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Patent system exploited – Pacific Research Institute

Patent system exploited

A federal agency on Friday barred the second-largest supplier of high-definition televisions in North America from selling its products in the United States. This action reveals a patent system badly in need of reform.

The U.S. International Trade Commission punished Irvine’s Vizio for infringing on a competitor’s patent, even though the agency that awarded this patent twice determined it should never have been granted. In the 50 years since its last major overhaul, the U.S. Patent System has transformed from a tool that promotes innovation into a weapon for restricting it. This results in fewer choices and higher prices for consumers.

At the U.S. Patent and Trademark Office, 5,000 examiners must evaluate nearly 500,000 patent applications every year. Despite the complexity and specialization of modern technology – for example, Apple’s iPhone alone is covered by more than 200 patents – an examiner has only hours to weed out obvious or unoriginal inventions. Errors take an enormous toll on innovation.

Armed with bad patents, opportunists then can sue any successful technology firm. The cost of litigation typically approaches $10 million, and damages can exceed $100 million. Because patent holders win 56 percent of verdicts, technology companies often opt to settle out of court. This diverts critical funds from research and encourages abuse.

The number of patent applications has doubled in only 10 years, but this does not necessarily signal a burst of creativity. The former director of the patent office Jon Dudas, remarked last year that “we are getting more and more unpatentable ideas, worse and worse quality applications.” Applicants seeking to game the system hope to sneak unpatentable ideas by examiners, and then extort high-tech pioneers with frivolous lawsuits. Even if an examiner rejects the application, petitioners can resubmit until receiving a more favorable outcome. This has resulted in a new class of patent holders never envisioned by the Founding Fathers.

The Constitution allows inventors exclusive rights over their discoveries “to promote the progress of science,” but today’s “nonpracticing entities” – or patent trolls – have no intention of developing, building or marketing a useful product. Instead, they buy and trade patents as commodities, deriving income exclusively from suing or threatening to sue innovators. The number of lawsuits filed by nonpracticing entities has increased six-fold over the past decade, and today exceeds 10 percent of all patent litigation.

Recognizing that patent abuse threatens the nation’s high-tech leadership, the Senate Judiciary Committee voted this month to approve the Patent Reform Act of 2009. This bill takes an important first step toward increasing the quality of patents and restoring their intended purpose: promoting innovation. A new “post grant review” process would empower any citizen with specialized knowledge to help correct errors at the U.S. Office Patent and Trademark Office and invalidate bad patents. The bill will also help shut down a patent abusers’ playground in east Texas.

As one of the nation’s most plaintiff-friendly venues, Marshall, Texas, has become a hub for patent litigation. Cases have increased more than 15-fold since 2000, as win rates soar past 70 percent and courts award damages nearly triple the average for Northern California. The Patent Reform Act, if signed into law, will make it more difficult for plaintiffs to gain an unfair advantage by hand-picking friendly courts and judges.

After six years of debate, the Senate Judiciary Committee’s vote demonstrates that opposing interests in the technology and pharmaceutical industries can compromise to fix a broken system and protect the freedom to innovate. Despite this progress, considerable work remains.

Until Congress fundamentally modernizes the patent office and ends the patenting of abstract ideas and business methods, excessive litigation will continue to impede discovery. Policymakers must work to minimize unnecessary lawsuits because true innovators wear white coats, not black robes.

Daniel R. Ballon, Ph.D., is a senior fellow in technology studies at the Pacific Research Institute in San Francisco.

This article appeared on page A – 15 of the San Francisco Chronicle

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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