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August 4, 2007

This Pendulum Swing

Once upon a time, erstwhile inventive companies grew fat, smug, and arrogant. Though a few created revenue streams from patents, all were constantly pestered with infringement assertions. Mega-corporations banded together, finding common cause in pouring money into poisoning the patent well - trying to gut patent enforcement, make the so-called "sport of kings" an even higher-stakes "spoils of the mighty."

The propaganda pitches by the band varied only a bitter bit: patents were bad for the country, bad for business, bad for jobs, bad for innovation. The single theme: the patent system was broken.

Narrow self-interest drove the heedless. No thought was given to the longer term, the consequences. The bottom line was as it always is: money talks.

Naturally, the hooples bought it. Maverick software developers had made it a religious mantra to oppose patents. The press, always less interested in reality than the sensational, whooped it up. The complex legalities were incomprehensible, but hardball hammering at a scandal was readily understood, even if the source of the so-called scandal wasn't.

Legislators on the Hill, on both sides of the aisle, recognized a honey pot. Year after year, they proposed idiotic legislation brewed by the band. Many didn't really mean to pass it, just line their pockets from the controversy it was bound to stir; lobbyists being the lifeblood of the One party: feeding the kitty to stay in power.

"Bad for business" hit the note for a Republican judiciary. The Supreme Court danced to the anti-patent tune, handing down four decisions in less than a year degrading patents. The most significant, KSR, even went so far as to break the law: eliminating presumption of validity; exceeding statutory definitions of obviousness by subtle wordplay. For generations, jurisprudence kept bottled a pernicious demon that KSR uncorked: the evil genie of hindsight. Now, everything was obvious to try; creative combinations were old hat. An ordinary working stiff was now a know-it-all creative whiz, equal to any inventor. But the Court would not be rebuked by Congress, who had no understanding, nor motivation, for corrective action.

Relatively early on in this pendulum swing, the patent office whiffed the political winds, tightening up what had been a loosely-run crappy patent factory. Facing a growing pile of languishing applications, management took up the theme of "do some work for us." After KSR, the allowance rate dropped precipitously, and, after that lesson sank in, so did the growth rate in applications.

In the months that followed KSR, companies thrashed in denial: appealing applications and patents bludgeoned by the sledgehammer of obvious-by-hindsight. As reality sank in, the appeal frenzy died down, both at the patent agency, and in court.

The winnowing took years.

Some said it was not so bad. Not all was lost, by any means. Patents for new processes and from unexpected results withstood. But trillions of dollars of intellectual property were soiled, gone bad by court decree.

The "broken patents" band didn't think it went far enough. After all, they still were paying a dreaded "patent tax" for the most valuable inventions. Less frequently hit, but when applied, the tax was just as high, if not higher, than it would have been.

Patenting became more expensive. For one thing, it used to be an oddity to perform a patentability search, but that was now de rigueur. Patent prosecutors had fewer applications, but made out by doing more research.

Litigation became somewhat more predictable. Patent holders became more careful in their enforcements. The writing on the wall became clearer sooner, and the settlement rate went up.

Patent legislation did finally pass, but it was watered-down from the fire-and-brimstone brew stirred by the "broken patents" band. Mostly, patent reform became patent harmonization with the rest of the world, pushed insistently by the patent agency through its big brother, the Department of Commerce.

America had long before become a land of imports. The redoubt of "high technology" that patents helped hold had been breached. The protection that patents once provided was lacerated. More higher-quality imports came, in ever greater quantities from China and India, moving up-market as they lost their cost-competitiveness to other developing countries, themselves becoming developed countries.

As a result, more American jobs were lost overseas.

Capital flight followed, away from the high-tech sprouts where it had once flowed. Where once start-up companies could ride patent ponies fed by venture capital, now those plains were bare. The economies of scale became more ironclad, as there was less protection for profiting from one's inventions; what were once protected inventions were now readily copied.

In the end, the "broken patents" band achieved a pyrrhic victory: patent attacks were fewer, but the patent tax remained, particularly for leaps of innovation. And making those leaps were all the more important, as the competitive situation became ever fiercer from overseas corporations that had the financial muscle to gain market entry, and could not be stopped from offering comparable, innovative products at lower prices.

America had wounded itself by cheapening patents. Poisoning the patent well always was a desperate measure.

But then, as time made the consequences of weak patent protection more apparent, the pendulum again swung...

Posted by Patent Hawk at August 4, 2007 6:17 PM | The Patent System

Comments

For one from UK this is Chicken Little stuff in spades-full. UK is more fierce than continental Europe on patent validity, and hugely fiercer than continental Europe on the need business has for legal certainty. Ask yourself about the health of the British pound, the absence of unemployment in UK. Then ask Merck, Nokia, and individual inventors Haberman and Dyson about whether UK has got it right or wrong, on patent law and litigation. Don't worry. UK patent attorneys are up to their ears in ever more work.

Posted by: MaxDrei at August 5, 2007 2:52 AM

It seems the Scotus KSR case will cause the biggest disruptions in patent law in the years to come. KSR is so sloppily written and so laden with broad-sweeping everything-is-obvious tidbits, it makes me wonder if the scotus understands the complexities and nuances of patent law. By way of example, KSR held that a recognized problem can provide a reason to combine. This flies in the face of Graham, which held that a long felt but unsolved need is secondary evidence of nonobviousness. As Patent Hawk so eloquently points out, the KSR pen was also influenced by the “broken patents” band. It is unfortunate that the scotus has given in to this anti-patent firestorm of the day. The KSR opinion seems written at least partially with a tilt toward providing a redress against patents examined and issued by a not-up-to-snuff USPTO. But easing-up of the obviousness standard (to the point of “obvious to try”) is not the appropriate means to address problems at the USPTO. Worse yet, it is not the role of the judiciary to lay out the carpet for attacks on the congressionally granted presumption of validity simply because the USPTO cannot do its job. Fix the quality of examinations at the PTO, don’t invite condemnation of patent rights and provide fodder for the “broken patents” band. Perhaps down the road in hindsight, after KSR and the spew of the “broken patents” band have eroded the worth of patents and the American economic engine, perhaps only then will it be realized that KSR’s scaling back and the patent “reform” measures being proposed today were wrong-headed.

Posted by: Confused scotus at August 5, 2007 10:43 PM

The Washington Post notes a seminar by some of the "broken patents" band: http://www.washingtonpost.com/wp-dyn/content/article/2007/08/02/AR2007080201139.html

I'd rather think them liars than as stupid as they sound. After all, if they were pathological liars, they just be in mold of the attorney general. If they are as stupid as they sound, they'd be more like the President.

Posted by: Patent Hawk at August 6, 2007 12:09 AM

And yet, the pendulum will only swing faster as technology advances speed in cadence and commercialization. While I don't subscribe to all the points, any innovation manager has to consider the premise:
http://en.wikipedia.org/wiki/The_Singularity_Is_Near

Framing the balance between exploration, payback and IP rights will be an even bigger and more challenging question as things speed up across a growing number of organizations.

Posted by: Faster and Faster at August 6, 2007 12:49 PM