Intellectual Property Directions

UPDATE 02-Mar-10: As has been pointed out (see comment), the blog belongs to BRAD Feld, not Michael.

A recent post on Michael Feld’s blog, http://www.feld.com/wp/archives/2010/02/sawyer-weighs-in-on-intellectual-ventures.html, prompted me to post the following comments:

“Sawyer’s” comments on IV, as useful as they may be in making him feel self-righteous (or is he spending all that time in Texas pro bono) are, for the most part, avoiding the real issues of the failure of the patent system, world wide, to keep up with technology and business realities. He is attacking someone who plays a bad game better than he instead attacking the bad game itself.

The three hundred year old perception that it was a fair trade to give an inventor some period of exclusivity to profit from his invention in exchange for teaching society the invention’s details never envisioned a world in which product/technology lifecycles might be measured in months or in which patent litigation costs start at 7 figures. Nor did they envision technologies where a patent examiner would need an advanced degree to understand a patent application. Or inventions that were totally intangible, like software or business methods.

Furthermore, I doubt the founding fathers envisioned the growth of the patent law practice, where one set of attorneys bill out at well over 50 times the minimum wage to nitpick through the legal maze created and interpreted by another set of lawyers.

My point is not that attorneys charge too much - it is just that the constitutional basis for the patent laws (that society benefits when innovation is encouraged and that that goal is achieved when inventors are encouraged to share the details of their invention with society by having an opportunity to profit without competition) is no longer served by the laws and processes that form our patent system.

The Montagues and Capulets, the ranchers and the farmers, the Hatfields and the McCoys, and, least we forget, the multi-nationals and the small inventor. On the battlefield of patent reform what’s good for one may be an anathema to the other.

As widely reported, a new set of patent reform bills has risen from the ashes of last year’s bills and it will be interesting to see what changes, if any, survive the legislative process. Some of the included changes would:

1. convert the US to a first-to-file system;
   >I like this change. Most small inventors/companies do a lousy job of keeping invention notebooks anyway and really can be more efficient in filing, not needing approvals from multiple bureaucratic layers.
2. revise the determination of damages, in particular, how a “reasonable royalty” is calculated;
   > While I’m not sure of the answer, I am sure that it is important that a royalty be somehow related to the added value of the invention and not to the total value of a complex system.
3. codify the Federal Circuit’s In re Seagate decision regarding the standard to determine willful infringement;
   > with the large body of, frankly, crappy patents out there I wholeheartedly think Seagate, which essentially said you are not being willful if you can see a reasonable infringement defense, is an important protection for small entities, who can’t afford to pay for freedom-to-operate opinions on every marginal patent out there.
4. provide for an improved inter partes reexamination system and an administrative post-grant review to challenge patents within 12 months of the patent’s issue or reissue, i.e., a “first window” post-grant review:
   > while a good way to pare away unworthy patents, the extra costs of “re-prosecuting” patents must not become a financial club used by large entities against small entities. Since virtually all infringement defenses say “I didn’t infringe, but if I did it doesn’t matter since the patent is invalid” it would be nice to address the invalidity question first and in an out-of-court setting.
5. provide for interlocutory appeals of Markman decisions
6. amend the venue statute to reduce forum shopping
7. provide the director of the Patent Office with expanded rulemaking authority to set or adjust fees; and
8. repeal the residency requirement for Federal Circuit judges.

Last week, Medical Device Daily National Editor Don Long presented his idea of an improved patent system in The Age of Entrepreneurship vs. the entrenched patent ‘windmill”. From his perspective, the basic concept of the patent system - the ability to exclude others from practicing your invention - is outmoded and prevents important [medical devices] from reaching the patients who could benefit from their innovation. While I agree with his basic tenet, I think his cure would be worse than the affliction. His suggestion for changing the patent system is intriguing, but as with most fundamental changes it comes along with its own set of issues.

Boiling down the idea to its core, the suggestion is to enforce mandatory licensing of patents with the license fee intentionally kept low. I believe this is the system used in music copyrights; if you want to record a cover of someone’s hit you know up front that all you have to do is pay a predetermined license fee. This works in the music space because people don’t buy CDs based on the lyrics/notes per se but rather because they like the specific performance - thus the copyright owner is not really licensing his or her competitors.

I see the patent system  as contract between inventors and society, with each side giving something in exchange for getting a benefit. Mr. Long’s basic argument is that the scales have tipped too far toward the inventor - having monopoly control for 17 years or so is just too long in this fast moving world. The expected benefit to society - that the inventor has taught us all about his invention and stimulates other inventors - doesn’t happen fast enough. And surely his idea would solve that problem.

But as with any idea, there is a down side. One problem is what happens to the small company. A large medical device company, for example, has all the marketing, manufacturing and engineering resources to crush the small company in the marketplace so the suggestion of mandatory patent licensing turns the small company into a (poorly paid, involuntary) R&D department for the large company. Generally the small company will not be able to survive (or if they can survive they probably can’t grow) on the(intentionally low) license fees alone, so they’re toast.

Also, contrary to Mr. Long’s claim that investors would flock to the inventors, I have yet to meet a VC who would invest in a (small and/or startup) company that cannot use IP to protect its market or at least garner >large< license fees for letting others exploit the market.