PublishedNovember 14, 2012

Progress in a Time of War

It may be thermonuclear war, but at least it’s out in the open.

We have Steve Jobs to thank, not only for his brilliant contributions to technology, but for launching Apple’s thermonuclear war against Android.   Already raging in ten countries around the world, this war has made a public spectacle of the subjectivity, uncertainties, and astronomical costs of the patent system, and the dangers it poses to America’s unique high-tech culture.  It has laid the territoriality and fragmentation of the patent system on the table, along with its impact on global trade, product markets, and consumer choice – present and potential.

It wasn’t always this way.  Patents were once the province of specialists who made a living applying for, negotiating, and litigating patents.  In their view, nobody really understood the patent system unless they were practicing patent lawyers.  Guest column after guest column extolled the importance of patents, since patents were the only reason people bothered to innovate.

At the same time, survey-based economic research [1, 2] showed clearly that patents were only one of many means of “appropriating returns to innovation” – and that patents were paramount only for pharmaceutical and chemical products, and maybe medical instruments.  Scholars recognized a “patent paradox,” namely that in complex technologies where individual patents were less valuable, companies were feverishly building arsenals.  The function-rich nature of information technology made it possible, and the sheer volume of parallel innovation at breakneck speed made it impossible to know who did what first or draw a meaningful line between what was obvious and what was not.  In no area was this more apparent than software where the 1966 President’s Commission on the Patent System had warned that “reliable searches would not be feasible or economic because of the tremendous volume of prior being generated.”  And that was in 1966! – nearly a half century ago.

The 1952 Patent Act, the only major revision of the patent laws since 1836, was, as we would now describe it, an inside job.  It was far more extensive than the America INVENTS Act of 2011, yet it was mischaracterized on the floor of the Senate as merely codifying existing law.  As reported by one of the principal drafters, Giles S. Rich, it was basically written by “patent lawyers drawn from the Patent Office, from industry, from private practice, and from some government departments.”  He cites Congressman Crumpacker of the House Patent Subcommittee:

When the courts, in seeking to interpret the language of the Act, go through the ritual of seeking to ascertain the ‘intent of Congress’ in adopting same, they would do well to look to the writings of these men—Frederico, Rich, Harris [all patent lawyers] and the others—as they, far more than any member of the House or Senate, knew and understood what was intended by the language used.

It was Rich who, 46 years later, then the oldest sitting federal judge, summarily eliminated the longstanding exclusion of business methods as patentable subject matter.  His opinion in the notorious State Street Bank case simply stated:

We take this opportunity to lay this ill-conceived exception to rest. Since its inception, the “business method” exception has merely represented the application of some general, but no longer applicable legal principle, perhaps arising out of the “requirement for invention” — which was eliminated by § 103. Since the 1952 Patent Act, business methods have been, and should have been, subject to the same legal requirements for patentability as applied to any other process or method.

So 1952 Act, presented to the Senate as a codification of existing law, actually enabled business methods to be patented!  Because one of the principal drafters said that it did, even though there is no suggestion of it in the statute or in the legislative history.  Yet the claim is that Congress intended it!

Similarly, Judge Pauline Newman, a former patent lawyer and one of the earliest appointees to the Federal Circuit after it was formed in 1982, explained the motivation behind Congress’s creation of court:

So, it was decided to make a major effort to revive the patent incentive, including formation of the Federal Circuit Court of Appeals.  Patents were indeed strengthened.  The court can take the credit or the blame, depending on your viewpoint, but it was part of that activity.

Decided by whom?  The public rationale for the Court was to make the application of patent law more uniform.  There is nothing to show that Congress intended it to increase the “patent incentive.”  Yet through the 1990s, the Federal Circuit’s decision made patents easier to get, easier to assert, harder to invalidate, more powerful, and available for virtually unlimited subject matter.

When I was a senior policy analyst at the White House Office of Science and Technology Policy, I ran a series of meetings with experts on how the patent system was working.  I commissioned RAND (which had the contract for the Science and Technology Policy Institute) to undertake a study of patent quality and its business effects.  The study had barely started when a company with an especially large patent portfolio asked the Vice President’s office to kill it.  I do not know whether the Vice President knew about this level of unpleasantness, but his chief domestic advisor (previously a lobbyist for Genentech) killed it, berating me in the Pennsylvania Ave. Au Bon Pain for a “stupid, stupid idea.”  Killing research was probably made easier by the fact that OSTP was in between directors (who also serve as the President’s Science Advisor).  That was 1998, just as the State Street decision came down.

Four years later things changed.  The USPTO held to the mission statement adopted in 1996: “to help customers get patents” – a statement so conspicuously skewed that even the patent bar took issue with it.  At WIPO in Geneva, in negotiations over a substantive patent law treaty (SPLT), the U.S. delegation insisted that business method patents were “best practice,” and threatened to walk out if other delegations did not embrace them.  But the Federal Trade Commission and the Department of Justice launched 30 days of hearings on how the patent system was working not on paper, not in the minds of patent lawyers, but out there in the market, in the real world.  Over the course of nine months, another side of the patent system emerged, as the hearings revealed extensive discontent in the ICT sector, especially for software and Internet services.  The USPTO’s customer friendly mission statement was quietly dropped.  The U.S. did not walk out of the treaty negotiations, but efforts at substantive harmonization stalled, in part because there was so little basis for concluding what was or wasn’t “best practice.”

The FTC’s report, issued a year later stands as a landmark of agency analysis.

Not only did it marshal and synthesize a vast amount of input, but it also managed to weave rigorous economic and legal analysis together, the first time an official document had attempted to do so.

Debate on patents was often suppressed in the interests of international trade – claims that any questioning of intellectual property regimes would undermine U.S. competitiveness and negotiating positions.  Yet after the FTC report, the problems of the patent system could no longer be swept under the carpet since  it was clear that they were having adverse effects on key innovative sectors in the U.S.  As Europe debated a proposed directive on “computer-implemented inventions,” it balked at further emulation of U.S. practice with its trolls, business method patents, and sweepingly broad software patents.

Proposing legislation is a lightning rod for the nest of interests and anxieties that a complex patent system produces.  As technical and specialized as patents are, they elicit outpourings of emotion on issues that pit small against large, ICT sector against big pharma, producing companies against non-practicing entities, patent professionals against technologists and engineers, foreign innovators against domestic innovators, practitioners against scholars.  After the brutal name-calling that led to up to the greatly watered down American Inventors Protection Act of 1999, Congress suffered from patent fatigue that lasted until reform legislation was introduced in 2005.  The software patent directive in Europe elicited more lobbying than any other issue that members of the European Parliament had faced.  It failed overwhelmingly not because software patents were overwhelmingly rejected, but because the debate had so overloaded the parliamentary system that, with 250 amendments on the floor, the outcome was guaranteed to be a mess.  For a gripping account (and an excellent tutorial on European governance) read No Lobbyists as Such written by Florian Mueller when he was far more skeptical of patents than he appears to be today.

Today, thanks to trolls, privateers, and Jobs’ thermonuclear war, the patent system is very much in the public eye.  Controversy has pushed patents to center stage, and there can no longer be any pretense that the U.S. system is ideal – or even “best practice.”  Global warfare and the faltering of harmonization makes it clear that national systems have a strategic dimension.  Injunctions against imports, portfolios and thickets, bias in judicial proceedings (including U.S. juries), all can tilt the playing field and constrain – as much or more than the problems of inadequate protection that motivated the TRIPS.  China, with its state-sponsored patent culture, its immense and growing market, its oceans of design and utility model patents, its “patent cockroaches,” its opaque and complex judicial and administrative systems, and its burgeoning economy, looms large over global patent practice.  Yet in many ways, China has adapted the excesses and pathologies of U.S. patent practice to serve what it perceives to be its own strategic interests in a post-TRIPS, post-harmonization world.

Just as the dollar is the world’s reserve currency, the size of the U.S. market has obscured the fact that patent systems are territorial.  Yet the ICT sector is global by nature, and, as the patent wars show, it faces the territorial nature of patents.  As we have seen, this results in different outcomes in different countries, leading combatants to litigate in more jurisdictions, especially those that are perceived as more favorable for one reason or another.

Patents may be more important in more ways than we thought.  If there is thermonuclear war in your industry, and you are besieged by trolls and privateers, patents are clearly important.  Not in the sense that they contribute to innovation and growth, but in that they command attention – as do nuclear weapons in the hands of enemy states and terrorists.

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Brian Kahin

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