Can the U.S. patent system be saved?

Most observers hold out little hope for a process that favors deep pockets, even with recent reforms.

With the number of patent-related lawsuits on the rise, and the system set up to favor deep-pocketed giants over individual inventors and smaller companies, U.S. technology innovation is in for a continued shaky ride, according to patent experts and other observers.

Yes, the U.S. Patent and Trademark Office (USPTO) is issuing more patents than ever before (see chart below). According to a recent USPTO report (PDF), around two-thirds of the two million patents that are active right now are in the technology field. But some observers say that increase has been at the expense of the overall quality of patents and what they cover. (See slideshow.)

Number of U.S. patents issued
If the historical trend of 1960 through 1980 had been followed from 1980 to 2012, we would have two million fewer patents issued than we do today, according to Avancept.

That trend is as damaging for large companies as it is for smaller firms. Should one-click shopping be patentable? How about Internet advertising? Both currently have patent protection.

(See related story, "Why tech vendors fund patent trolls.")

Overall, the situation is more complex -- and more expensive -- for the tech field than it is for most others. "Some of these IT companies have more patents individually than do entire industries," says Erin-Michael Gill, a former USPTO examiner who served as an adviser to the Obama administration in helping to draft the new patent regulations included in the Leahy-Smith America Invents Act (AIA).

"For example, the financial services industry has about 9,000 granted patents and 3,000 applications," Gill says. By comparison, Microsoft alone has 21,000 granted patents and 10,000 applications, Gill points out.

"Many of the basic building blocks of commerce and industry are [already] patented -- so if you build new technology, you probably infringe," says Colleen Chien, a professor at Santa Clara University who specializes in intellectual property (IP). One example of this is Spotify, which entered the online music business in the U.S. only to find that much of its technology was already patented by another company. (See sidebar at left.)

Abuses abound, experts agree. "The current patent system, despite all attempts to reform it, is fundamentally broken," says Julie Samuels, staff attorney at the Electronic Frontier Foundation (EFF).

"Whether it's filing huge numbers of patent applications, or aggressively licensing baskets of patents, or even defending yourself appropriately in just one patent lawsuit, the patent system has become to a large extent the sport of kings," says patent attorney Tom Ewing, a Silicon Valley intellectual property (IP) attorney and founder of Avancept, which tracks IP activities.

Last year, bankrupt Nortel auctioned off more than 4,000 patents; an Apple-led consortium, including Microsoft and Research In Motion, bought them for $4.5 billion.

"Only the largest tech companies can afford to play the full patent game," Ewing says.

Indeed, companies pay thousands or millions to buy portfolios of defensive and offensive patents, participate in patent auctions and deal with high litigation costs. For instance, Microsoft paid an average of $1 million per patent when it purchased 900 patents from America Online in March for more than $1 billion. Facebook now owns 650 of those former AOL patents and patent applications, for which it paid around $550 million.

Lawsuits abound, also requiring deep pockets. When Yahoo sued Facebook for patent infringement in March, Facebook fired back almost immediately with a countersuit of its own (PDF) -- naming 10 Facebook patents that it claimed Yahoo had infringed. Eight of the 10 patents Facebook named in its suit were patents Facebook purchased from third parties recently -- or "just in time" -- an activity only a large company could afford.

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