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.
