US PTO Mired, but Some Journalists Misinterpret

The Washington Post has a story about examiners at the US Patent and Trademark Office being driven away by production quotas, which haven't changed for decades even as patents have become increasingly complex and difficult to review, and the massive backlog that would take two years of the full time of all examiners to clear up, by which the incoming patents would have buried the office even more thoroughly. And for every two examiners hired, one leaves, according to this Information Week article on the report. But then, if you had to work through your vacations just to get caught up and avoid being fired, you might leave as well. A third of the examiners are apparently leaving after less than one year on the job, and 70% before five years - which, according to USPTO offices I've spoken with recently, is about the time that the examiners really come into their own and can work without supervision. In other words, most of the training the agency provides walks out the door.

Unfortunately, the Post reporters apparently spoke just to USPTO director John Dudas and reading a recent GAO report on the agency. Dudas seems to blame the backlog on poor information in the patent applications:

A quarter of applications arrive with no supporting materials and another quarter carry more than 25 references to supporting data, he said. Although an extreme example, Dudas said the agency once received an application that came in 28 boxes, with 2,600 pages per box.

What he doesn't say is that lawyers are afraid of putting themselves and their clients in a legal position of jeopardy. Include a moderate amount of supporting information, and a competing company could try to find so-called prior art that you missed and then claim you were essentially trying to pull one over on the USPTO, which could invalidate the patent. And so you have two schools of thought: provide nothing, so you don't exhibit any selectivity, or provide everything, so you can't be accused of skimping. Dudas's quote of needing "the best material. Not the kitchen sink. And not nothing," shows the problem. What constitutes the best?

By demanding the given levels of productivity, the USPTO is focusing on statistics that might make it look as though the situation is improving. That's understandable, when you need to lobby Congress for your operating budget (and Dudas is skilled at that), but it's really dealing with the symptoms and not the root causes. The European and Japanese patent systems take different fundamental approaches - allowing people a given amount of time to raise objections after the grant of a patent - than the US system.

And the focus that the USPTO makes on essentially blaming the users - and, frankly, some of that is warranted - also acts as a way to deflect attention from the agency's responsibility to find the appropriate prior art. And so the USPTO put into place the new continuation rules - a change in the basic approach to patents, and one that the office is apparently implementing even before their official start date, according to a number of people in the patent community that have found document ion showing this. If a company relies on the US patent system at all, then it will have to reevaluate its own approaches to patents and might possibly have to overhaul its strategic planning. That's how serious the situation now is.

Patent Politics

I have an article in the August 2007 issue of IP Law & Business about politics, displeasure, and the US Patent & Trademark Office. I actually preferred the original first paragraph:

Business people and lawyers complaining about federal agencies? Quick, call the TV cameras—the sun rose today. But noise about the U.S. Patent and Trademark Office in the patent community is escalating lately from complaints to serious criticism and even to allegation.

Ah, well, editing is about change. The topic is interesting, though - and given new continuation rules (which affect the entire patent application process) and proposed changes in patent law, there's a lot that CEOs and CFOs should be considering. This is not just an issue for a company's general counsel.

China Becoming Patent Giant

According to WIPO, the UN's intellectual property agency, China has become the third largest filer for patents behind the US and Japan, as the BBC reported. China has for some years become the manufacturer of first resort for many companies around the world. But that's a low profit type of business. The country is moving up market, so to speak:

China knows it cannot bet its future economic success on low wages alone. Other countries are already cheaper.

I can remember a few years ago speaking to an executive of a global consumer electronics company who was working in China. He said that people had no idea how quickly the country had advanced and exactly what was going on there, that to see it for yourself was a stunning experience. It still makes me wonder how many businesses and countries still write off China as a source of cheap labor and manufacturing, where there is little interest in intellectual property and where the chief capability of interest is copying what has already been done by another. How long will it be before the west faces China as a powerful competitor on all levels? Look how long it took to recognize - not just intellectually, but emotionally - Japan and then South Korea. We may all be in for a rude awakening.

Competing Against Governments and Universities

A recent case in the Eastern District of Texas reminds us that businesses have to look beyond other commercial entities when it comes to competitive pressures. In CSIRO v. Buffalo Technology, Inc., the Commonwealth Scientific and Industrial Research Organisation, the Australian national research lab and technology licensing arm, sued Japanese company Buffalo Technology for infringing on a 1992 patent that CSIRO claimed covered all of 802.11 a/g wireless technology. The Australian agency just got an injunction against Buffalo, as the Patently-O blog and other sources have reported.

A large number of prominent companies are trying to challenge the patent. Whether the patent is valid and reasonable or not, what has become clear is that the days of thinking that competition meant only other companies are over. Universities and governments, all in need of revenue sources, are looking at their intellectual property to see what it might offer. Now consider that even a smaller country is going to have financial resources beyond the wildest avarice of corporate managers. Fail to consider what such control and are willing to do, and you could find yourself on the wrong side of a judgment.

Peer Patent Reviews Start at USPTO

The U.S. Patent and Trademark Office has just started on a year-long experiment in peer patent review. The way the process now works is that companies and people submit patents, often with broadly-phrased claims, in hopes of getting a license on a new way of doing something. PTO examiners will push back on many of the claims (fewer than half of applications reviewed last year were immediately granted a patent). But there's been question in the patent community with how well the process is working. For example, look at the case of a company suing the Blackberry's manufacturer for patent infringement. RIM lost in court and had to pay hundreds of millions to the plaintiff, yet now there are some challenges to the patent, which may not survive. It would be too late for Blackberry, which wouldn't get to recoup the money.

So the PTO is working with New York Law School's Institute for Information Law and Policy to try a peer review approach. Companies (including Microsoft and IBM) voluntarily provide software patent applications and anyone can comment and look for prior art that would show the invention isn't new or novel.

The idea isn't actually new; both the European and Japanese patent offices have used a different patent model from the US. Instead of doing all reviewing in-house, they grant applications and then providing a period of time in which others can challenge the basis of the patent. And software is a great place to try this - it's one of the biggest causes of patent application overload and one area where much of the community is already used to peer review in the form of open source software. But with backlogs that can run from a couple of years to five or six (particularly in biotech), it's worth a try. Almost anything is.

Fast Track Patent Reform Sees a Few Bumps

Lately, Congress has been in a rush for patent reform becasue of the litany of problems that have become regular fodder for IP lawyers and corporations: crushing backlogs, an ever-increase scope of what can be patented, complaints about the quality of patents granted, lack of modern IT systems to help the Patent and Trademark Office (PTO) operate in a more efficient manner. But there has also been concern whether the haste might lead to more patent waste. Now a group of Republican senators has sent a letter (via Dennis Crouch's Patently-O blog) to both Democrat Patrick Leahy and Republican Arlen Specter on the Senate Judiciary Committee about whether slowing the impulse to fix and thinking over the steps before taking them might be a wiser approach in the long run.

Cato Institute Scholar Misses Patent Point

In Saturday's New York Times, Cato Institute adjunct scholar Timothy B. Lee went on at length in an argument that software patents are stifling technical innovation. There were only two problems: he had a poor grasp on business history and his logic was faulty.

I hadn't noticed the piece until I saw mention of it in PATNEWS, a patent news and opinion email service. But I went back and read through last Saturday's piece. Let's start with the characterization of Microsoft as a "growing company challenging entrenched incumbents like I.B.M. and Novell." Technically that was true - and it also owned the desktop computer as it does now. Yes, Windows was in an early state, and I suspect that the company's only having six patents might be true, but that's because so much of what it had done wasn't at all revolutionary. DOS was an operating system much the same as any other - just small enough to run on a PC's then limited resources. Early versions of Windows hadn't done anything not previously covered by Apple and by Xerox before. But as Microsoft went on a heavy patenting binge, so did its innovation. That's because patents are an incentive to innovation.

Yes, you can find yourself locked out of doing something in a particular way, which is why you invent a new and possibly better mousetrap. Then you patent it and enjoy a limited benefit from that patent. Since companies have gone on a patent spree since gaining protection for fundamental algorithms and designs became possible in the 80s, software has leaped ahead faster than anyone ever would have expected: online services, graphical interfaces, new ways to model and plan businesses, home entertainment systems. So where is the lack of innovation?

Mr. Lee's main argument seems to be in the Verizon v. Vonage case:

Vonage developed one of the first Internet telephone services and has attracted more than two million customers. But last year, Verizon — one of Vonage’s biggest competitors — sued for patent infringement and won a verdict in its favor in March.

Does that mean the idea of software patents is bad, or that the decision is bad and, perhaps, the patent should never have been granted as there were Internet telephony service years before Vonage. Some go back to the mid-1990s - a good four or five years before the creation of Min-X.com, Vonage's predecessor. And Verizon's patents, whether you think they are valid or not, certainly came before that company's genesis as well.

So what exactly was the innovation that Vonage brought to the table? As it is, the company has already said that it thinks it's found other ways of providing its services to avoid conflict with the Verizon patents. If anything, the Verizon patent case has pushed it to do something at least slightly different and new. So much for Vonage serving as the poster child for the need to eliminate software patents.

Mr. Lee then argues the following:

In fact, companies, especially those that are focused on innovation, don’t: software is already protected by copyright law, and there’s no reason any industry needs both types of protection.

This is more nonsense. Copyright is protection of the specific expression of an idea or concept. Patents are protection for an underlying concept or idea itself. Under copyright law, I can write about the same subject, even with the same twist, as someone else, and if I'm using different wording, it's unlikely that the two articles will be seen as conflicting. But that's about exact expression. So say that I write a new algorithm - or unique and clearly defined approach to solving a specific problem - in one programming language like C++. I'm no lawyer, but I suspect nothing in copyright is going to keep someone else from expressing the exact same algorithm in a different programming language, like Java. So much for equating the two protections, because now I have no lock on the unique method I've developed to solve a problem. And anyone who has dealt with an issue of copyright infringement would laugh at Mr. Lee's statement, "The rules of copyright are simpler and protection is available to everyone at very low cost." Obviously he's never filed a suit in federal court. Then he bemoans the high costs of patents - and, yes, it's very expensive to file and maintain a patent.

But isn't that an issue of the market? Is this the Cato Institute looking into business protectionism? Of course companies must file patents to stay competitive. They also have to be innovative, do market research, develop new products, establish themselves, all of which are so much more expensive than obtaining patents that the comparison is almost laughable.

Patents are part of business strategy - and that's why Microsoft went into them so heavily. It's not that Bill Gates used to be enlightened and now is trying to protect his turf. It's more that his understanding of business has grown. Perhaps Mr. Lee should chat with Microsoft's chairman and see if there's something he could learn as well.

Supreme Court Makes Getting Certain Patents More Difficult

The Supreme Court has made it more difficult to combine existing inventions into new patentable ones in KSR v. Teleflex. The New York Times calls the decision the "most important patent ruling in years."

KSR had developed an adjustable gas pedal system. Teleflex, which owned a patent that included a claim for "a position-adjustable pedal assembly with an electronic pedal position sensor attached a fixed pivot point," sued for infringement. KSR argued that the claim wasn't valid because it combined known inventions in an "obvious" way and won summary judgment in District Court. Teleflex appealed and the Court of Appeals for the Federal Circuit (CAFC - the court that handles appeals in patent cases) reversed the decision, stating that the District Court has misapplied a general analysis set in the Graham v. John Deere Co. of Kansas City case:

• determine what the previous inventions cover
  
• ascertain the differences between the new invention and the previous ones
  
• note how much skill is necessary to get from the previous inventions to the new one
  
• determine how obvious the new invention is

However, the Federal Circuit added a "teaching, suggestion, or motivation" (TSM) test to help determine the question of how obvious the new invention was. Under this, "a patent claim is only proved obvious if the prior art, the problem’s nature, or the knowledge of a person having ordinary skill in the art reveals some motivation or suggestion to combine the prior art teachings."

The District Court found that Teleflex's claim was obvious, but the Federal Circuit effectively said, "Sorry, but you have to show that a 'skilled artisan' would have been motivated enough to come up with the new invention." Part of that approach required finding published articles or other evidence that someone could have thought of the particular combination before getting summary judgment. If they didn't exist, then the result would be a full jury trial.

The Supreme Court disagreed, saying that the Federal Circuit had "addressed the obviousness question in a narrow, rigid manner that is inconsistent with §103 and this Court’s precedents." All that KSR - and, now, any other company - need do in objecting to a patent on these grounds is show that there's an obvious solution to a problem.

Ironically, while the Court is making it tougher to get the patent, it hasn't made it any easier to necessarily know if a given combination rises to the level of something patentable. As the Internet Patent News Service harshly puts it:

The KSR decision is semantic nonsense, introducing yet more undefined terms (e.g., "real innovation", "extraordinary", etc.) to a statute that is constitutionally meaningless given the lack of definition for its key term, "obvious". What's a "real innovation" - one that occurs in a flash to a genius?

And there's the nub of the problem. The difference between inventing something and not can be one of those slap-yourself-in-the-head moments, when someone realizes that all along there has been a solution to a problem. So if anyone who knew as much as the inventor could have come up with the solution, does that mean that it no longer deserves a patent? A judge becomes a Monday morning quarterback, deciding in hindsight that something was obvious ... or not.

Investors Back Patent Trolling

Forbes had a great story on how some patent trollers - small companies that take out broad patents with no intent of actually making anything, only of suing large companies that do - are now getting funded by hedge funds, private equity firms, and other deep-pocketed investors. AS if life wasn't tough enough before. Last year the U.S. Supreme Court limited the ease with which a small company that was obviously looking to make money the new fashioned way, by suing, could threaten a large company with an injunction. That was in the Altitude/eBay case, in which the small company has received a $25 million infringement verdict because eBay's "Buy It Now" feature supposedly infringes on that company's patent. Yet I can remember all the fuss when Amazon got a patent for its one-button shopping feature.

The problem is that even if there is prior art, someone has to dig it out and continue to fight in court while lawyers prepare a Patent Office challenge - a process that, according to what I've heard from IP lawyers, can be extraordinarily long. Not surprising given the backlog in the system and the number of years it can take to get a patent issued. So in the past many companies have folded their tents, deciding that paying off what can, in some cases, seem like extortion is cheaper than a prolonged legal battle.

It seems like there needs to be some reform of the patent system, though it's not clear that anyone has a clear idea of how to do that effectively. The one sure thing is that it's going to take money - a lot of it - to get enough patent inspectors with deep enough experience and training to give a more critical look at many of the patents that seem more and more absurd in their breadth and lack of depth.