The problem with the American patent system is not the Patent Trolls.
It's the Troll Patents.
Everybody hates Patent Trolls. Otherwise known as patent assertion entities, they typically make no products. Instead, they own and enforce patents through licenses and lawsuits. Since patent lawsuits are expensive and risky, patent trolls can negotiate big settlements from fat targets. And this stifles innovation and harms consumers. Critics as diverse as Google, the Electronic Frontier Foundation, President Obama, and Marc Maron all hate patent trolls for their lawsuit-heavy strategy.
But if we are going to take another crack at improving our patent system, we shouldn't hate the player, we should hate the game. Or, I suppose, in this metaphor, the ball - the patents themselves.
Take Personal Audio. Personal Audio owns patents related to the electronic transmission of audio in the form of playlists and episodes. Personal Audio argues that its patents - here are three of them - form the technological basis for podcasting. The company does not currently make anything, but in the last couple of years, it has sued Apple, Amazon, Samsung, XM Radio, and others, alleging that these companies have infringed its patents. Ironically for the company that claims to have given birth to podcasting, its enemies now say that Personal Audio's trolling will kill the form.
Personal Audio's founder, James Logan, took to Slashdot to answer questions in a bit of a PR counteroffensive. But his effort "in the lion's den" was quickly surpassed by less flattering portraits of IPNAV and Intellectual Ventures, two top patent assertion entities. And now the Obama Administration has announced that it will crack down on patent trolls.
This focus on the individual villainy of patent trolls is obscuring the real problem with the patent system - the Troll Patents being issued by the U.S. Patent and Trademark Office.
Take Personal Audio and James Logan again. One day in 1996 he presumably thought to himself, "I bet I could invent a new way to deliver audio digitally via episodes." And so he wrote down his plans and sent them to the Patent Office, whose examiners decided that yes, Logan has invented a new way to transmit audio.
The problem critics have isn't so much that they think Logan did not invent podcasting ("if you were the inventor of podcasting, you would have invented podcasting"), so much as they think that podcasting shouldn't be the type of thing that gets patent protection. The problem is that the Patent Office gave Personal Audio the patents in the first place. Patents are government-sanctioned monopolies, issued only "to promote the Progress of Science and useful Arts." Where would the science of podcasting be if they did not patent Logan's idea?
The Patent Office is too willing to issue Troll Patents for methods and for software. Certain types of inventions need patent protection to be profitable. Drug patents may be the result of decades of expensive research. Physical process patents may need whole factories built to derive profit. But certain software and method innovations do not need long periods of monopoly protection to return a profit to its inventors. These are, more often than not, Troll Patents.
The second, related problem is that nobody knows how much a patent is worth. Inventors don't always have the money or the will to mass-produce their inventions. Established patent-owning companies may have difficulty paying their bills. These are all reasons why patent owners may want to sell their patents. But patents are hard to value and hard to sell (they are not "liquid," as the bankers say). This is the case for a few reasons. First, most tech companies license their patents to a web of other companies, which means it is hard to figure out how much more profit can be wrung from them. Second, because most patents expire after a set number of years, they probably do not have long price histories — that is, the patent-owner probably has no idea what another company might pay to buy them. And third, especially in the high-tech arena, the value of a patent might fluctuate wildly. Corning's "Gorilla glass" patents were worth less before touchscreen phones took off, and Apple's "swipe-to-unlock" patent was worth a lot more the day before Judge Posner called it "silly" and dismissed the company's case against Google. Troll patents make this pricing problem worse.
One way that companies try to price — indeed, even market and sell — their patents is to litigate them. A company will sue a competitor it thinks is infringing its patents in an attempt to prove the patents' value and maybe force them to buy the patents instead of being found guilty of infringement. But doing that pisses off those competitors and encourages them to say that the patents are worthless to begin with, depressing the patents' value. So suing the people you want to buy your patents is a bad idea.
One solution is the creation of patent exchanges. Like stock exchanges, a patent exchange would create a market in which patents could be publicly priced, bought, and sold. At least one company, called IPXI, is developing a patent exchange, and it looks promising. A public market with patent price histories will give companies a better sense of the value of their patents and therefore make them easier to sell without resorting to lawsuits that pull products out of consumers' hands. But Troll Patents would distort these markets.
Troll Patents explain the bad behavior of big companies and little ones alike. Big companies like Google buy up large patent portfolios and then use them to smother competitors. Patents gouge consumers. Apple and Google spend more money on legal fees than on research and development. Apple and Samsung have slugged it out like Jaeger and Kaiju across the globe, winning and losing billion-dollar judgments over patents like "swipe-to-unlock."
The story of Troll Patents may lack the bad guys called Patent Trolls. But science does not need a method patent for a crustless peanut butter and jelly sandwich. (You didn't build that. Somebody else made that happen.) The European Union generally does not grant software patents, and Google's Chief Legal Officer has suggested that the U.S. should also do away with software patents. That's a start.
It's time to declare total war on Troll Patents.
An advocate for the Digital Age, Michael Phillips is an associate at a Wall Street litigation boutique. He has been called a "thick-haired man" by the New York Times.
Contact Michael Phillips at email@example.com.
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