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Patently Absurd

[To be read in conjunction with the chart in #msg-19404724.]

http://www.economist.com/daily/columns/techview/displaystory.cfm?story_id=9134111

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The Supreme Court strikes a blow for common sense

May 4th 2007

The dirty little secret about American patents is that they are too easy to file, too easy to defend, and too easy to use for nobbling legitimate competition. [‘Nobbling’ is so British!] The patents exploited last year to extract $612m from Research in Motion, the maker of the BlackBerry e-mail gizmo, would have barely passed muster in another country. Nor would Vonage, the internet-telephony pioneer, have had to cough up $58m recently for infringing three unbelievably broad patents if they had been filed in Europe or Japan instead of America.

Patent law exists to encourage inventors by granting a monopoly for a limited period (now 20 years) in exchange for publishing their work so others can see how it affects their own innovations. Implicit in the deal is a trade-off between private incentive and public good.

Of late, the balance in America has been tipped too much in the patent-holder’s favour. In the process, American consumers have paid dearly through their loss of choice. The country’s competitiveness has also suffered, as one innovative idea after another has been squelched, neutered or withdrawn from the market because of the threat of patent litigation.

One reason for the poor quality of American patents is historical. While other countries adopted the “first to file” principle, the founding fathers based their patent law on the notion of “first to invent”. That may have seemed reasonable to Thomas Jefferson, the first commissioner of the United States Patent and Trademark Office. But it has created a quagmire for challengers seeking to unearth “prior art”, all previously known inventions and discoveries, to question dubious patents. A first-to-file arrangement may punish the lackadaisical, but it makes legal ownership clear-cut. In so doing, it slashes lawyers’ fees and thwarts predatory litigation by opportunistic “patent trolls”.

Another reason for the dodgy nature of many American patents is that courts have adopted a far looser interpretation of what is patentable. Here, one of the worst offenders has been the US Court of Appeals of the Federal Circuit, set up in 1982 to oversee patent law and other legal specialisms, such as government contracts and international trade.

The appeals court has overturned numerous decisions on patents that had been thrown out by district courts as frivolous suits. It has done so by applying a test for “non-obviousness” that is widely considered to be far too lax. To be patentable, an invention must be not only useful and novel, but also non-obvious to someone who is an expert in the field. The appeals court considers an invention to be obvious only if it has been foreshadowed by some prior “teaching, suggestion or motivation”. But as many critics point out, when extensions or combinations of existing ideas become obvious, few people bother to write them down.

In a unanimous decision that is being hailed as the most important patent ruling in decades, the Supreme Court early this week swept aside the non-obviousness test used by the appeals court. In its place, a common-sense standard based on real-world conditions is to be applied to all patent applications that combine (as most do) elements of existing inventions.

The case ruled on by the justices concerned an accelerator pedal developed by a Canadian company called KSR. The pedal could be adjusted for a driver’s height and used an electronic sensor, rather than a mechanical cable, to change the engine speed. Teleflex, a rival manufacturer, demanded royalties, claiming the device infringed one of its patents.

KSR argued that Teleflex had combined existing elements in an obvious way, and that its patent was therefore invalid. A district court in Detroit agreed, but the decision was subsequently overturned by the appeals court in Washington, DC. Under the Supreme Court’s new definition of obviousness, Teleflex would have been lucky to get a patent for the pedal in the first place.

The justices’ opinion has been welcomed by the high-tech community. It is impossible to build a laptop, mobile phone or video recorder without infringing dozens of the thousands of patents that cover the various components involved. Computer firms have responded by engaging in a patents arms race and negotiating cross-licensing deals with everyone they expect will be involved.

This is wasteful enough for the Intels, Microsofts and IBMs that can afford such profligate practices. But it can be life or death for smaller, innovative firms. When challenging incumbents’ old-fashioned ways, upstarts like Vonage can find themselves forced out of the market by dubious patent litigation rather than actual competition.

The Supreme Court’s ruling this week will make such anti-competitive practices harder to sustain. Vonage, for one, may be the first of many to seek legal redress from all the shoddy patents endorsed by America’s over-eager courts.
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