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Wall Street Journal

 

Digital Innovators vs. the Patent Trolls

April 18, 2011

By Peter W. Huber

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The Supreme Court hears its seventh major patent case in six years.

Today the Supreme Court will hear argument in Microsoft v. i4i, the seventh major patent case it has accepted in six years. The Court’s recent interest reflects the fact that our patent laws have drifted way off course.

Real innovators in the digital realm keep adding new software modules, chips and networking capabilities to the toolkit. Biochemists do much the same in their field, as they isolate genes and proteins and build new tools for re- engineering them. In these and many other areas of the economy, much of the innovation gets embodied in plug-and-play building blocks, which are then easily combined in different ways to perform a wide variety of tasks.

But the proliferation of smart building blocks keeps making it easier for most anyone to write up a patent that simply describes what a keen invention will do, contributing little more than a sketch for how someone might build it from off-the-shelf parts.

At the Patent Office, it’s up to the examiner to find out why the patent doesn’t significantly advance the art—the applicant isn’t required to prove that it does, and skeptical outsiders don’t participate. The typical patent gets eight to 25 hours of review. The Office now grants more than 4,000 patents a week—about four times as many as it did in 1980.

Only about 2% of patents end up in court, where they typically get, for the first time, meticulous scrutiny by an adverse party and a judge. But a judge-made rule—the one the Supreme Court is scrutinizing today—requires courts to defer to the Patent Office absent “clear and convincing” evidence that the examiner overlooked something.

Big companies that turn sketchy ideas into real chips, software, drugs and other high-tech products collect lots of patents along the way—but so do their competitors. They rarely sue each other because in highly innovative, fast-growing industries, competing for customers is much more profitable than competing in court.

“Patent trolls,” on the other hand, now buy entire patent portfolios, often from failing companies, and then search for targets to sue. Venerable law firms that grew big representing large corporate clients are now being enlisted by hedge funds to run the sue side of a troll-and-sue business on a contingency-fee basis.

About one out of every seven patent suits is now filed in the Eastern District of Texas, renowned for down-home judges who hold quick trials and will send most any claim to a jury. A patent is property, good Texans believe in property rights, and that pretty much settles it.

The masterminds behind these lawsuits hire local counsel to supply the neighborly face in the courtroom. Personal-injury lawyers sidelined by strong tort reform laws are happy to switch from PI to IP. At oral argument in a 2006 case claiming that eBay’s “Buy It Now” button infringed on another company’s patent, Justice Antonin Scalia called the district “renegade.”

The national picture is not much better. According to a recent analysis of national trends by PricewaterhouseCoopers, juries decided only one out of every seven patent cases in the 1980s; in 2009 they decided about seven out of 10. Juries also favor plaintiffs far more often than judges do—and award much higher damages.

The Supreme Court has clearly been trying to address the junk-patent problem. In a 2007 case, KSR v. Teleflex, the unanimous court called five times for the use of more “common sense” in evaluating patents that describe only a “known problem” and “an obvious solution.” Last year, in Bilski v. Kappos, the Court unanimously rejected a patent on a process for hedging against price fluctuations in energy markets—an “abstract idea,” Justice Anthony Kennedy concluded, that is “taught in any introductory finance class.” Another recent case made it easier to get a judge to review validity soon after a patent is granted.

The business community is often sharply divided in these cases. It’s all too easy to suppose that the terrific patent portfolio your company has spent so much developing is worth a fortune and forget that another 4,000 patents were being granted alongside each one of yours. And like many Texans, some conservative pundits applaud the trolls, believing that this is how the market moves private property into the hands of the people who value it the most.

But that’s the rationale used to justify all litigation ginned up by contingency-fee lawyers. The issue isn’t whether intellectual property rights should be enforced, it’s whether we have a reliable process for working out who really supplied the intellect. We don’t. A system that issues and upholds junk patents will devalue intellectual property much faster than one that scrutinizes patents more carefully and enforces only the good ones.

Original Source: http://online.wsj.com/article/SB10001424052748704495004576264780115609572.html

 

 
 
 

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