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It’s Hard Out Here for a Patentee

The Storm No One Forecast
When it comes to undermining innovation in the United States, it appears we are currently in the midst of the perfect storm. It all started in the late nineties and early naughts when patent trolls began to run rampant. Much to the chagrin of American innovators, the government overreacted, stifling innovation on nearly every front.

Winds of Change
The storm has been brewing since June 23, 1998, when the Court of Appeals for the Federal Circuit ruled in that you could patent a method of doing business. This ruling led to inventors falling all over themselves trying to file patents on “novel” online business methods.

A Storm a Brewin

The problem was that, prior to 1998, no business method patents had ever been allowed. Up until that time, checking patent applications against previously issued patents was the United States Patent and Trademark Office’s (USPTO) principal way to determine if a particular invention was truly novel. When these new business method patent applications hit USPTO, the office had nothing against which to assess their novelty. Accordingly, the USPTO granted many patents on methods that had been in the public domain for years.

As you might expect, new business method patentees were using their ill-gotten patents to sue established business for patent infringement. Online businesses reacted immediately, petitioning the USPTO to stop allowing the monopolization of business methods that had been in in the public domain for years. The USPTO listened, completely reversing its trend of never meeting a business method patent application it did not like, and adopting strict new protocols to more thoroughly examine such applications. Not surprisingly, these new protocols take considerably more time. Business method applications that had taken just over a year to convert into a patent, now take four years or more. That is, assuming the application has what it takes to navigate the new gauntlet of protocols. Most business method applications do not.

A Gathering Storm
Not satisfied with merely killing the goose that laid the golden egg, opportunistic patent trolls immediately began buying up early business method patents. Now, with few, if any, new business method patents issuing the overly broad patents which had issued during the short “free-for-all” window were even more valuable. Despite the new “No Business Method” patent protocols at the USPTO, the influx of patent trolls into the courts actually began to increase.

Lightening Strikes, Again and Again
As most courts knew little about patents, and even less about business method patents, Patent Trolls created a cottage industry of leveraging the court system to hold software companies hostage. You either pay, or get an injunction from the courts and six years of a lawsuit. The bad news is that it will likely cost you $1.5 million in attorney fees IF YOU WIN. If you lose, it does not matter how much it will cost, as the cost will likely far exceed the value of your company.

The Perfect Storm

Rather than simply reexamine erroneously issued patents, and wait for the new USPTO protocols to take effect, the government lept into action on all fronts. The USPTO stopped issuing patents. According to USPTO Director Jon Dumas, the United States Patent and Trademark Office has recently started rejecting more patents than it allows. Matt Buchanan has a nice graph showing how the allowance rate has dropped from over 70% in 2000, to less than 55% in 2006. Today, the allowance rate stands at about 44%.

Courts have also taken their run at the patent system. On April 30, 2007, the United States Supreme Court gutted the United States’ Patent System in a case called KSR Interneational Co. v. Teleflex Inc. et al. Basically, the KSR ruling not only makes it much more difficult to patent inventions, it makes it much easier to invalidate existing patents.

And do not leave the legislature out. For several years, lobbying giants like Microsoft, Google, Blackberry and Autodesk have been pooling millions toward convincing Congress to pass a comprehensive Patent “Reform” Act. While the proposed patent reform law admittedly stops short of authorizing the waterboarding of patentees, this seems either to be merely oversight on the part of the drafters, as it is a distinction of form, rather than substance. While the large software companies support this ban on innovation, smaller tech companies, labor unions, professional engineers, the Patent Office Professional Association and the Communications Workers of America all oppose the new law. According to a letter sent to Senators last Wednesday by the Computing Technology Industry Association (CompTIA) “Key parts of the proposed legislation may have the effect of increasing the likelihood of American inventions being stolen by our international competitors and, consequently, inhibiting sorely needed new investment in domestic manufacturing.”

Digging Out
Little can be done to reverse the damage big business and the government has done to our patent system. It is not too late, however, to prevent the greatest damage from being done. Thankfully, patent attorneys are probably going to be all right regardless of whether the legislation passes or not. It is a poor attorney that cannot find work in times of legal uncertainty. Everyone else, however, stands to lose. Patent Reform means much less innovation, the most highly skilled jobs shipped overseas and the United States placed at the mercy of other countries’ innovation. As goes innovation, so goes prosperity.

But you can do something to stop this hemorrhaging before it begins. Contact your Senator. Tell them not to support the new Patent Reform legislation. Tell them you want them to support inventors, support growth, support jobs and support the United States remaining a world leader in innovation. Tell them in no uncertain terms. Tell them before it is too late.

Brett Trout

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