What would 'real' patent reform look like?

Over the last few months, the prospects for patent reform in the US had appeared to be gaining speed. Even as a bipartisan consensus has been building in Congress for legislation to limit the damage of so-called "patent trolls," extensive and self-destructive patent lawsuits among participants in the smartphone market were winding down.

And last year, the US Supreme Court issued a number of patent-related decisions that drew modest limits around both the process and substance of newly created categories of patents, including for software and business methods. Courts and the Patent Office became more aggressive about rejecting or overturning applications that should never have been granted. As a result, the overheated market for low-quality patents collapsed.

But as summer settles into swampy Washington, the odds for Congressional patent reform are growing murky as some industries, notably biotech and pharmaceuticals, remain skeptical.

And a new report (PDF) from technology think tank Lincoln Labs argues that reversing the damage to the innovation economy caused by years of overly generous patent policies requires far stronger medicine than Congress is considering or the courts seem willing to swallow on their own.

The bills making their way through Congress, for example, focus almost entirely on curbing abuses by companies that buy up often overly broad patents and then, rather than produce goods, simply sue manufacturers and users they argue are infringing their patents.

These nonpracticing entities, referred to derisively as patent trolls, are widely seen as a serious drag on innovation, particularly in fast-evolving technology industries.

Trolling behavior, according to studies from Stanford Law School professor and patent expert Mark Lemley, does little to nothing to promote the Constitutional goal of patents to encourage innovation by granting inventors temporary monopolies during which they can recover their investment.

The House of Representatives passed antitrolling legislation in 2013, but a Senate version was killed by then-Majority Leader Harry Reid (D-Nev.) in May 2014.

"Patent trolls," said Gary Shapiro, president and CEO of the Consumer Electronics Association, "bleed $1.5 billion a week from the US economy -- that's almost $120 billion since the House passed a patent reform bill in December of 2013."

A call for 'real' patent reform

The Lincoln Labs report agrees with these and other criticisms of patent trolling, but argues for more fundamental changes to the system, or what the report calls "real" patent reform.

The report, authored by former Republican Congressional staffer Derek Khanna, urges a complete overhaul of the process by which the Patent Office reviews applications, as well as the elimination of patents for software, business methods, and a special class of patents for design elements -- a category that figured prominently in the smartphone wars.

Khanna claims that the Patent Office has demonstrated an "abject failure" to enforce fundamental legal requirements that patents only be granted for inventions that are novel, nonobvious and useful.

To reverse that trend, the report calls on Congress to change incentives for patent examiners that today weigh the scales in favor of approval, add a requirement for two examiners to review the most problematic categories of patents, and allow crowdsourced contributions to Patent Office databases of "prior art" to help filter out nonnovel inventions. Khanna estimates these reforms alone "would knock out a large number of software patents, perhaps 75-90%, where the economic argument for patents is exceedingly difficult to sustain."

The report also calls for the elimination of design patents, which offer protection for ornamental features of manufactured products, such as the original design of the Coca-Cola bottle.

Design patents in the US began in the 1840s, but applications have exploded with the expansion of consumer electronics and graphical user interfaces in computing devices. Between 1997 and 2007, according to the website PatentlyO, the number of design patents issued each year grew from under 2,000 to nearly 20,000 -- an order-of-magnitude increase.

Thanks in large part to the growth of design patents, to put things in context, Apple chief designer Jony Ive already holds twice as many patents as uber-inventor Thomas Edison received in his lifetime.

Case in point: Apple v. Samsung

The Lincoln Labs report argues that legal protections for trademark, which evolved later, do a better job of protecting innovation while ensuring basic functional elements don't become the property of a single producer in competitive markets.

That argument is supported by the most recent decision in the ongoing litigation between Apple and Samsung over design elements of the iPhone that Apple claims were copied in Samsung Galaxy devices. (See " Fighting over scraps in Apple's withering patent war with Samsung.")

In a May 2015 decision (PDF) involving a 2011 case, the US. Court of Appeals for the Federal Circuit, which hears all patent appeals, upheld Apple's patents but reduced the company's damages from $930 million to $548 million. (The jury had initially calculated damages of over $1 billion.)

The 2011 case was based largely on design patents, including the rectangular shape and rounded corners of the iPhone, which Samsung was alleged to have infringed.

While the reduction in damages was significant, the appellate court upheld Apple's claim that infringement of a single design element entitled the iPhone maker to the entire profit Samsung earned on the devices in question.

A friend of the court brief submitted by Stanford's Lemley and nearly 30 other legal scholars strongly opposed Apple's claim. As many as 250,000 active patents cover various aspects of today's complex mobile devices, the authors noted. Attributing all of their value to their rectangular shape, they wrote, follows neither the law nor common sense. "People don't buy iPhones simply because they look cool; they buy them because they function."

But the court rejected the law professors' brief in a single footnote. Rather than respond to the argument that "an award of a defendant's entire profits for design patent infringement makes no sense in the modern world." the court punted. "Those are policy arguments," the three-judge panel wrote, "that should be directed to Congress."

The nearly $400 million reduction in damages, rather, came from the appellate court's rejection of claims that the Samsung devices also infringed on Apple's trademarks.

The claimed trademarks duplicated many of the design patents, including trademarks on "a rectangular product with four evenly rounded corners; a flat, clear surface covering the front of the product, and "a display screen under the clear surface." (Such marks, included in the appearance of the product itself, are sometimes referred to as "trade dress.")

Since trademarks, unlike patents, can continue indefinitely, the court held that enforcement of trade dress must be strictly limited to nonfunctional features of a product's design. So even as the court upheld the patents, it rejected all of Apple's claimed trademarks.

That paradox underscores Lincoln Labs' argument that the availability and more modern application of trademark law calls into question the continued need for redundant and expansive design patents, especially in software and consumer electronics, where design and function are increasingly hard to separate.

If rounded corners are too functional to be trademarked, in other words, it makes little sense to offer them more potent if shorter-lived protection under a design patent. But that is precisely what the court did.

Nothing in any of the proposed patent reform legislation would correct that mismatch, or enact any of the other reforms called for in the Lincoln Labs report.

With federal courts demurring to Congress, it seems that "real" patent reform will have to wait for another day.