[Ip-health] WSJ: Patent Gridlock Suppresses Innovation

[Judit Rius Sanjuan]

http://online.wsj.com/article/SB121599469382949593.html?mod=todays_columnists

Patent Gridlock Suppresses Innovation
July 14, 2008; Page A15
INFORMATION AGE
By L. GORDON CROVITZ

The Founders might have used quill pens, but they would roll their
eyes at how, in this supposedly technology-minded era, we're
undermining their intention to encourage innovation. The U.S. is
stumbling in the transition from their Industrial Age to our
Information Age, despite the charge in the Constitution that Congress
"promote the Progress of Science and useful Arts, by securing for
limited Times to Authors and Inventors the exclusive Right to their
respective Writings and Discoveries."

For the third year in a row, Congress has just given up on passing a
law reforming how patents are awarded and litigated. This despite
growing evidence that for most industries, today's patent system
causes more harm than good. Litigation costs, driven by uncertainty
about who owns what rights, are now so huge that they outweigh the
profits earned from patents.

It's true that defining intellectual property is hard at a time when
new technologies upset the traditional ways of protecting rights, as
debates over digital piracy make clear. But in the case of patents,
poorly defined property rights for inventions are leading even the
biggest companies to take desperate measures, including banding
together to protect themselves against claims of increasingly broad
and vague patents.

Companies as diverse as Verizon, Google, Cisco and Hewlett-Packard
recently formed the Allied Security Trust to buy patents they may want
to use some day and that otherwise could end up in the hands of
"patent trolls." These firms buy up old patents not to produce
anything, but instead to work the system to extract settlements. A
similar group formed against trolls to protect the Linux open-source
operating system. A Google executive explained that helping to buy up
and license patents is the "legal equivalent of taking a long, deep,
relaxing breath." Companies can rest easier, and legitimate inventors
get paid for their work.

These corporate trusts seem like odd ways to protect products, but the
memory is still fresh of the BlackBerry device almost being forced to
shut down. Parent company Research in Motion paid more than $600
million in 2006 to settle a case. But in this and many other cases,
companies can't be sure whether or not they are complying with patent
law. For example, by one estimate there are more than 4,000 patents
that must be reviewed and potentially licensed by firms selling
products or services online. The legal abuses arising from uncertainty
are legion. More than 100 companies are being sued for alleged patent
infringement by using text messaging internationally.

The proposed law in Congress would have reduced potential damages to
the value of the technology, not the full value of the completed
product. Another uncertainty would have been reduced by moving to the
first-inventor-to-file system, instead of our more ambiguous first-to-
invent standard. The larger problems would have remained, including
the trend of awarding vague patents, coupled with a still-primitive
system for notifying others of the existence of patents.

Yet the fault line over patent reform signals the deeper problems.
Many pharmaceutical companies lobbied against the proposals, fearful
of reduced value in their key intellectual property. In contrast, most
technology firms supported the reforms, worried more about uncertainty
in the law than about the value of their patents.

Both sides may be right. New empirical research by Boston University
law professors James Bessen and Michael Meurer, reported in their
book, "Patent Failure," found that the value of pharmaceutical patents
outweighed the costs of pharmaceutical-patent litigation. But for all
other industries combined, they estimate that since the mid-1990s, the
cost of U.S. patent litigation to alleged infringers ($12 billion in
legal and business costs in 1999) is greater than the global profits
that companies earn from patents (less than $4 billion in 1999). Since
the 1980s, patent litigation has tripled and the probability that a
particular patent is litigated within four years has more than
doubled. Small inventors feel the brunt of the uncertainty costs,
since bigger companies only pay for rights they think the system will
protect.

These are shocking findings, but they point to the solution. New drugs
require great specificity to earn a patent, whereas patents are often
granted to broad, thus vague, innovations in software, communications
and other technologies. Ironically, the aggregate value of these
technology patents is then wiped out through litigation costs.

Our patent system for most innovations has become patently absurd.
It's a disincentive at a time when we expect software and other
technology companies to be the growth engine of the economy. Imagine
how much more productive our information-driven economy would be if
the patent system lived up to the intention of the Founders, by
encouraging progress instead of suppressing it.


Judit Rius Sanjuan
Attorney
Knowledge Ecology International / Essential Information
www.keionline.org / www.cptech.org
Phone: +1.202.332.2670, x18