Patent trolls and IBM: Will Big Blue's meta-patent fix a broken system?

Commentary about business and finance.
Jan. 19 2011 12:11 PM

Die, Patent Trolls!

Will IBM's new meta-patent help fix a broken system or just make things worse?

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Then, the federal court of appeals where patent-infringement cases are heard expanded the scope of patentability in a series of decisions. * (Some were later modified, but the general expansion remains.) That creep in patent scope, Boyle says, coincided with "a fear that the trademark office has relaxed standards." This led to a spate of defensive patenting—corporations running to the patent office with any invention or process that a competitor might possibly latch onto.

Of course, patents are necessary to protect the incentive to innovate and to allow companies to profit off of the technologies they develop. But bad patents, and litigation over bad patents, gums up the system and imposes unnecessary costs on businesses. That is where a number of legal scholars fear the United States is now.

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For instance, businesses are now spending a lot more time defending against patent trolls. Statistics from the watchdog group Patent Freedom show that suits involving nonpracticing entities more than doubled between 2004 and 2008, this due to "financial investors who speculate on potentially massive returns on the relatively modest cost of purchasing patents on the open market."

And overall, patent inefficiency has started imposing serious deadweight costs. "The cost to the defendants has soared," explains James Bessen, a patent expert at Boston University's law school. "Outside of chemicals and pharmaceuticals, where the patent system works well, the costs of litigation have quadrupled" since the late 1980s, Bessen says. * He estimates that unnecessary patent litigation is now a 10 percent to 20 percent "tax" on innovation.

That leads us back to IBM. The company, hardly an aggressor, does not seek out patent infractions for litigation and soak up patents to turn and sue others. But it does keep a staff of 100 lawyers to make sure the company has legal control of its technologies and healthy licensing agreements with its competitors and clients. And, now, it does not patent just to protect its innovations. It patents to protect its patenting as well.

But there is a bright spot on the horizon: The courts seem to be stepping in to reduce the sums awarded for patent litigation, thereby reducing the incentive to sue. "The court for patent appeals has done a very good job in the last few years of trying to make sure that damages correspond to the actual value of the product sued over," says Arti Rai, a Duke Law professor and former administrator of the office of external affairs at the patent office. "At some point, I think, judges realized that there was a natural place for the Federal Circuit to make the law clearer, and to take away that pot of gold."

Hopefully, then, there will soon come a time when IBM can focus on its earthquake and silicon-chip patents—not its meta ones.

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Corrections, Jan. 20, 2011: This article originally described the U.S. Court of Appeals as the court where patent-infringement cases are litigated. Specifically it is the U.S. Court of Appeals for the Federal Circuit. ( Return to the corrected sentence.) In addition, the author originally mistranscribed the word litigation as legislation in a quote from James Bessen. (Return to the corrected sentence.)

Annie Lowrey is a contributing editor for New York magazine. She can be reached at annie.lowrey@gmail.com.