The U.S. patent examination system was codified in 1836, designed to protect the intellectual property behind old-line products like screwdrivers and aspirin. In 1982 a new appellate court was created that made it easier to obtain patents on products and services of all kinds and tilted the balance in favor of patent holders, no matter how tenuous their claims. Later in the 1990s, the Federal courts overturned the Patent and Trademark Office rulings against granting software patents. The result was a flood of software patents, which seem to now be, in large part, stoking patent warfare.
Unfortunately, the patent system hasn’t kept pace with these rapid technological changes and is being misapplied today. In the world of smartphones, tablets and the Internet, patents have become just another offensive weapon in the business market place. Increasingly patents are not being used to protect legitimate innovation. Instead, older technology companies with large patent portfolios and non-practicing entities (trolls) use them solely to gain a financial edge or reduce competition. This has the effect of actually stifling economic and technological growth and harming consumers by depriving them of lowered costs and new innovations.
Obviously stifling innovation is not the purpose of our patent system. For the chemical and pharmaceutical industries, patents have certainly played a key role in driving advancements. However, for companies in the software and telecommunications industries, patents are a far more complicated issue. For these companies, the risk of litigation substantially exceeds the profits that firms derive from their patents. Indeed, the software industry was highly innovative before patents were issued for software.
When the patent system was created, most inventions were simple, and covered by a single patent. Even today, many manufactured products contain only a small number of patented inventions and the most advanced medicines may be covered by a handful of patents. This is not the case in high-tech. Laptops, mobile phones and even software contain hundreds and thousands of individual patents – some 250,000 patents may cover a single smartphone.
In the face of these complex technologies, there is no simple, one-size-fits-all solution. While the U.S. Congress tried to address these challenges in the American Invents Act in 2011, the legislation does very little to address problems with patents in the technology sector today, particularly with software.
Current legal standards generate a plethora of trivial, vague and overly-broad software patents made more powerful by out-of-sync court remedies. As a result, innovative companies find themselves with no choice but to spend huge sums in building defensive patent arsenals. Since 1980, the number of patent lawsuits has tripled and the annual cost of that litigation exceeds $30 billion.
The reason for this explosion in litigation is that patents increasingly fail to provide predictable legal boundaries. Courts have eroded patent boundaries by allowing patent applicants to obscure their rights and to claim far more than they invented, and by expanding patents to cover intangible subjects such as software, methods of doing business and mental processes. When patent boundaries are fuzzy, firms cannot feasibly check whether their own innovations infringe existing patents. Instead, they are put at risk of inadvertently infringing.
For the patent system to promote innovation most effectively, it must confer balanced rights with clear boundaries. Additionally, it’s important that patent disputes should not be unduly burdensome or costly, and damages should be predictable and commensurate with harm. With thousands of patents covering tech products, each having the ability to support an injunction, owners of even trivial patents wield an enormous amount of power.
Wednesday, the House Committee on the Judiciary holds a hearing on the implementation of the recently passed patent reform legislation. Let’s hope discussion focuses on how to carefully and effectively apply the law so it addresses these challenges but also underscores the need for to courts to also address these problems. The health and competiveness of our nation’s economy depends on it.
Bessen, a former software developer and CEO, is lecturer at Boston University School of Law and co-author of the book “Patent Failure.”