WASHINGTON-The Supreme Court and Congress are jumping into the powder-keg patent debate, one encompassing a morass of complex issues increasingly confronting wireless and high-tech sectors at a time when innovation in knowledge-based economies is driving significant growth in developed and emerging markets alike.
The high court last week heard oral argument in a case (Laboratory Corp. v. Metabolite Laboratories) where justices were confronted with the vexing question of whether a particular diagnostic medicine procedure-an invention involving scientific principles-can be patented. But the case has far broader implications beyond the biotech industry.
Next week, the issuance of injunctions in patent lawsuits brought by patent holders-even those without commercialized applications-will be tackled by the Supreme Court in eBay Inc. v. MercExchchange.
“The eBay case petitions the Supreme Court to limit the availability of injunctions to those in the business, meaning those who have commercialized their inventions. The reason is clear. Large and small companies are defenseless against patent holders that are not manufacturing products or offering services because in such cases there are no cross-licensing opportunities. This means no zero-zero cross license. In short, companies say they are being held up by patent trolls,” said Robert Tendler, a former patent attorney for Mitsubishi Electric Research Labs and president of Tendler Cellular Inc.
Tendler noted commercializing an invention has never been required to get or enforce a patent in the United States.
“The flip side is that entrepreneurs would never even get into the business of inventing if they could not have exactly the exclusivity that the U.S. Constitution contemplates,” said Tendler. “Entrepreneurs could not get funding if funding entities, be they individuals, banks, venture-capitalist firms or other companies, could not be offered the exclusivity that a patent grant provides. Thus, if investment dollars were not available, one could quickly see a drying up of the entrepreneurship that has been the hallmark of the United States technology lead.”
Business Software Alliance head Robert Holleyman, whose group filed a brief supporting eBay’s argument that injunctions should not be issued automatically in all patent infringement cases, said the eBay case “is probably the most important case the court will decide this session for technology companies.”
On Capitol Hill, Rep. Lamar Smith (R-Texas), chairman of House Judiciary subcommittee on courts, the Internet and intellectual property, has scheduled the first of a series of patent reform hearings on April 5. The hearings are a follow-up to hearings last year that led to the Patent Reform Act of 2005.
“The legislation aims to solve patent problems confronting inventors, businesses, universities and other parties,” said Smith. “Additional hearings in the weeks and months ahead will help the subcommittee develop new language for unresolved issues and revisit the major themes that gave rise to the project.”
Some critics claim the high-profile BlackBerry settlement-which had Canada’s Research In Motion Ltd. cough up $612.5 million to NTP Inc. to rid itself of a patent-infringement lawsuit and allowed millions of wireless messaging devices to remain on the air-highlights just one example about what is wrong with the U.S. patent regime.
“The outcome of this suit was bad, but here’s something worse: Its outcome was in many ways predictable. Patents today, far from encouraging innovation in information technology, are actually deterring it. There remains no doubt that the U.S. patent system is broken,” said Ed Black, president of the Computer & Communications Industry Association.
CCIA said the settlement-which reportedly netted NTP counsel Wiley Rein & Fielding L.LP. more than $200 million-occurred in parallel with a U.S. Patent and Trademark Office re-examination that preliminarily invalidated several of the patents in question. “NTP has exploited the nation’s courts to threaten the operation of the federal government and extract more than a half-billion dollars from one of the world’s finest communications companies. This settlement is an embarrassment to the nation’s patent system,” Black said.
CCIA said the U.S. patent system is dysfunctional because it rewards behavior such as that in the NTP-RIM settlement and cripples the information technology sector at all levels. “The costs imposed by bogus patent suits imperil the financial stability of small startup companies that produce so much of the innovation upon which the industry depends. The largest companies in information technology-mainstays of the U.S. economy and producers of thousands of products and jobs-are compelled to seek numerous patents for use as bargaining chips should litigation over others’ patents arise. These defensive practices cost jobs, raise prices for consumers, and achieve little more,” the association said.
CCIA and others assert the patent system is subverted by “patent trolls,” firms with no intention of commercializing their patents. Their business models are built around acquiring and licensing questionable patents for the sole purpose of litigating top-dollar settlements.
But there is another side to the story, according to Joe Hosteny, a Chicago intellectual property litigation attorney and legal columnist.
Hosteny said the term “patent troll” is being thrown around loosely these days, especially with publicity surrounding Smith’s patent reform bill and the now-settled Blackberry lawsuit. The result, according to Hosteny, is the public cannot differentiate between those who abuse the patent system and others who are legitimate inventors but whose ship never came in.
“The truth is, these independent inventors … started out with winning ideas they sincerely wanted to see marketed. They simply didn’t have the finances to market their ideas on their own, so they shared them with larger companies, in hopes that the large companies would produce the products. Unfortunately, these large corporations often went on to steal the inventors’ ideas and market products based on those ideas as their own-without giving credit or money to the poor inventor,” said Hosteny.
Tendler said the Supreme Court battle over injunctions boils down to large companies with “no defense against patent trolls vs. the inventors and their dreams of fame and fortune that motivate them to invent.”
But there are other issues fundamental to patent reform that Congress, not the Supreme Court, appears better positioned to address.
The American Electronics Association said lawmakers should focus on expediting the patent application system, discouraging approval of patents that lack specificity and can be exploited to game the system, and creating alternative approaches for resolving patent disputes that do not require lengthy and expensive litigation.
There is a perfect storm of trend lines contributing to ills in the patent system. AEA said it takes too much time-an average of 28 months-to process a patent. The delay is compounded by a tripling in patent applications during the past two decades and, according to AEA, overly vague or broad patents are getting through the system. On top of it all, there is escalating patent litigation.
Congress, with the power to fix the patent system, is the same lawmaking body that is undermining progress, however.
AEA said Congress in 1982 and 1990 raised patent and trademark fees in hopes of making the U.S. Patent and Trademark Office self-funding. But between 1992 and 2004-a period that saw patent applications skyrocket-lawmakers diverted more than $750 million from the PTO to fund other federal programs, according to the association. The result: an understaffed and overworked PTO. AEA said that consequence has led some to question the quality of patents approved by the PTO. RCR
