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Patent system in desperate need of reform

When there are publicly traded companies that make revenue in no way other than suing for patent infringements, there is obviously a problem.

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If it’s not a riot breaking out somewhere, it’s a patent dispute. And, just as there is likely a common cause behind these increasingly frequent episodes of civil unrest, so too is there obviously an underlying problem that is causing technology companies to sue each other on a weekly basis. With patents, it’s a case of the system being supremely outdated and messed up.

Google has gone and bought Motorola for $12.5 billion in what it is widely seen as a defensive move in the patent wars. The fact that any company would have to make such a large acquisition (the deal increases Google’s employee headcount by about 60%), and the fact that this is far from the only large expenditure Google will have to make to fight such battles, really underlines just how messed up the system is.

Reuters had a good story over the weekend that summed up what’s going on, with a specific look at how Apple is fighting a particularly effective patent war against Google. Apple recently won an injunction against Samsung that could prevent the Korean company from selling its Galaxy tablet, powered by Google’s Android, in the European Union. Samsung, in turn, is trying to get a ban on the sale of certain Apple products in the U.S. These are just two examples in a long list of similar patent skirmishes, going back several years.

To anyone besides patent lawyers, the escalating situation is absurd. When there are publicly traded companies that make revenue in no way other than suing for patent infringements (a.k.a. the patent trolls), there is obviously a problem.

As the Reuters article points out, frequent patent battles are bad for innovation because they can hold companies back from developing or launching products. Things are getting so bad that inventors are having to figure the inevitable legal costs—which will occur whether they infringe or not—into the prices of their products. That raises costs for consumers. Worse still, it can also put a chill on smaller inventors or companies who don’t have the funds to fight such battles.

Patents were originally created to encourage innovation. If an individual or company invented something, their government gave them a monopoly on that invention for a period of time in exchange for sharing it with the public. A patent simply bars anyone else from using or selling the invention, unless they get the rights—usually for a fee—from the patent holder.

Over the past century, patent law has become ridiculously complicated for a whole host of reasons, not the least of which is that the rules tend to differ by country. Moreover, every gadget contains scores of different technologies—a typical cellphone of a few years ago, for example, was comprised of more than 10,000 different patents. Today’s most advanced smartphones contain considerably more.

Both facts suggest that technology has far surpassed the law’s ability to govern it, given that the patent system was thought up when inventions were very simple and not multinational. Big-time reform is needed.

One possible, if somewhat radical, idea to start with might be to limit the ability of individuals and corporations to transfer or sell patents, especially in the event of bankruptcy. Google came off as a bit of a cry-baby when it complained about losing out on a sale of Nortel patents to a group of its rivals, including Apple and Microsoft, but the company was right in a way. Such patent sales can easily turn into anti-competitive gamesmanship.

While companies should still be rewarded with patent monopolies for their inventions, there really seems to be no reason to keep those protections alive if the company goes under. Doing so only creates an asset that can be horse-traded and then used to hold back other still-solvent companies. What would be the harm in allowing patents from bankrupt companies to be dissolved and then placed into the public domain? That might actually accelerate innovation and improve competition.

There is some urgency to simplify the system, what with the incorporation of technology into the human body on the horizon. Whether it’s mechanical appendages, stem-cell technology or even just bionic contact lenses, we will soon be blending with patented inventions. A human body containing 10,000 or more patents, like the humble cellphone, is a near-term possibility.

When that happens, the patent trolls won’t just be going after big, multinational corporations, they’ll be coming for you and me.

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