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Commentary: The Trouble With Patents

The author says the current state of the patent industry hikes product costs, stifles innovation.

The author says the current state of the patent industry hikes product costs, stifles innovation.

There were never any courses on Intellectual Property Law back in my engineering school. But as a designer of electronics for the radio industry, I’ve reluctantly received a pretty extensive education on the U.S. patent system. And while I believe the concept of patents still remains valid and necessary, my experience tells me the system is broken.

The patent system was written into the U.S. Constitution with the intention of creating an environment where innovation flourished. By giving inventors a limited monopoly over their concepts, it would be difficult for larger players to simply copy these concepts and profit. But an increasing number of infringement claims these days come from people who have no interest in innovation, but rather emphasize the “property” aspect of “IP” – that is, the right to charge product developers license fees on their products.

Many times these “Intellectual Property Holders” have never invented anything, but rather purchased or inherited, through acquisition, the patents in question. In other instances, the patent holder may have intentionally “morphed” an existing patent to duplicate a popular product. Sometimes, the patent holder really isn’t entitled to his “monopoly” at all due to a previous invention.

The nitty-gritty

If you are a developer of innovative products, the first sign that you are about to learn a lot about patents usually comes in the form of a polite letter from the attorney representing a patent holder. The letter typically includes a copy of the patent, along with an invitation to enter license negotiations. Here’s where the system begins to show its bias toward the patent holder.

Your own patent attorney (you’ll need to have one here) will tell you that it’s very risky to simply ignore this letter, as this makes you potentially liable for “treble” damages (triple, in non-lawyer speak) should you be found infringing by a court. Due diligence requires that you get an opinion letter from your attorney stating why your product does not infringe.

The cost of this letter will vary based on the complexity of the product and the patent, but typical rates are $10,000-$20,000. In contrast, at this point the patent holder has invested a first class stamp.

Next, you’ll enter into a lengthy exchange of letters, by attorneys on both sides, as to the merits of the claim of infringement. Here it becomes less about the patent and the product, and more about who can fund their attorney the longest. Eventually you’ll give up and license, or you’ll risk a lawsuit.

On the rare occasion that a patent dispute winds up in court, seven-figure attorney fees are common. Your patent attorney will remind you of this fact often. It’s likely that, against your better judgment, you’ll swallow your pride and try to negotiate licensing terms that will keep your product viable.

Finally, you’ll have a conversation with your attorney about how best to protect yourself in the future from frivolous infringement claims. He’ll suggest that “the best defense is a good offense” and recommend applying for your own “defensive” patents on all new products. This will be an expensive process both in time and money, and further add to the Patent Office caseload.

Many examples exist of companies trying to live off patent royalties. Forgent Networks not long ago “found” a patent in their inherited collection that bears resemblance to what has become the JPEG standard of image compression, and they have been aggressively – and successfully – pursuing licenses.

Rambus participated in industry standard-setting for computer memory, only to later reveal they had patented the chosen architecture. Rambus has sued its fellow standard participants for millions.

In these and many other cases, the patent system is being used to aggressively stifle competition and innovation. The real test of value of a concept should be how much benefit the idea adds to a product. In too many cases, the amount of that value is zero.

Quality control

But predatory patent enforcement has become so lucrative it has created its own industry. Patent “litigation companies” now exist that have no assets aside from other people’s patents, and these companies make a living of negotiating licensing deals with the willing, and suing the unwilling. This industry is parasitic in the sense that it produces nothing of value to anyone other than itself, and self-perpetuating in the sense that as more companies cave to these tactics, the industry itself grows.

You may sense my contempt for companies that would rather profit from litigation than building good products. But part of the blame is with the U.S. Patent Office, chronically under-staffed and under-funded. Without the resources to do proper research into claims, many “junk patents” issue that should not. But once it does issue, a patent can become a powerful moneymaking device regardless of its legitimacy.

In a case with which I was involved, the Patent Office allowed a patent holder to continually re-file his patent with subtle changes to reflect our existing product. We eventually found the best business decision was to license, rather than face the uncertain cost of a court battle. The cost of this license must be borne by us and by our customers, yet it adds no discernible value to either.

This is why radio broadcasters, and other consumers of technology, should care about patent corruption: the parasitic nature of it threatens to add a huge cost to products, as well as to stifle innovation of new ones. Particularly in our environment, where small companies can thrive in niche markets, it is important to protect this ability to innovate.

Because reform at the government level is likely to be glacial in pace, broadcast equipment consumers should vote against companies who practice this technique with their dollars. Become aware of ongoing patent disputes and determine whether the IP holder has legitimate rights for a monopoly on their concepts. Seek out political candidates who support patent reform. The future of innovation may depend on it.