With US Patent Overhaul Dead, Agencies Ponder Changes As Industry Debates Role Of ‘Trolls’

By Drew Clark for Intellectual Property Watch
WASHINGTON, DC – With major legislative changes to the United States patent system unfinished as the 110th Congress prepares to dissolve, Executive- and Judicial-branch agencies on Friday jostled for authority over future patent policy.

Speaking at a Federal Trade Commission (FTC) hearing on “The Evolving Intellectual Property Marketplace,” FTC Chairman William Kovacic set the stage for what he said would be the “first in a series of events” to revisit the agency’s work five years ago on the impact patents have on competition policy.

Kovacic said that “coming up with good solutions to IP policy requires a genuinely multidisciplinary” approach, and that the FTC is well-suited to the task because of its ability to educate, convene and take appropriate enforcement actions.

Later in the day, the chief judge of the Federal Circuit Court of Appeals, which has jurisdiction over all patent appeals, said that neither Congress nor the executive branch should be actively involved in overhauling intellectual property.

Rather, said Chief Judge Paul R Michel, “We will probably make more progress in the courts through case law” than by asking the US Patent and Trademark Office (USPTO) or Congress to wade deep into intellectual property conflicts.

“Everyone should make their own choice about who is the right actor to make fine balancing decisions,” continued Michel, adding that “this is what courts do all the time, probably way better than Congress.”

The 2003 FTC report [pdf], To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, A Report by the Federal Trade Commission, highlighted significant differences in the way in which the information technology and biotechnology industries utilise patents.

The 2003 report was produced as a result of a series of workshops held by the FTC and the Department of Justice Antitrust Division with the cooperation of the USPTO.

Because of the breakthrough nature of pharmaceutical inventions, patents play a more obviously positive role in that field than they do in information technology. Because the information technology industry is more driven by incremental invention, the report found, it worried more about the role that “patent thickets” and “patent trolls” – individuals who use the element of surprise to extract payments for the use of a patent – can use litigation to forestall marketplace innovation.

The report presaged the current divisions between the industries over the now-dead legislation that would have overhauled the patent system. The push toward patent legislation has been driven by many high-tech companies, including Cisco, which manufactures internet routers.

The pharmaceutical industry has been determinedly opposed to patents changes, as have other technology players like Qualcomm and Intellectual Ventures, which seek a licensing model rather than a manufacturing model for exploiting the value of patents.

Cisco Vice President Mallun Yen said that the number of patent lawsuits against the company has quadrupled over the past five years. “The patent system overvalues patents, particularly weak ones, and thereby suppresses innovation,” she said.

Yen disagreed with Peter N Detkin, founder and vice chairman of Intellectual Ventures, who attempted to recast the patent debate as one between big players, like Cisco and IBM, against individual inventors.

Detkin said these small inventors do not want to commercial their inventions. Instead, they want to reap the appropriate reward and go back to inventing.

As an example, Detkin cited an inventor who figured out a way to accelerate router speeds by 10 percent. That inventor didn’t want to compete against Cisco in the marketplace, but wanted to licence its technology to Cisco, he said.

Yen countered that Cisco routinely buys start-ups solely for their intellectual property. These small companies are generally founded by inventors as a means of commercialising their invention.

The more disconcerting practice, she said, is when inventors – or patent attorneys who purchase them because of their potential litigation value – seek to extract more value from Cisco than would be represented by their invention.

Others on the panel agreed with Yen. Commercially developing a patent takes 20 times the resources that it does to invent, said Daniel P McCurdy, chairman of PatentFreedom, a new company seeking to provide better patent data to inventors and intellectual property lawyers.

“It is not in the public interest to have” powerful intellectual property tools such as the ability to enjoin a competitor from introducing a product because of marginal inventions, said McCurdy. “If all you have is an idea, you have no knowledge to teach” other inventors and practitioners.

All panellists agreed, however, that the global patent marketplace had changed considerably since 2002-2003, in particular by the trend that Intellectual Ventures had pioneered by seeking to make the marketplace for patents more liquid. The panellists also agreed that more data about private licensing of intellectual property is necessary to help make the marketplace friction-free.

Following the hearing, the Coalition for 21st Century Patent Reform issued a statement saying that a series of recent landmark Supreme Court and Federal Circuit patent decisions are still being digested by the intellectual property community. “It is clear that there is a need to gain a better understand of the new patent landscape before proposing changes” to current law, coalition Chairman Gary Griswold said in a statement. He said that the FTC hearing demonstrated the “significant changes in the patent system” since its 2003 report. The coalition opposes significant changes to patent law.

Drew Clark is the editor of BroadbandCensus.com, a free service offering information about local broadband speeds, prices, availability, reliability and competition. A Washington-based telecom, media and technology journalist, Clark may be reached at drew@drewclark.com.