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Can the U.S. patent system be saved?

By Gina Smith
July 19, 2012 06:00 AM ET

Overall, these lower U.S. fees result in more and more patents here, overwhelming an already overtaxed patent examination system and resulting in some substandard patents that end up being overturned later.

Companies have always bought and sold patents, and it's legal to do so, of course. What's new here is the buying and selling of thousands of patents in a single transaction, a situation that potentially locks out smaller competitors and innovators in any given field -- and the AIA does nothing to prevent that.

This is to the advantage of tech companies that, as Ewing points out, fiercely complain about costs of litigation but then want to retain the right to arm themselves -- by buying massive numbers of patents -- to attack competitors.

Take Rovi. This firm owns over 1,000 patents related to on-screen cable TV program guides, the great majority of which it acquired. As a result, it is extremely difficult, if not impossible, to build a non-infringing TV guide, says Avancept's Ewing.

Another problem, Opperman adds, is intense lobbying on the part of large tech companies in order to weaken how courts calculate patent damages in cases against them. That way, they pay less when they lose.

Lobbying by high-tech firms could, ultimately, erode the enforceability of U.S. patents, Opperman says. "I fear that a decade from now U.S. high tech will come to rue the erosion they [lobby for], as offshore manufacturers take advantage of a weakened patent system and their own cheap labor pools to take U.S. market share away from U.S. innovators," he says.

So what's the answer?

In some ways, the high-tech industry has itself to blame for its own patent-related ills. Opperman points to the "proliferation of patents" and the ease with which big players buy and sell them. In that sense, he says, patents have become "commodities" for those who can afford them. "This commoditization has definitely driven down the quality of patents and [caused] their proliferation. So if you'd like to fix the patent system, make our user fees equivalent to those in Europe and use those fees to pay examiners more," Opperman says.

Outside the AIA, another step is to tighten existing overly broad patents, as the EFF attempts to do in its patent-busting project, intended to help narrow or defeat what it sees as overly broad patents, including one-click online shopping, pop-up windows, framed browsing and others. As part of the project, the EFF also hopes to help document the harm that these "illegitimate" patents cause to both the technology industry and to the public at large.

Patent innovation

Pessimistic that Congress will make significant reforms to the patent biz, the tech industry is largely left to self-police, says the EFF's Samuels. Twitter this year announced what it calls the Innovator's Patent Agreement, designed to let engineers ensure their patents aren't used for offensive litigation. Of course, there is nothing to stop another company from buying an engineer out of that contract.

"It's becoming self-help-oriented," said EFF's Samuels. But in the end, that won't be enough. "In order to fix the system, we need more than self-help answers. We need action from policy makers to make it harder for [litigious patent owners to] threaten those who are innovating in America and slow that innovation."

That's not going to happen anytime soon. "It's unlikely that the optimal design of the U.S. patent system will be the one that best serves the needs of all its largest customers," says attorney Ewing, noting that the patent system should serve the overall needs of the U.S. economy as a whole and the technology industry, one of its major drivers, in particular.

Not everyone believes the current system can be fixed well, quickly or even at all. Billionaire entrepreneur Mark Cuban is an investor in Vringo -- a small company that has sued Google for patent infringement -- and he is a vocal opponent of the way the patent system operates in the U.S. "Congress is full of lawyers. Lawyers make money from the patent system. There is no one representing the silent majority," he says.

For their part, tech companies use patent litigation to "shape markets. The concept of innovators [winning through invention] is gone," Cuban says. "You just buy a patent geared towards the company that is trying to disrupt your business and sue them over and over again until they can't afford to keep fighting and go out of business," Cuban says.

Gill, the former USPTO officer, takes issue with that. Now managing director and chief IP officer at MDB Capital Group, a boutique investment bank that raises money in the public markets for early-stage companies, Gill says Cuban is off base.

"Despite the inefficiencies in the patent system, innovation is still the engine that grows these important small companies," he maintains. "What some investors are reacting to here is that early-stage companies are most vulnerable -- and have critical needs for patent strategy from day one." Even Facebook wasn't squared away on IP issues when it filed for its IPO, he says.

"These are not trivial issues, but invention is not dead -- and the patent system didn't kill it," says Gill.

Related story: Why tech vendors fund patent trolls

Based in San Francisco, Gina Smith is a New York Times best-selling author and a veteran tech and science journalist specializing in news, news analysis and investigative work. She's also the editorial director of the geek site aNewDomain.net. You can email her at Gina@aNewDomain.net.

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