October 23 2002

Patent problems
by Sandy Starr

Patents - which give individuals or organisations an exclusive right, for a limited period of time, to profit from inventions - have come in for some bad press recently.

In the age of genetic manipulation and computer technology, ethical questions are often raised about what we should be allowed to patent, and how patents should be applied to the developing world.

What is more surprising is that patents are being given a hard time by those who use them. An increasing number of individual inventors believe that the patent system works against them rather than for them, while the companies who deal in patented innovations increasingly see patents as being fraught with risk and danger.

Such concerns were raised at 'Intellectual Property Enforcement', a discussion organised by Ideas 21 and held at the UK Patent Office in London in September 2002 (1). The event was chaired by Michael Fysh, judge of the Patents County Court. He gave an anecdote to illustrate the complexities of the present patent system - telling us how a recent patent application for a simple device, 'a collar for holding a pipe', met with radically different judgements from eight different courts in three European countries. When such diverse judgements are possible, patent disputes become costly and difficult.

Fair enough, you might say - granting patents has never been easy. After all, there is much debate as to what constitutes a new invention, as distinct from the mere reproduction of, or improvement upon, existing ideas and processes. As technology advances, precisely defining inventions becomes more difficult. Yet the attitude to patents adopted by business today seems to go beyond the specific difficulties of patenting, and reveals much about today's business climate.

Sam Bobo, underwriter and company secretary at the Miller Insurance Group (2), urged us to see 'risk management as part of litigation' when it comes to patents. He advised taking out insurance to cover possible losses incurred in patent disputes, arguing that just owning such insurance is a deterrent against patent infringement.

Judge Fysh said that when he began his career in law, such insurance was unheard of - even though risk has always been an important consideration with patents. Any invention you invest in runs the risk of failing to be granted a patent. And even if an invention is patented, it runs the risk of failing in the marketplace. But such risk has traditionally been seen as inherent to business and invention, rather than needing to be considered in its own special terms.

Patents used to be seen by businesses as a mechanism for securing new profits through exclusive licensing. But today, patents are seen either as a mechanism for scaring competitors, or as a liability, because of the possibility that they might be infringed and cost a lot in subsequent litigation.

The patent system can be used in just as cynical a fashion as it can be infringed
When patents are seen more as a liability than an opportunity, drastic steps are taken to protect them. Conrad Arnander, partner with the law firm Shook, Hardy and Bacon (3), advocated the creation of 'a heavily built wall of other rights around your patent'. His 'other rights' included international patenting (in those countries where patents are most easily obtained); explicitly defining new innovation as improvement upon already patented inventions; yoking your patent to other forms of intellectual property; and building a strong brand around your patented inventions.

You can't help wondering whether all this desperate activity to protect patents does anything to assist the activity that patents are intended to stimulate - innovation. As the UK's Commission on Intellectual Property Rights (4) points out, intellectual property rights are 'instruments of public policy which confer economic privileges on individuals or institutions solely for the purposes of contributing to the greater public good. The privilege is therefore a means to an end, not an end in itself' (5).

Admittedly, there are those who argue that a risk management mentality does in fact aid innovation, on the grounds that when risks are minimised and clearly defined, businesses have a greater incentive to invest, and inventors have a greater incentive to innovate. William Kingston, a prominent advocate of patent reform, argues that 'if all inputs and outputs could be measured accurately, then the logic of a grant of protection would have it last until an investor in research and development had received a multiple of the investment made which exactly corresponded to the risk which was taken in making it' (6).

But in reality, such awareness and redistribution of risk often leads to inaction. The key word in Kingston's assertion is 'if'. To the extent that the caprices of the marketplace are knowable, they are a distraction from the kind of innovation you need to focus on in order to achieve breakthrough and consequent success. Risk management may make it safer to do business around innovation, but it will not stimulate innovation, and is therefore ultimately self-defeating.

Some people claim that risk management is necessary because of the increase in patent infringement. At 'Intellectual Property Enforcement', John Reid, chair of the Intellectual Property Awareness Group, called for an 'expectation that valid patents will be rewarded', and argued that there is at present too much 'cynical infringement' of patents.

This may be true, but the patent system can be used in just as cynical a fashion as it can be infringed - by businesses desperate to wring value from every asset that they have, attempting to either patent or associate with an existing patent every incremental development in their work. The patent system has not been revved up to counter a sudden rash of infringements. Rather, legitimate use and illegitimate infringement of patents alike reflect the business culture.

Ironically, although risk management is bound up with a heightened sensitivity towards competition, the urge to redistribute risk actually undermines competition, as equally nervous firms band together and batten down the hatches. The inventor John Mitchell, managing director of AllVoice Computing plc (7), told the audience at 'Intellectual Property Enforcement' about the urgent need to 'cure the loss of intellectual property'. He cited a recent European Commission funded report, in which William Kingston proposed the creation of a 'Patent Defence Union' - 'an EU-wide voluntary grouping of SME patentees to defend their patents' (8).

This safety-in-numbers mentality is also expressed in the phenomenon of cross-licensing, in which businesses share the licences for their patented inventions with other businesses. Here, again, patents cease to be a spur to innovation, and become a bargaining chip between the cautious.

Patents have become a bargaining chip between the cautious
Cross-licensing has unfortunate consequences for innovation. Intellectual property seeks to strike a balance between providing an incentive to innovate, and allowing for the fair use of innovations by the public. This balance is predicated upon the exclusivity of the rights conferred upon the innovator.

Once this exclusivity is removed, in the case of patents, there is less incentive to take risks with new innovations, while a coterie of businesses maximises the profit from existing innovations. In the words of the Commission on Intellectual Property Rights, 'essentially, non-exclusive licensing is a tax on users of technology' (9).

One aspect of patents that is even less popular than their exclusivity is their provisional character. Intellectual property law allows a patent to be disqualified even after it has been granted - for example, if there is new evidence that the patented invention was not new at the time that it was patented. At 'Intellectual Property Enforcement', inventor Heather Davies, director of the packaging products company Reuzip (10), was furious that patents carry no guarantee of validity once obtained. She argued that obtaining a patent should be like buying a product - there should be a guarantee of sale.

Judge Fysh replied that 'no patent office in the world has ever guaranteed the validity of a patent', and explained that no matter how extensively a patent office searches for 'prior use' of an invention, it is always possible that an incidence of prior use will be discovered. John Mitchell was unimpressed, asking: 'If you can never guarantee it, how can you make a judgement on it?' Mitchell proposed that there should be only a limited period of time during which new patent claims can be challenged, after which the patent should be immune to the discovery of prior use.

Such a regime would shift the burden of responsibility in patents, so that instead of it being incumbent upon patentees to establish the novelty of their invention, it would be incumbent upon all inventors to protect their inventions from would-be patentees. The consequence would be to make patents an automatic reward for wanting to bring an innovation to market, rather than an incentive to bring innovations into the public domain that do not exist there at present.

It is difficult to establish with precision whether recent changes, in the way that patents are used and understood, have had an adverse effect upon innovation. The Commission on Intellectual Property Rights points out that 'we cannot measure directly a country's capacity for innovation.... Nor can we directly measure the strength of patent protection in a country.' (11) Nonetheless, the Commission does present some disquieting statistics:

'In the USA, and to a lesser extent worldwide, the number of patents granted has been rapidly rising. Between 1981 and 2000, the number of patents granted in the USA has increased from 71,000 to over 184,000, an increase of 159 percent. In the last five years the rise has accelerated, the number of patents granted has increased by over 50 percent, compared to an increase of under 14 percent in the previous five years. This increase appears to reflect growth in the intensity of patenting...rather than a 50 percent increase in the number of inventions.' (12)

Growth in the 'intensity of patenting' without corresponding growth in innovation leads to the problem of patent dilution - patents become less valuable, in both social and economic terms. The solution to this problem does not lie in reforming the patent system, even if there is a legitimate case to be made for greater stringency in granting patents. Indeed, many of today's proposals for patent reform would most likely work against, rather than for, innovation, because they wrongly assume that the problem lies with the mechanism of the patent.

Intellectual property is a contrived means of encouraging innovation within the marketplace. At best, it will always be, to some extent, imperfect, imprecise and arbitrary. The real question facing us is whether we want to use the existence of intellectual property as a platform for long-term innovation, or whether we want to use it as a crutch for short-term security.

Issued: 23 October 2002
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London, EC1M 3JP

Sandy Starr is a contributor to The Internet: Brave New World? (Hodder & Stoughton, 2002). Buy this book from Amazon (UK) or Amazon (USA)

(1) See the Ideas 21 and UK Patent Office websites

(2) See the Miller Insurance Group website

(3) See the Shook, Hardy and Bacon website

(4) See the Commission on Intellectual Property Rights website

(5) Integrating Intellectual Property Rights and Development Policy (.pdf 1.7 MB), Commission on Intellectual Property Rights, September 2002, p6

(6) Meeting Nelson's concerns about intellectual property (.pdf 74.4 KB), William Kingston, 14 May 2001, p7

(7) See the AllVoice Computing plc website

(8) Enforcing Small Firms' Patent Rights (.pdf 308 KB), William Kingston, 2000, p11

(9) Integrating Intellectual Property Rights and Development Policy (.pdf 1.7 MB), Commission on Intellectual Property Rights, September 2002, p124

(10) See the Reuzip website

(11) Integrating Intellectual Property Rights and Development Policy (.pdf 1.7 MB), Commission on Intellectual Property Rights, September 2002, p21

(12) Integrating Intellectual Property Rights and Development Policy (.pdf 1.7 MB), Commission on Intellectual Property Rights, September 2002, p112