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July 15, 2007

In Over His Head

"Today, over all, patents don’t work." Today's New York Times patent dribble is by word jockey Michael Fitzgerald, who knows nothing about patents, but helps pay the mortgage by penning an article reporting research by other guys who know nothing about patents. The fly in the ointment of the article is confusing statistics with reality: there is no "over all" to patents "working".

Two number monkeys got a spreadsheet to tell them that "starting in the late 1990s, publicly traded companies saw patent litigation costs outstrip patent profits." Since they didn't know anything about patents, the statistical statement made sense to them, and Fitzgerald. A more knowing characterization of that statistic, giving it any credence, would be that publicly traded companies, starting in the late 1990s, were inventing less and/or profiting less from it, while fending off patent infringement suits more.

James Besson, one of the number monkeys, thinks things have worsened for public companies this decade. "Worse, he says, companies doing the most research and development are sued the most." Companies doing the most R&D are likely in technology areas experiencing the most innovation, but they aren't the ones doing all the innovating. These companies are pilfering other inventors' technologies, and paying the price for it through litigation. Large computer-related companies are exemplary.

The figures hide stupidity. Prominent example: Research in Motion (RIM). RIM paid $612.5 million in a knock-down drag-out self-abuse over NTP patents. RIM could have settled early on for a fraction of that, but couldn't bring themselves to it. Large software companies, like Microsoft, Intel, and Oracle, are serial patent infringers who consider patent litigation a crap shoot worth playing. Their concern is that bowing to reason and taking a license would hurt their reputation as hard-ass. Boys will be boys; it's a testosterone thing.

As the Economist reported last week on neuroeconomics:

Psychologists have known for a long time that economists are wrong. Most economists—at least, those of the classical persuasion—believe that any financial gain, however small, is worth having. But psychologists know this is not true. They know because of the ultimatum game, the outcome of which is often the rejection of free money.

In this game, one player divides a pot of money between himself and another. The other then chooses whether to accept the offer. If he rejects it, neither player benefits. And despite the instincts of classical economics, a stingy offer (one that is less than about a quarter of the total) is, indeed, usually rejected. The question is, why?

[W]hat people really strive for is relative rather than absolute prosperity. They would rather accept less themselves than see a rival get ahead. That is likely to be particularly true in individuals with high testosterone levels, since that hormone is correlated with social dominance in many species.

Economists often refer to this sort of behaviour as irrational. In fact, it is not. It is simply, as it were, differently rational. The things that money can buy are merely means to an end—social status—that brings desirable reproductive opportunities. If another route brings that status more directly, money is irrelevant.

Fitzgerald reports, as if it was a revelation, the hoary corporate strategy of defensive patenting: "large high-tech companies have hefty patent portfolios, which... deters the companies from suing one another."

Fitzgerald touts his naiveté by warming to the idea of "open[ing] patent applications to public comment, which could help patent examiners find applicable previous inventions." The problem, as we all know, is not that patent examiners can't search the prior art, it's that they don't have time to do so, thanks to management cracking the whip to meet production goals. Adding amateur hour to prior art searching as part of the patenting process doesn't make it into the solution category.

Fitzgerald demonstrates his ignorance of history by suggesting "increasing the number of appeals courts that handle patent cases." Before the CAFC began taking all patent appeals in 1981, a continuing cacophony of conflicting precedents were being set by different appeals courts handling patent cases; hence the consolidation.

Fitzgerald fiddles an old tune that most patents are worthless. That's always been the case. The problem has always been identifying the valuable from the worthless using foresight. As the Supreme Court so poignantly pointed out in KSR, most everything is obvious in hindsight. One of the major reasons companies continue to fervently patent: you just never know when the oddball approach today becomes the standard technique tomorrow, and a jackpot awaits for claiming it as your own.

Posted by Patent Hawk at July 15, 2007 12:09 AM | The Patent System

Comments

I haven't finished reading this yet, but I'm not entirely sure you've read the article in question:

"Today, over all, patents don’t work." Today's New York Times patent dribble is by word jockey Michael Fitzgerald, ... The fly in the ointment of the article is confusing statistics with reality: there is no "over all" to patents "working".

If you want to talk about what the article confuses or doesn't confuse, especially if you're going to smear the author, perhaps you should quote the article itself. The quote you gave was not of Michael Fitzgerald, but of James Bessen.

Posted by: David Masover at July 15, 2007 5:54 PM

Is it or is it not the case that the current system makes innovating and patenting a bad idea (on average)?

It seems to me that however you spin the numbers, this is evidence that the system is not doing the one thing it needs to do in order to justity its existence, encourage innovation.

Posted by: SimpleQuestion at July 15, 2007 7:53 PM

In reply to David Masover:

Fitzgerald fawns upon Bessen, and the quote was from the article.

As covered in my post, Fitzgerald repeatedly demonstrates at best superficiality to understanding patent issues, but I suspect more to it than that. Fitzgerald's article reads as a thinly-veiled anti-patent piece, with a sentence or two to give the appearance of balance. It smacks of a propaganda feed, Fitzgerald being, as I put, just a "word jockey;" in stronger terms, a dupe.

Posted by: Patent Hawk at July 16, 2007 11:59 AM

In reply to SimpleQuestion, asking "Is it or is it not the case that the current system makes innovating and patenting a bad idea (on average)?":

Just because you can ask a simple question doesn't mean there's a simple answer, but no, the current system does not "make innovating and patenting a bad idea."

Current patent laws are too vague, making it too easy for radical, and variable, judicial interpretation, as we have witnessed. Regardless of statutory vacuum, the current Supreme Court must be noted for its rogue arrogance, particularly in manipulatively exceeding the law in its KSR decision.

There has been a tremendous propaganda effort, which is ongoing, to denigrate the patent system. That effort is spearheaded by large computer corporations, partly under the brand of "Coalition for Patent Fairness." These companies are regularly accused of patent infringement, and as often as not found guilty, at a cost of tens to hundreds of millions of dollars. The net sum of patents for these companies is often negative. Microsoft, for example, faces 30-40 infringement suits at any time, but doesn't make much money off its patent portfolio; Microsoft being a novice in that aspect of the patent game. IBM makes over $1.5 billion on patent licensing a year, but plays along to get along with its customer base: other computer companies. IBM supports patent "reform," though its public stance on patent reform is often more nuanced and subdued than its red-meat brethren, like Intel.

Posted by: Patent Hawk at July 16, 2007 4:15 PM