Tuesday, October 9, 2012

Extra, Extra! Despite Current Reports, The Patent System is Not Stifling Innovation

For years, the main stream press has ignored patents.  As an attorney who embraces our patent system, I used to feel bad about being left out.  Now, I am afraid, I feel worse.  The main stream press as of late has stopped ignoring the patent system, and instead seems to be engaging in major league patent bashing.  Oh, how I long for the good ol’ days.

Yesterday’s New York Times featured an article “The Patent, Used as a Sword,” that paints a picture of a patent system that is so badly broken that it is actually hindering the progress of technology rather than following its Constitutional mandate to “promote science and the useful arts.”  My partner, Kent Schmidt, discussed this article briefly in his post on the Left Coast Law Blog.  I like Kent's post, but the Time's article - not so much.   Kent, who is not a patent guy by trade, picks up on the article's theme and asks the natural question this article begs: “Are we stifling competition and innovation” with our patent system?  I feel inspired to answer.

The short answer to this question is NO.  The patent system we currently have in place in the U.S. is certainly far from perfect and is being abused by some, but our patent system, despite its flaws, generally works as intended. 

 The Time's article bemoans the nearly $20 Bil reportedly spent on patent acquisitions and disputes over the last two years.  That is certainly a lot of money, but over $12 Bil of this amount was spent by Google to acquire Motorola Mobility – not just patents, but an iconic U.S. company known for generations as an innovator.  Years of innovation by Motorola were reflected in a robust patent portfolio that added substantial ongoing value to Motorola that was reflected in the purchase price of the company.  Another $4.5 Bil was reportedly spent at auction to acquire the Nortel patent portfolio, with the proceeds going to Nortel’s bankruptcy estate to help make creditors whole.  Although these patents fell into the hands of a licensing entity, Rockstar Consortium, the patents represent years of R&D investment  that was captured by a substantial patent portfolio.  As these two examples show, patents represent the conversion of a company's R & D efforts into a tangible asset and create a critically important incentive for investment in innovation.  

Patents not only serve to protect investment, but also spur the market forward.  As noted in the Times’ article  “[i]f Apple’s claims — which include ownership of minor elements like rounded square icons and of more fundamental smartphone technologies — prevail, it will most likely force competitors to overhaul how they design phones, industry experts say.”  This statement is intended to be some sort of dire warning from these unnamed “industry experts.” I don’t get it though.  This is exactly how the system is supposed to work – an innovator gets a patent and can get compensated for use of the innovation by others– that’s one part of a patent’s cycle of promoting innovation.  The limited monopoly presented by the patent also inspires the rest of the world to innovate to find new solutions to the problems addressed by the patent – that’s the second half of the cycle of innovation spurred by patents.  When a hurdle is placed on the track, it doesn't stop the gifted runner – it makes him work to get over it and still outpace his competition.  If competitors ultimately need to "overhaul how they design phones" because of patents, we will ultimately see new and better phones. The lack motivation to move past today’s status quo, such as the need to innovate around the patent of another, presents a far bigger risk of stifling competition and innovation than the current patent system does.

The risk of low quality patents being issued and asserted is real and improvements to patent examination are worth pursuing.  Patent litigation is expensive and thoughtful ways of reducing this expense and making it easier to ferret out bad patents are worth pursuing.  That being said, we should not abandon a system that is good in pursuit of a system that has unattainable perfection or no system of protection for innovation at all.    

The patent system is not perfect and likely never will be.  But, it is doing its job of balancing the competing requirements of maintaining an open competitive marketplace and rewarding innovators for bringing their ideas to the public for others to build on.  It is still an engine for "promoting science and the useful arts."