Technology industry hits out at 'patent trolls'

By Maggie Shiels
In California

Mad cap patents ranging from protecting a method of painting by dipping a baby's bottom into paint or a system for keeping track of people queuing for the bathroom may soon be a thing of the past if the Federal Trade Commission (FTC) has its way.

Patent wars are not so much about leaked secrets

Such patents, while humorous, clearly show both how broken the American patent system and how lax standards are hurting innovation when it comes to business, the Commission says.

"The intellectual property system was designed to create incentives for people to innovate by giving them, for want of a better word, a monopoly on their ideas for a certain period of time," FTC commissioner Mozelle Thompson told BBC News Online.

"But we have seen instances where companies use that monopoly in an anti-competitive way, sometimes to prevent other products from getting to market, to prevent people from sharing ideas and to prevent the kind of innovation that the patent system is really trying to spur on."

Industry backing

Google executive Kulpreet Rana, who looks after intellectual property issues at the internet search firm, backs the need for reform because he believes the present system makes it difficult to make good business decisions.

FTC's Thompson and Ebay's Monahan agree that reform is needed

"The ambiguity and lack of quality that we currently have really mainly favours those who want to use patents as a tool for harassment," he says.

"The system, because of the way it works right now, is fairly easy to abuse."

A host of industry leaders are in unison, as is made clear by a recently formed technology industry working group that will concentrate on making the patent system more responsive to technical innovation.

Top tier executives from Cisco, Intel, Ebay, Symantec, Chiron, Microsoft and Genentech are taking part.

Cash needed

Part of the problem is a shortage of money.

The National Academy of Sciences is calling for more funding for the patent office where 3,000 examiners handle 350,000 applications a year with an average of 17 to 25 hours to check on the validity of a patent application.

Businesses claim a lack of due diligence at this stage often results in patents being granted that should not see the light of day.

Indeed, academic studies have shown that half of all issued US Patents should not have been approved and the Patent Office ultimately greenlights over 95% of all original applications to issue as a patent.

This compares with 65% in Europe or Japan.

Patent trolls

An added problem is the growth of so called 'patent trolls' who can be likened to modern day highway robbers cashing in on the problem.

Google's Rana: The system is easy to abuse

These are lawyers and investors who buy cheaply or assume control over paper patents, mistakenly granted largely to failed companies, explains David Simon, computer firm Intel's chief patent counsel.

The trolls can use these patents to threaten to shut down the entire computing industry with a court order injunction, no matter how minor the feature that has been patented is.

Mr Simon cites one case where a patent troll claimed a patent they had bought for about $50,000 was infringed by all of Intel's microprocessors from the Pentium II onwards and that they were seeking $7 billion in damages.

In the end, the case was thrown out by the court, but it still cost Intel $3m to fight it, Mr Simon says.

"This has become more and more prevalent because people see it as a very, very profitable business model."

That is because the only thing the trolls have to lose is their patent, which typically they have a very low investment in.

"If you are going to trial as a big company, you are risking having a court enjoin you from selling your products. That's a serious risk you have to consider so it's probably cheaper to pay them a hundred thousand dollars than to fight them," says Mr Simon.

Patent experts put the cost of litigation at $2m per party per case.

eBay too has come to think of the patent trolls as "an unfortunate cost of doing business", says eBay's litigation and intellectual property professional, deputy general Jay Monahan.

Mr Monahan has seen the number patent problems for his company grow steadily, including one for infringing a Virginia man's patent of selling auctioned items at a fixed price, he says.

"It's driven eBay's costs up and it diverts time and resources from building the world's greatest ecommerce platform. There are dollars spent on lawyers," he says.

"There's also an impact on diverting in-house legal staff, engineers, people at all levels to produce documents and sit for depositions. Our approach to this point has been to vigorously defend ourselves against these claims and not to pay ransom money if you will."

The FTC's proposals to change the system have been on the drawing board for over a year. They include a new administrative procedure to challenge a patent's validity without having to go to law and limiting the awards of treble damages.

The last major changes to patent law were in 1952 and there is no legislation before Congress which means that ideas like a patented method for picking up a box by bending your knees may well continue for some time.