Patently Absurd: Too many patents are just as bad for society as too few.

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.

http://www.forbes.com/asap/2002/0624/044.html

-- 
Hugo Gayosso