Paul Allen Suit Sparks Debate On Fixing Patents

Microsoft co-founder Paul Allen's patent lawsuits often give rise to a complaint that there are more of them filed; but that isn't the case, according to data from LegalMetric. Rather, it has brought out discussions of how to fix the patent system.

Allen is suing more than a dozen companies, among them Apple, Google and Amazon. The patents that his company holds are many that are basic to the functioning of the Internet. Allen hasn't specified a damage amount.

Over the last decade, the number of patent suits has averaged about 2,600 per year. A peak of 2,904 was reached in 2004. In 2009, the number had dropped to 2,705. As of the end of August, there are already 2,162 patent suits filed in 2010, putting it on pace to be the second most litigious year of the century.

Wending its way through Congress is a bill backed by Sen. Patrick Leahy (D-Vt.). The bill proposes several reforms, among them changing the system so it awards priority to the first person to file a patent. Thus far the patent is awarded to the first to invent something, but that can be complex to prove.

Another provision is to change the process of challenging patents, in order to eliminate many that shouldn't have been issued to begin with. The bill also offers a grace period for filing a patent after an inventor discloses their invention. It also allows for the public to submit examples of prior art during the grant process.

The bill also changes the rules as to where a patent infringement case can be filed. Many lawsuits were started in the Eastern District of Texas, which garnered a reputation for speedy and often pro-plaintiff decisions, making it a popular venue for patent trolls -- companies or individuals who buy patents and file numerous lawsuits, hoping that one or more will be settled for damages. By restricting the venues to those where the patent holder and infringer are either locted or do business, the practice of venue shopping could be curtailed.

Paul Allen's company, Interval Licensing, doesn't produce anything, so there are some who have characterized his suit as patent trolling. But that would be wrong, says Dex Wheeler, an analyst at M-CAM, a firm that assists bankers and corporations in analyzing intellectual property. Some people have legitimate claims, he said. Allen's company may be among many, he says, that were never able to monetize inventions.

Dan Ravicher, a law professor at the Cardozo Law School, says patent suits tend to be in areas where a large number of patents were issued, and to follow that issuance by a few years. The spike in patent suits in 2004 was to be expected, since a large number of patents were given out for business methods and software as the Internet boom peaked. It sort of leveled off in the last five years or so, he said.

Ravicher says a good way to boost confidence in the system would be to change the application process. Currently, there is a fee for filing patents as well as for maintaining them. That biases the review process, he says, towards issuing patents. Better would be to remove any bias towards or away from issuing patents, allowing the examiners to make a purely scientific evaluation of each one.

Another problem is expansion into new technological fields without thinking carefully about the implications. There's a myopic view of the benefits, without a consideration of the negative effects downstream, Ravicher said.

To help solve that, he favors granting patents only for technology that needs to be exclusive in order to spur investment. There are lots of businesses where we don't issue patents, he said. Nightclubs and restaurants don't need patents to spur investment. The patent should stimulate investment, not hinder it, and that could be determined on a case-by-case basis.

But such proposals might have unintendended consequences. Todd Dickinson is the Executive Director of the American Intellectual Property Law Association, a group that represents patent lawyers. He says the problem with some of the proposed reforms is that they affect some technologies more than others.

High technology companies tend to favor some system of challenging patents, at least in the early stages. Biotechnology industries tend to be against it. The reason is that for the latter, patents are part of the business model and investors need to know that the exclusivity patents grant is guaranteed. Technology companies are in a rapidly changing field, and don't depend on the patent itself as much.

One attorney, who declined to be named, notes Interval Licensing did create innovative software. But it was never able to make the business work and the patents proved more valuable. That is not uncommon, he says.

All of those interviewed said the lack of continuity at the PTO is also contributing to the problem. Most examiners, they say, don't stay for long because they can make more money in the private sector. That cuts into the PTO's institutional memory.

One thing the Senate bill does not address is the funding of the PTO. Currently, the PTO has little control over the money it gets from patent applications. The actual funding of the agency is dictated by Congress. Gene Quinn, a patent attorney who runs the site IPWatchdog.com, says hiring more examiners would go a long way towards reducing the backlog.

Additional funds -- and control over the revenue the PTO receives -- would put the office in a position to upgrade its technology. The PTO's information technology system was state of the art 15 years ago, he said.

Quinn likes the idea of some system for challenging patents after they are issued, at least in a limited way. But he cautions that changes can have unintended consequences.

There have been changes designed to reduce certain kinds of litigation. New rules altered the term of patents - they are now 20 years from the date they are filed, whereas before 2000 it was 17 years from the date they were granted. The new rules are meant to discourage submarine patents in which a patent filer deliberately slows the process, only to surface soon after the patent is granted and sue for years (or even decades) worth of royalties.

But the problems the PTO has are also driven by the demand for patents in the U.S. That is, the PTO is overworked because the patent regime in the U.S. is successful, and that is where the bigger markets for technology are.

Officials at the PTO declined to comment.