Fixing a broken patent system

In the past, patents were almost universally regarded as essential to the economy. By rewarding innovation, they created an incentive for inventors to invent more. Yet more than any other time in our history, the patent system now is under fire, and enormous change has been afoot to "fix" it.

How did we get here? One likely culprit is last year's BlackBerry case. The plaintiff there was a small holding company called NTP that had never developed any technology and never manufactured a product. It was in the business of collecting patents and extracting royalties from them, including some relatively unremarkable and dubious "wireless e-mail" patents.

I write unremarkable because they disclosed a technology nobody would buy on the open market and dubious because the U.S. Patent and Trademark Office recently has admitted that it mistakenly granted at least some of them. NTP sued Research In Motion--the maker of the BlackBerry--for infringing them. RIM took its chances before a jury, always an inherently risky bet, and lost. That gave NTP the right to shut RIM down, and we all almost lost our BlackBerry service. RIM settled for more than $600 million dollars.

Or perhaps it is because an overworked Patent Office has issued plenty of patents that never should have been. How about Patent No. 5,443,036--a method of exercising a cat with a laser pointer? Or Patent No. 6,960,975--an antigravity perpetual-motion device that defies the laws of physics? These examples may be harmless (and amusing). Far less harmless are the sundry patents that are just as infirm but are directed straight at the heart of American industry. It costs millions of dollars in litigation fees to show that a patent should not have been granted, and most big corporations have learned that the hard way.

Or perhaps it is that the system has been subject to clever manipulation leading to unfair results. A patent has two main parts: a disclosure, which contains the fine details of how to make your invention, and the claims, which define the boundaries of what you own.

It is common for inventors to file an application and then for years afterward file multiple "continuations"--subsequent patents based on the same disclosure but with new claims. Then, in the interim, if anyone creates a new product in the same technology space, you try to draft a new continuation claim to cover it. Never mind that you never envisioned that product. The patron saint of continuation practice was Jerome Lemelson, and based on continuations of an original 1950s "machine vision" application, he was able to capture hundreds of later-created products into the 1970s. Now there's an endowed Lemelson chair at MIT.

Or perhaps it is the Eastern District of Texas, where a combination of quick trials and plaintiff-friendly juries have drawn more patent cases to two towns, with a combined population of 125,000 people, than are seen in Silicon Valley, New York, Houston or Chicago. Companies often settle for princely sums rather than have a jury predisposed against big corporations, and with no technical knowledge, decide their financial future.

It's no wonder the pendulum is now swinging in the other direction, hard. First, the U.S. Supreme Court has stepped in. In the past two years, it has: ended the rule of "automatic injunctions" (the rule that allowed NTP to threaten to shut down RIM); loosened up the standard by which a judge or jury can find patents "obvious" and therefore invalid; and limited patent infringement liability for overseas acts.

Second, the Patent Office has announced new rules that encourage applicants to use greater precision in describing the scope of their inventions and seek to limit rampant "continuation" practice.

Finally, there is the sweeping Patent Reform Act of 2007, which has already passed the House. It contains provisions ranging from a first-to-file rule that would add certainty to the process, to a provision circumscribing infringement damages, to a provision meant to keep cases out of the Eastern District of Texas.

Of course, now there are loud voices complaining that the pendulum is swinging too far against patent holders. If that's the case, we can look forward to another round of equal but opposite reactions, and I can look forward to another column in CNET News.com's Perspectives section.