Can the U.S. Patent System Be Saved?

Speeding up the process

Another new capability, part of the AIA and in effect now, allows small companies to accelerate patent examination more cheaply. It'll cost $2,400 for entities with fewer than 500 employees, and double that for larger companies. The new fee structure is explained here. It is unclear at this point how much this will accelerate the process, as it changes from patent to patent.

But it should make a difference to small inventors and is perhaps the AIA's greatest change to the patent system, former USPTO staffer Gill says.

That's Section 25, he explains, but he worries that it is one of the lesser-known reforms. Only companies with the legal chops to unearth it will know how to take full advantage of the new acceleration options for all inventors. Getting the word out is something the USPTO must do, Gill says.

Gill knows the problems first-hand. As an executive at a once-promising but now-defunct startup called OQO, holder of a Guinness World Record for the smallest computer ever, he managed IP with an all-star engineering team.

I fail to see how innovations are being stifled. Patrick Ross, USPTO deputy communications director

The tiny OQO faced off in three separate patent-related lawsuits. The firm settled one and the other two were still pending when the company went under, he says.

But the firm had other issues. As the company struggled to stay above water, OQO had some 90 patent applications languishing in the patent office, making it difficult for the firm to raise money, Gill says. "You need assets investors can put money into -- but 18 months just to get the application published and over 30 months to get approval -- well, that is an eternity in tech," Gill says.

So much of the AIA needs to be tested in the real world, he says, and how it all will shake out remains to be seen.

Reaction to AIA

"It's certainly a step in the right direction," the NAS' Merrill says. "We're delighted we had an impact," he adds, while conceding that though the AIA is the biggest change to patent law since 1952, it still "is a modest change" overall.

"My biggest problems with the AIA are problems of omission," the EFF's Samuels says. For example, she explains, there are new opportunities for third-party challenges of questionable patents, but "those challenges are expensive and hard to access."

Another issue, Samuels continues, is that one of the promising new ways to challenge issued patents allows for those challenges to happen only in the first three months.

Even with lower fees and patent acceleration for small companies, Samuels says, "the new law provides virtually no tools for small innovators or inventors -- specifically those who may not participate in the patent system but find themselves affected by it all the time -- to fight for their interests without serious financial backing."

Chien adds, "It's too early to tell how much the AIA will improve the patent system."

Defending the status quo

The patent system is, by design, a way to get inventors to clearly disclose what they've invented -- their "secret sauce" -- in exchange for a temporary (now 20-year) monopoly on the invention.

The USPTO's Ross says, "I fail to see how the innovations are being stifled" by the patent system. "Patents are being filed by companies in Silicon Valley, leading to millions of dollars in revenue. IP-intensive industries support at least 40 million jobs and contribute more than 38% of GDP; that's five trillion dollars annually," he explains, referring to a recent report(PDF) by the U.S. Bureau of Economic Analysis.

Ross points out that patent trolling, litigation and other problems happen largely after the patent process is complete on the USPTO end.

Some experts blame the proliferation of too-broad patents on the USPTO, saying that young and inexperienced examiners hand out patents with abandon, besieged as they are.

Ross concedes that point but says the USPTO is hiring more examiners right now, thanks to new AIA provisions, and is able to pay higher salaries for examiners with more experience.

Also, the agency is opening a satellite office in Detroit and is looking for examiners with more experience than the fresh-out-of-college candidates it typically has relied upon. The hope is that the new office will lure patent examiners, who make between $50,000 and $100,000 on average, to work for the agency if they have an option to live outside of ultra-expensive Washington.

Understanding prior patents, and other problems

The EFF's Samuels explains another common complaint about the patent system. "Most people actually can't understand what the patents cover, regardless of whether they have to. And the inability to really understand has resulted in a world where inventors are incentivized to ignore patents."

Gill agrees. "With so many patents from so many companies and all the legalese to wade through, you're in a situation where so few inventors even can understand what previous patents cover," he says.

Other issues abound, experts say. Craig Opperman, a Silicon Valley patent attorney at DLA Piper, points out that the U.S. legal system doesn't force the losing party in a suit to pay the winning party's legal fees. As a result, litigation is cheap and easy for companies who can afford it.

Also, he says, "It is very inexpensive, relative to Europe, for example, to get a patent."

Ewing trains patent agents around the globe as part of his work for the World Intellectual Property Organization. He explains that "attorneys' fees are typically higher in Europe, and patent holders must pay annuity fees for each European country in which they want to keep their patent active. Any one of these fees tends to be equal to or higher than the U.S. fee."

In other words, if the cost of a patent in any one of the EU countries is equivalent to the U.S. cost, then one must multiply that by the number of countries in which the patent is being applied.

Overall, these lower U.S. fees result in more and more patents here, overwhelming an already overtaxed patent examination system and resulting in some substandard patents that end up being overturned later.

Companies have always bought and sold patents, and it's legal to do so, of course. What's new here is the buying and selling of thousands of patents in a single transaction, a situation that potentially locks out smaller competitors and innovators in any given field -- and the AIA does nothing to prevent that.

This is to the advantage of tech companies that, as Ewing points out, fiercely complain about costs of litigation but then want to retain the right to arm themselves -- by buying massive numbers of patents -- to attack competitors.

Take Rovi. This firm owns over 1,000 patents related to on-screen cable TV program guides, the great majority of which it acquired. As a result, it is extremely difficult, if not impossible, to build a non-infringing TV guide, says Avancept's Ewing.

Another problem, Opperman adds, is intense lobbying on the part of large tech companies in order to weaken how courts calculate patent damages in cases against them. That way, they pay less when they lose.

Lobbying by high-tech firms could, ultimately, erode the enforceability of U.S. patents, Opperman says. "I fear that a decade from now U.S. high tech will come to rue the erosion they [lobby for], as offshore manufacturers take advantage of a weakened patent system and their own cheap labor pools to take U.S. market share away from U.S. innovators," he says.

So what's the answer?

In some ways, the high-tech industry has itself to blame for its own patent-related ills. Opperman points to the "proliferation of patents" and the ease with which big players buy and sell them. In that sense, he says, patents have become "commodities" for those who can afford them. "This commoditization has definitely driven down the quality of patents and [caused] their proliferation. So if you'd like to fix the patent system, make our user fees equivalent to those in Europe and use those fees to pay examiners more," Opperman says.

Outside the AIA, another step is to tighten existing overly broad patents, as the EFF attempts to do in its patent-busting project, intended to help narrow or defeat what it sees as overly broad patents, including one-click online shopping, pop-up windows, framed browsing and others. As part of the project, the EFF also hopes to help document the harm that these "illegitimate" patents cause to both the technology industry and to the public at large.

Pessimistic that Congress will make significant reforms to the patent biz, the tech industry is largely left to self-police, says the EFF's Samuels. Twitter this year announced what it calls the Innovator's Patent Agreement, designed to let engineers ensure their patents aren't used for offensive litigation. Of course, there is nothing to stop another company from buying an engineer out of that contract.

"It's becoming self-help-oriented," said EFF's Samuels. But in the end, that won't be enough. "In order to fix the system, we need more than self-help answers. We need action from policy makers to make it harder for [litigious patent owners to] threaten those who are innovating in America and slow that innovation."

That's not going to happen anytime soon. "It's unlikely that the optimal design of the U.S. patent system will be the one that best serves the needs of all its largest customers," says attorney Ewing, noting that the patent system should serve the overall needs of the U.S. economy as a whole and the technology industry, one of its major drivers, in particular.

Not everyone believes the current system can be fixed well, quickly or even at all. Billionaire entrepreneur Mark Cuban is an investor in Vringo -- a small company that has sued Google for patent infringement -- and he is a vocal opponent of the way the patent system operates in the U.S. "Congress is full of lawyers. Lawyers make money from the patent system. There is no one representing the silent majority," he says.

For their part, tech companies use patent litigation to "shape markets. The concept of innovators [winning through invention] is gone," Cuban says. "You just buy a patent geared towards the company that is trying to disrupt your business and sue them over and over again until they can't afford to keep fighting and go out of business," Cuban says.

Gill, the former USPTO officer, takes issue with that. Now managing director and chief IP officer at MDB Capital Group, a boutique investment bank that raises money in the public markets for early-stage companies, Gill says Cuban is off base.

"Despite the inefficiencies in the patent system, innovation is still the engine that grows these important small companies," he maintains. "What some investors are reacting to here is that early-stage companies are most vulnerable -- and have critical needs for patent strategy from day one." Even Facebook wasn't squared away on IP issues when it filed for its IPO, he says.

"These are not trivial issues, but invention is not dead -- and the patent system didn't kill it," says Gill.

Related story:Why tech vendors fund patent trolls

Based in San Francisco, Gina Smith is a New York Times best-selling author and a veteran tech and science journalist specializing in news, news analysis and investigative work. She's also the editorial director of the geek site aNewDomain.net. You can email her at Gina@aNewDomain.net.

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