Weapons of business destruction.

The law, lawyers, and the court.
Feb. 6 2006 3:04 PM

Weapons of Business Destruction

How a tiny little "patent troll" got BlackBerry in a headlock.

What would happen if a rogue actor managed to get hold of a powerful patent and threatened to detonate it and destroy e-mail as we know it? You'd have the BlackBerry NTP v. RIM case—the tech world's very own Dr. Strangelove. NTP, a one-man Virginia firm, armed with nothing but patents, currently threatens to bring down BlackBerry and with it the sanity of millions of e-mail addicts. A textbook "patent troll," he wants a billion dollars to stand down. What to do?

It is telling that the dilemmas created by software patents today are routinely compared to those created by nuclear arms, with patent trolls playing the role of the nuclear madman. But while it's easy to bash trolls as evil extortionists, to do so may be to miss an important lesson: Patent trolls aren't evil, but rational and predictable, akin to the mold that eventually grows on rotten meat. They're useful for understanding how the world of software patent got to where it is and what might be done to fix it.

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Let's start at the beginning—how on earth can a company like NTP, with no other assets, no products, and no employees, get a hold of such important patents in the first place? It's almost like waking up one day to find out that the guy selling hot dogs on Fifth Avenue actually owns the Empire State Building. This is a story in two parts. The first takes us to the U.S. Patent and Trademark office, where well-intentioned but overworked patent examiners are flooded with highly complex patent applications and asked to approve or deny them on deadlines that would make Einstein sweat. The examiners' union calls the PTO a "sweatshop," and no wonder. The examiners, usually recent college graduates, face a variety of pressures, including an internal point system that many say favors speed over accuracy, and applications filed by seasoned professionals, expert in making even the most prosaic "invention" sound like the light bulb.

On Nov. 1, 2005, the PTO issued Boris Volfson of Huntington, Ind., Patent 6,960,975 for his invention of an antigravity space vehicle (according to the application, "the spacetime curvature imbalance … provides for the space vehicle's propulsion"). As this example and others suggest, examiners don't always apply the patentability standards in the most rigorous manner. As a matter of law, every patent must represent a real invention—a "nonobvious" improvement over the "prior art." By all accounts, most examiners do their best to try to make sure the legal standards are complied with. Yet, given the workload and other pressures, there is also no question that inventions like the space vehicle or methods of exercising kitty-cats are falling through the cracks.

It was in this environment that David Stout, co-founder of New Technologies Products, a former examiner and experienced patent lawyer, filed for a series of patents premised on wireless e-mail in the early 1990s. Arguably his patents should never have been granted; the idea of "wireless e-mail" is just too obvious to merit patent. The PTO itself now seems to think it made a mistake, as it is currently in the course of invalidating many of NTP's patents in re-examination proceedings (although probably will be too late to help RIM).

The second part of the story is the tale of software patent itself. The phrase "judicial activism" usually conjures up headline cases like Roe v. Wade. But there are quieter ways in which courts take charge of important matters of American economic and social policy, and software patent is a good example. For most of U.S. history, patents had traditionally been issued in tangible objects, like monkey wrenches. For years, the courts and the PTO took a hard line against granting patents on intangibles like software or "business methods," based perhaps on the instinct that such inventions are too abstract and might cause economic damage.

All that changed in the 1980s and '90s, when Congress concentrated patent's appellate duties in a single court—the Court of Appeals for the Federal Circuit. Over time, that court changed course on software and other questionable areas of patent, transforming the system from one that was highly conservative to one that's much more liberal. The result was a rush for software and other patents that began in the 1990s and continues today. Yes, there are arguments for expanding patent's breadth. But it must also be understood that the expansion of patent was an economic experiment undertaken wholly by the judicial branch—without input from the elected officials who usually set economic policy.

The irony of the patent system is that while it's relatively easy to get a patent, the vast majority of the assigned patents are completely worthless. Yet companies like NTP were smart enough to realize that if you played the odds, there might be a billion-dollar case out there somewhere. And NTP got their chance when RIM did what NTP never did: They actually developed and made popular a wireless e-mail product, the now ubiquitous BlackBerry. As University of Chicago professor Douglas Lichtman puts it, "The original inventor maybe invented, but he didn't actually bring the idea into the world."

The company RIM is itself a special kind of tech outsider, known in the business as a "Canadian." Unlike, say, Microsoft, which settles dozens of patent suits every year, RIM took umbrage and a "we don't negotiate with trolls" stance. That might have been principled, but it wasn't smart. After RIM refused to pay NTP for a license, Stout took the Canadians to court in 2001 in his home state of Virginia. RIM proceeded to handle the litigation with a senselessness that is breathtaking in retrospect. Given numerous chances to settle the case for millions of dollars, it balked, cheated at trial, and managed to infuriate federal trial Judge James Spencer. The history of the case almost makes NTP look sympathetic.

Almost.

About the best that might be said of trolls like NTP is that they've inspired a serious patent-reform debate. A growing crowd—including major firms like Amazon, IBM, Intel, Yahoo!, and Microsoft, and academics like Mark Lemley, Douglas Lichtman, Bhaven Sampat, Arti Rai, and others—now advocate some form of major patent reform. They want to fix the PTO to ensure that only the best, truly novel inventions get a patent, and they want to change aspects of patent procedure that currently make harassing litigation too easy. Ex-FCC-chairman Reed Hundt, for example, proposes reducing the number of patents by 90 percent and handing over a lot more money to those overworked patent examiners.

But for reasons both political and theoretical, the more important answer may be to face the software-patent problem head-on,  as some groups have been urging for years. It may be better to recognize software patents as an unfortunate economic experiment and to either abolish software patents altogether or place stringent limits on their assignment.

Politically, while the idea of general patent reform is laudable, it faces inevitable opposition from industries like the pharmaceutical industry, where the patent system seems to be working. A broad-based Patent Reform Act, now in Congress, has been watered down considerably because of pharmaceutical opposition. Pharma has a point. In their industry, patent does what it should—the software insanity isn't their fault. That's the political problem with one-size-fits-all patent reform—you're always getting under someone's thin skin.

Many theorists favor the one-size-fits-all solution because they think that over time, the same arguments for drug patents must also justify software patents. But that isn't necessarily so. Everyone agrees there are some goods that benefit from patents and others that just don't. No one (well, almost no one) argues that we need patents on books or films to create a successful publishing or film industry. There is no reason to assume all goods will be equally uplifted by patent's magic.

Somewhere in patent heaven there's an economic line dividing things that do and don't benefit from patent, and the last decade has provided good evidence that software is on the wrong side of that line. The reason is that the nature of software will always make it hard to draw borders around software inventions—and a property system without clear borders is invariably a disaster. The whole case for property rights generally, as Columbia Law patentista Clarisa Long points out, depends on how hard it is to know when you're trespassing. In the case of real estate, for instance, fences and deed maps make ownership clear. In other areas of intellectual property, we know by the tangible product alone who owns Prozac and who owns Harry Potter. But intangible code is by its nature hard to draw boundaries around. The "measurement costs" of software's boundaries—defining where one algorithm begins and another ends—are inescapably high.

This point about measurement costs is borne out in practice. As anyone in the industry will tell you, and as Ronald Mann has documented, most programmers or firms cannot figure out whether they're infringing software patents or not and simply always assume they are. The point is simple: Property without discernable borders brings all the costs and none of the benefits.

Why, then, does the software industry want patents at all? Software firms, in the main, don't rely on software patent in fundamental ways—they innovate to make a better product. Instead the patents are employed for secondary purposes—like trying to show investors how smart one's engineers are, or sometimes for low-key money-laundering (fake sales of worthless patents can be used to move money around). Many companies keep their patents on display, in a trophy case—realizing that this is their main value. Perhaps large firms hope to use a portfolio of software patents to stall smaller rivals—yet so far the news is all about David using patents to beat up on Goliath, and not vice versa.

In this debate it must be remembered that the regime of easy patenting of software is not natural law but an experiment—a judicial flight of fancy in an area of difficult economic policy. To remain healthy, the U.S. legal system should experiment, but it also needs to recognize when its experiments have failed. Both Congress and the Supreme Court have a chance to do something about the problem this year. The rise of the patent trolls is, in this sense, telling us something—that it may be time to end a system that is doing no one any favors.