Anyone who has seen the headlines about patent battles lately—and there have been a lot of headlines—will find them both breathtaking in the amounts of money at stake, and almost dizzying in scope. Could a patent on the appearance of a phone be worth billions of dollars? Is it possible that human genes are patentable? Can Apple really claim rights to rectangular devices with rounded corners—a patent it was just granted in November?
Patents have become a costly and controversial part of the business world: In every sector of the economy, companies spend an increasing amount of time defending, prosecuting, and worrying about the billion-dollar lawsuits that could be on the horizon. Seemingly overnight, we have seen the rise of an entire class of companies—monetizers, or so-called patent trolls—that do nothing but buy up existing patents and then sue manufacturers for violating them. As many critics have begun to point out, what we are seeing is a system of profound importance in American life that has careened out of control. Patents, meant to encourage innovation, today are increasingly threatening to strangle it.
Patent reform has
become a debate in legal circles, with fingers pointed at everything from the way patents are issued to the way courts handle them. But to properly fix the patent system, the American patent establishment—the courts, agenie,scies, and lawmakers that handle patents—will need first to address something more basic. It will need to change its prevailing view of what a patent is.
A bedrock principle of today’s patent law—and the way most Americans intuitively understand patents—holds that a patent is a deed of ownership to a clearly described idea. It’s how we were raised to think about inventions: You thought up a brilliant new product, you own the rights to it. That notion is deeply ingrained in patent law as well.
This is compelling and easy to understand, and within the legal sphere it’s the dominant way patents are discussed. But this is ultimately the wrong way to think about patents. And it is not just wrong; the fallacy involved is costly and harmful to the economy. A far more useful way to think about patents, one that offers us a way out of the damaging wars in our most innovative industries, is to look at what really happens with a patent: Patents become no more than a starting point for negotiation. A patent is a document that gives its holder an opportunity to bargain, a seat at the table—not an absolute right to everything that springs from an idea.
Any patent with real innovative value will see its meaning emerge only over the years, as its innovations take root and are more clearly understood and explored.
Describing a patent as no more than a starting point will be heresy to many. Our system was built on the notion that a patent sets definitive boundaries around an invention. But appealing as it is, that view of a patent is simply an impossible standard: Any patent with real innovative value will see its meaning emerge only over the years, as its innovations take root and are more clearly understood and explored. We can argue over its scope, boundaries, and value at any given time, but we can’t pretend they are clearly defined at the outset.
With two influential patent cases currently before the Supreme Court, the United States is about to have a chance to think once again about what a patent really means: what it gives you rights to, and whether there should be areas out of reach of patents entirely. If we get it right, we can take an important step toward allowing patents to once again serve their intended purpose of protecting peoples’ inventions while also encouraging the most useful, exciting innovations they might spawn in the future.
We call patents a form of “intellectual property.” This is a comforting way to think about them, and it brings to mind other forms of property, such as real estate. Patents, however, are quite different from ordinary types of property. Rather than a physical object you can measure or touch, a patent is a verbal description of something that may not even exist in tangible form.
That means it can be very difficult to say exactly what is included within the boundaries of a given patent, especially as time passes and technology develops. This uncertainty can lead companies into expensive legal battles with others claiming rights to similar ideas. A perfect example is the high-profile patent fight several years ago between Research in Motion, the maker of BlackBerrys, and a tiny patent holding firm called NTP. NTP didn’t make anything itself: It was a monetizer that owned patents that appeared to describe a portion of the complex BlackBerry system. Outside the patent world, NTP’s claim of “ownership” struck many people as absurd: Among other things, BlackBerry’s product was based on technology that arose long after those patents were filed. Within the patent world, however, NTP had an effective claim, and its lawsuit nearly brought down a successful company making a tremendously useful product.
The difficulty of identifying patent boundaries also bears on the question of what kinds of things should be patentable at all. For example, the Myriad Genetics case in front of the Supreme Court this year concerns patents on the genetic mutation associated with certain forms of breast and ovarian cancer, along with patents on methods of testing for that mutation and researching treatment. Over time, the Supreme Court has been reducing the broad latitude that the Federal Circuit had permitted in what can be patented—which, as one judge noted, had resulted in a host of patents that ranged from the somewhat ridiculous to the truly absurd. Examples include business method patents, such as patents on methods for toilet reservations, on enticing customers to order additional fast food, and on using color-coded bracelets in dating to avoid embarrassment. Placing limitations on these types of patents implicates a number of other categories of patents—from genes to software to medical testing.
If the courts and Congress start acknowledging the essential bargaining aspect of patents, it will become easier to deal with cases like these, which currently tie up courts and companies for years on end. In an intense bargaining environment, it becomes clear that courts and agencies must set rules that limit the possible roaming space for a patent holder—in other words, that prevent them from making excessively broad claims over what their patent covers. With certain categories of patents, perhaps some types of gene and software patents, so few things are likely to survive close scrutiny—and the bargaining power that can be wielded with them is so great—that it appears wiser to forbid patenting in these areas completely.
The high-tech and biotechnology industries are often sharply divided on patent policy; single strong patents are profoundly important to drug firms, while high-tech companies cross-license huge portfolios of patents. But patent bargaining affects biotech as well; it’s a component of the messy negotiations over the introductions of generic drugs, for instance. And more important, there is no way to close Pandora’s box. Now that patent monetization is exploding, it is only a matter of time before patent trolls find their way into biotech and pharma, using weak or tangential patents to extract payments from companies with useful products on the market.
One could ask whether characterizing patents as an invitation to bargain might hurt innovation. After all, if you can’t be sure of exclusivity based on clearly defined ownership, what is the incentive to develop products, and to invest the money needed to bring them to market? I would argue that patents already operate this way—and the investors who support companies understand that. It is our failure to acknowledge the way patents actually operate in courts and in our patent laws that increases the risk of crippling patent suits, and gets in the way of solving modern problems.
This year, there may finally be a chance for movement on this issue. The Supreme Court is taking on two important patent cases this year—Myriad, and a generic drug case called FTC v. Watson. The Department of Justice and Federal Trade Commission have both signaled they are interested in investigating this corner of the legal world so crucial to American business. As they do, courts, agencies, and perhaps even Congress will have a rare opportunity to reframe the conversation.
Innovation is a key driver of the American economy, and our most innovative companies should be focusing on developing new products, rather than on patent strategy. To keep every company, as well as the economy, on track, it is essential that our patent system find a way to rein in those elements that allow parties to exploit weaknesses in the system and bring improper bargaining leverage to bear. In a system built on more realistic assumptions about patents, we will still have licensing demands, and still have lawsuits. But the stakes will be lower for everyone, and the rhetoric—and costs to society—will finally begin to go down.