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.