[Ip-health] New York Times: A Patent Is Worth Having, Right? Well, Maybe Not

Tue Jul 24 03:43:39 2007

July 15, 2007
Prototype
A Patent Is Worth Having, Right? Well, Maybe Not
By MICHAEL FITZGERALD

PATENTS are supposed to give inventors an incentive to create things
that spur economic growth. For some companies, especially in the
pharmaceutical business, patents do just that by allowing them to pull
in billions in profits from brand-name, blockbuster drugs. But for most
public companies, patents don=92t pay off, say a couple of researchers
who have crunched the numbers.

=93Today, over all, patents don=92t work; for the information technology
industry especially, they don=92t work,=94 said James Bessen, who became a
lecturer at Boston University=92s law school after a career in business.
In 1983, he created the first computer publishing software with Wysiwyg
(an acronym for =93what you see is what you get=94) printing abilities. He
also founded a desktop publishing company, Bestinfo, later acquired by
Intergraph.

Neither Mr. Bessen nor his company patented anything, in part because
his lawyers told him that software couldn=92t be patented at the time. He
ultimately became interested in whether patents spurred innovation,
since the software industry for years innovated steadily without using
many patents. He and a colleague, Michael J. Meurer, are readying a
book on the topic, =93Do Patents Work?,=94 due in 2008. (A synopsis and
sample chapters are at researchoninnovation.org/dopatentswork/.)

The two researchers have analyzed data from 1976 to 1999, the most
recent year with complete data. They found that starting in the late
1990s, publicly traded companies saw patent litigation costs outstrip
patent profits. Specifically, they estimate that about $8.4 billion in
global profits came directly from patents held by publicly traded
United States companies in 1997, rising to about $9.3 billion in 1999,
with two-thirds of the profits going to chemical and pharmaceutical
companies. Domestic litigation costs alone, meanwhile, soared to $16
billion in 1999 from $8 billion in 1997.

Things have probably become worse since then. For instance, patent
litigation is up: there were 2,318 patent-related suits in 1999, and
2,830 in fiscal 2006 (though that=92s down from the peak year, 2004, when
3,075 were filed). Mr. Bessen said awards in patent cases also seemed
to be up, though he was less confident in that data. Worse, he says,
companies doing the most research and development are sued the most.

Mr. Bessen=92s critique of the patent system does not go so far as that
of economists like Michele Boldrin and David K. Levine, who argue that
the patent system should be abolished (
http://www.dklevine.com/general/intellectual/againstnew.htm). Mr.
Bessen said that besides girding the pharmaceutical industry, the
system did seem to work reasonably well for small companies and
individual inventors. Still, he said that =93our finding is that the risk
of patent litigation is creating a disincentive for R&D,=94 especially
for information technology companies, and that the system urgently
needs change.

Mr. Bessen=92s data is controversial. John F. Duffy, a law professor at
George Washington University, thinks that Mr. Bessen and Mr. Meurer
have undervalued the profits made from patented items, though he
acknowledged that a vast majority of patents are worthless.

Mr. Duffy, who thinks that the patent system remains a powerful
innovation engine for the economy, also noted that the data covers only
the private value of patents =97 it does not try to measure the social
value of patents, that is, the impact an invention has for society at
large. How, for example, might one measure the value of the stability
of an airplane, which can be traced to an invention patented by the
Wright Brothers?

Still, Mr. Duffy does not discount the research. In fact, he has
invited Mr. Meurer to present it at a conference later this summer.
=93The numbers are serious, and they are provocative,=94 Mr. Duffy said.

The data don=92t seem out of line to R. Polk Wagner, a law professor at
the University of Pennsylvania. He said that other research has
established that patents typically are worth less than $10,000. =93It=92s
not any secret that on a cash basis, it doesn=92t make sense to file
patents, and yet companies do it,=94 Mr. Wagner said.

Some companies are still spending billions on research programs despite
the increase in litigation costs. =93Whether or not the R&D efforts you
make invite litigation in no way relates to whether you do them,=94 said
Bernard S. Meyerson, an I.B.M. fellow who is named on more than 40
patents and is currently chief technologist at its systems and
technology group. I.B.M. has one of the corporate world=92s largest
research budgets, spending some $6 billion a year. And it does make
money from its patents, at least on a licensing basis.

Of course, I.B.M. also employs 370 corporate patent lawyers who Mr.
Meyerson said work =93hand in hand=94 with the company=92s inventors, tryin=
g
to make sure that the company is aware of patent pitfalls that might
affect its work.

I.B.M. and many other large high-tech companies have hefty patent
portfolios, which Mr. Meyerson said deters the companies from suing one
another. He said the industry operates under a large
intellectual-property umbrella: =93you are licensed under mine, I=92m
licensed under yours, and by declaring peace as opposed to war, you
have freedom of action,=94 Mr. Meyerson said.

Even so, he said I.B.M. is concerned that innovation could be choked by
patent litigation and would like to see the system reformed.

Congress could step in, and there are patent reform bills in the House
and the Senate, with many of the provisions aimed at reining in
litigation and damage awards. But this marks the third consecutive year
that Congress has considered patent reform, and there is enough
opposition from large companies to suggest that it will again have to
wait until next year.

There are other paths to change: the United States Patent and Trademark
Office could open patent applications to public comment, which could
help patent examiners find applicable previous inventions. The office
in June began a yearlong experiment allowing open comment on 250 patent
applications (www.uspto.gov/web/offices/com/speeches/07-21.htm). The
Web is already ahead of the patent office: a site called wikipatents
(www.wikipatents.com) has created an open comment process for several
years=92 worth of patent applications.

ANOTHER might be to increase the number of appeals courts that handle
patent cases. Right now, there is only one, the United States Court of
Appeals for the Federal Circuit. The Supreme Court, meanwhile, may have
helped the system immensely with a ruling in June that should stiffen
the standard of =93obviousness,=94 the key criterion in granting a patent.
Tougher standards may weed out many bad patents and reduce litigation.

But technological inventions are often not obvious, especially when it
comes to the esoteric world of software, where it can be unclear even
to the inventor what the patent will be good for.

Mr. Bessen, for one, is not optimistic. =93Things are going to get a lot
worse before they get better for the technology industry,=94 he said. If
he=92s correct, it will become harder to question his economic analysis
of the current patent system.

Michael Fitzgerald is a Boston-area writer on business, technology and
culture. E-mail: mfitz@nytimes.com.

---------------------------------
Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
voice +41.22.791.6727
fax +41.22.723.2988
mobile +41 76 508 0997
thiru@keionline.org