rising importance of patents has led both to an arms race and a game
of bluff. Many firms in the information-technology and life-sciences
industries say they have an incentive to obtain as many patents as
possible as bargaining chips in litigation. The patents are used to
reach a cross-licensing agreement, usually with some cash thrown in, so
that both firms can continue to do business. Those firms that lack
patents are thus disadvantaged.

Countries increasingly complain to the World Trade Organisation and the
United Nations World Intellectual Property Organisation (WIPO) that the
patent system discriminates against them. Indeed, WIPO recently adopted
a "development agenda" to consider different intellectual-property
regimes appropriate to the circumstances of a particular country or
region. This was hailed as a boon for reassessing patent protections on
drugs and for open-source software. Poor countries have long complained
that America is trying to export its tough intellectual-property
protections.

The growing debate about America's patents is focused on the process of
examining applications and the difficulty of challenging dubious
patents. Patent examiners typically know less about an invention than
the applicant. Moreover, their workload is far higher for rejecting than
granting an application. This creates a perverse incentive for examiners
to "dispose" of applications by granting rather than rejecting them,
argue Messrs Jaffe and Lerner in their new book. To resolve this, they
call for a pre-grant notice period when third parties can come forward
with "prior art" that would invalidate the patent.

As for the second problem, legislation introduced into America's
Congress last month seeks to make patent-opposition trials easier for
challengers by eliminating some legal hurdles. The legislation would
also curb the granting of many forms of business-method patents.

As these reforms are debated, the scale and central importance of the
patent system are also coming under assault. "The innovation system is
broken in that there is too much emphasis on intellectual-property
rights," says Suzanne Scotchmer, the author of "Innovation and
Incentives" (MIT Press), a book on the role of patents to be published
soon. More than ever, she says, inventions that would otherwise go into
the public domain because they are funded by taxpayers or charities
become "cordoned off" by the patent system. If so, perhaps the patent
system not only needs to be repaired, but shrunk?

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