Subject:
Patently Absurd
Date:
Fri, 14 Jun 2002 19:38:31 -0400
From:
"R. A. Hettinga" <[EMAIL PROTECTED]>
To:
Digital Bearer Settlement List <[EMAIL PROTECTED]>
http://www.forbes.com/asap/2002/0624/044_print.html
Patently Absurd
Gary L. Reback, 06.24.02
Too many patents are just as bad for society as too few.
There are those who view the patent system as the seedbed of
capitalism--the place where ideas and new technologies are nurtured.
This
is a romantic myth. In reality, patents are enormously powerful
competitive
weapons that are proliferating dangerously, and the U.S. Patent and
Trademark Office (USPTO) has all the trappings of a revenue-driven,
institutionalized arms merchant.
My own introduction to the realities of the patent system came in the
1980s, when my client, Sun Microsystems--then a small company--was
accused
by IBM of patent infringement. Threatening a massive lawsuit, IBM
demanded
a meeting to present its claims. Fourteen IBM lawyers and their
assistants,
all clad in the requisite dark blue suits, crowded into the largest
conference room Sun had.
The chief blue suit orchestrated the presentation of the seven patents
IBM
claimed were infringed, the most prominent of which was IBM's notorious
"fat lines" patent: To turn a thin line on a computer screen into a
broad
line, you go up and down an equal distance from the ends of the thin
line
and then connect the four points. You probably learned this technique
for
turning a line into a rectangle in seventh-grade geometry, and,
doubtless,
you believe it was devised by Euclid or some such 3,000-year-old
thinker.
Not according to the examiners of the USPTO, who awarded IBM a patent on
the process.
After IBM's presentation, our turn came. As the Big Blue crew looked on
(without a flicker of emotion), my colleagues--all of whom had both
engineering and law degrees--took to the whiteboard with markers,
methodically illustrating, dissecting, and demolishing IBM's claims. We
used phrases like: "You must be kidding," and "You ought to be ashamed."
But the IBM team showed no emotion, save outright indifference.
Confidently, we proclaimed our conclusion: Only one of the seven IBM
patents would be deemed valid by a court, and no rational court would
find
that Sun's technology infringed even that one.
An awkward silence ensued. The blue suits did not even confer among
themselves. They just sat there, stonelike. Finally, the chief suit
responded. "OK," he said, "maybe you don't infringe these seven patents.
But we have 10,000 U.S. patents. Do you really want us to go back to
Armonk
[IBM headquarters in New York] and find seven patents you do infringe?
Or
do you want to make this easy and just pay us $20 million?"
After a modest bit of negotiation, Sun cut IBM a check, and the blue
suits
went to the next company on their hit list.
In corporate America, this type of shakedown is repeated weekly. The
patent
as stimulant to invention has long since given way to the patent as
blunt
instrument for establishing an innovation stranglehold. Sometimes the
antagonist is a large corporation, short on revenue-generating products
but
long on royalty-generating patents. On other occasions, an opportunistic
"entrepreneur" who only produces patent applications uses the system's
overly broad and undisciplined patent grant to shake down a potential
competitor.
Abusers of the patent system have been aided and abetted by the USPTO.
At
best, the office has abdicated its role in forming patent policy. More
accurately, the office has concluded, without the benefit of analysis,
that
more patents are better for society. In fact, every patent issued comes
at
significant economic cost. Usually, a company needs to make better
products
more cheaply to succeed. But as an incentive to innovate, a patent
holder
gets a free pass from the rigors and challenges of competition.
The right amount of such incentive may well spur invention. But too many
patents are just as bad for society as too few. The undisciplined
proliferation of patent grants puts vast sectors of the economy
off-limits
to competition, without any corresponding benefit to the public.
The tension between the patent as a way to stimulate invention and the
patent as a weapon against legitimate competition is inherent in the
system. And, given the enormous competitive advantage conferred by a
patent, it is not difficult to anticipate that interests of all types
would
besiege the USPTO seeking the government's imprimatur to exclude
competition. For almost two centuries, the USPTO did a reasonable job
balancing the need for incentive against the need for competition. But
about 20 years ago the floodgates burst open, and the free-enterprise
system has been thrashing in a tidal surge of patent claims ever since.
This change in patent policy came largely from the USPTO and the courts,
rather than Congress. In 1980 the U.S. Supreme Court, by a 5-to-4 vote,
broadened the scope of what is patentable by directing the USPTO to
grant
patents on human-made, genetically engineered bacteria. In explaining
its
decision, the Court quoted a 30-year-old congressional committee report
for
the proposition that "anything under the sun that is made by man"
qualifies
for patent protection. That decision (and several others like it)
signaled
to the USPTO an about-face in the decades-long reluctance to expand
patent
protection. The USPTO interpreted these new decisions very broadly and
began to issue patents on computer software--hitherto considered
uncopyrightable as mathematical algorithms, since they are not really
human
inventions.
In 1982, Congress created a special Court of Appeals for the Federal
Circuit (CAFC) for all patent cases. The CAFC capped off this trend
toward
broader patent protection by ruling in 1998 that methods of doing
business
are patentable.
Patent claims for computer software and methods of doing business
inundated
the USPTO, and there were few records of prior inventions in these two
areas against which to check new claims for novelty. Specious patents
were
awarded in droves. Far from retreating, the USPTO saw a bureaucratic
upside
to this surge in patent applications.
The USPTO realized that the fees from granting and maintaining patents
created that rarest of American institutions--a government profit
center.
In fact, the USPTO started openly advocating that its performance be
measured by the amount that it contributed to the public coffers.
During the first Clinton Administration, for example, USPTO Director
Bruce
Lehman attempted to deflect criticism of the USPTO's practices by
traveling
around the country with a chart showing precisely how much revenue the
USPTO raised for the federal treasury. Lehman's approach shocked many in
the technology community. "It's like he's bragging about the amount of
money he brought in selling plots of land in Yosemite," marveled a
Silicon
Valley executive. Worse, Congress recognized in the patent system a
revenue
source and began lifting a portion of USPTO fees to subsidize profligate
spending. The USPTO became the federal government's cash cow.
The rest of the country has begun to notice. Distinguished academics and
eminent jurists from across the political spectrum, as well as
journalists
and business commentators of every conceivable stripe, have all begun to
ask whether the USPTO policy of patent proliferation makes any sense for
a
free-market economy. Within the past five or six years, economists in
particular have started to question the USPTO's practices, finding
little
correlation, if any, between patent proliferation and invention.
Economists
have identified many situations in which patents actually retard the
introduction of new products.
The leaders of the USPTO dismiss all such criticism. On policy issues,
they
seem to interact most frequently with patent lawyers, who make a good
living from the present system and have little incentive to change it.
Never mind that only about half of the patents litigated in court to
final
resolution are held valid. To hear the USPTO tell it, more money is
needed
to issue even more patents. But the pressure for change is building.
If the system is going to be fixed, the USPTO needs to focus on the
economic costs of its policies and correct its own balance sheet. The
USPTO
measures its own net income with all the sophistication of a dot-com,
focusing only on the top line--application fees. In all the charts and
graphs of "operating results" in the USPTO annual report, there is not a
cent attributed to the cost to the public of the slices of the economy
it
is selling off for monopolization by private interests.
The USPTO needs to be liberated from the burden of its own revenue
stream.
Patents are not a short-term revenue-generating engine. The USPTO should
focus in the first instance on proper patent policy and advise Congress
to
do the same. If the short-term cost of a more disciplined patent system
is
to fund the USPTO out of general tax receipts, so be it. Our economy
will
be far healthier in the long run.
Gary L. Reback has been named one of the "100 Most Influential Lawyers
in
America" by the National Law Journal. His clients have included Sun
Microsystems, Netscape, Oracle, Apple, Borland, and Novell. He also
spearheaded the assault to break up Microsoft's operating system
monopoly.
He is currently a Silicon Valley entrepreneur.
--
-----------------
R. A. Hettinga <mailto: [EMAIL PROTECTED]>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
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