Buying Into Patent Lawsuits

By Rob Pegoraro
Thursday, May 3, 2007

Buying high-tech goods or services often involves some kind of gamble. You're betting that the new software will have fewer bugs than the old one, that the Internet connection will run as fast as advertised, that this year's gadget won't turn into next year's Betamax.

Many tech buyers, however, also have to run a different, less understandable sort of risk: the chance that a patent lawsuit will make a product they like less attractive, more expensive or unavailable altogether.

Users of Palm organizers, for example, had to learn a new version of the Graffiti handwriting-recognition system after Xerox sued Palm for infringing on its patents. BlackBerry owners almost lost the use of Research in Motion's e-mail-delivery service until the company coughed up $612.5 million to settle a patent lawsuit filed by NTP Holdings.

And now Internet-phone firm Vonage just escaped being forced to stop selling service to new customers after it won a reprieve from federal court in a patent lawsuit against it.

In all of these cases, what could average buyers have done to educate themselves on the risks involved? Almost nothing.

Unlike the other dangers of buying new technology, patent litigation isn't something that laypeople can research on their own. Read all the reviews, blog postings and Wikipedia articles you want, and you still won't have a solid sense if a company is going to get tripped up by a patent lawsuit.

A case like Vonage's might suggest that you can avoid trouble by giving your business to the biggest, most established company in the field -- usually, the one that can also field the most lawyers.

But the biggest software company of them all, Microsoft, got socked in February with a $1.52 billion judgment in favor of Alcatel-Lucent for infringing on patents describing digital-music formats. (A Supreme Court ruling issued Monday may drastically reduce that fine.)

Or ask a lawyer for one of the world's largest telecom firms, who said: "It's fair to say that intellectual-property litigation is growing, and we have been sued in quite a number of cases in the last several years. We do spend a significant amount defending ourselves in those cases."

That was John Thorne, Verizon's senior vice president and deputy general counsel.

The most grating fact about many of these lawsuits is that they were brought by companies with little or no record of doing much with their patented innovations. It can seem that patent lawsuits are the last refuge of the incompetent -- and an annoyingly effective refuge at that.

Help has come from an odd place, the Supreme Court. In its ruling Monday, the court basically said that the word "obvious" means what you'd think it means -- but in doing so, the court may have solved one huge problem with the patent system.

That KSR Int'l Co. v. Teleflex Inc. ruling clarified a basic definition of what's patent-worthy: An invention must be new but not an obvious advance. But a series of lower-court decisions had constrained the meaning of "non-obvious" to a strict, precise sense that often required third-party documentation.

For example, a patent examiner couldn't just say "any engineer would have thought to computerize this brake-pedal design" (the subject of the patent fight ended by the Supreme Court's verdict), but he would have to dig up an academic paper or university lecture suggesting that such a modification would be a nifty idea.

The Supreme Court ruling undoes that and lets patent examiners employ more of the technical knowledge that qualified them to evaluate patent applications in the first place.

This means patent applicants will face a much more skeptical hearing -- on top of an already sharp drop in patent allowance rates, to 54 percent last year from 72 percent in 2002.

But this change also makes a great many existing patents tempting targets for legal attack. Think, for example, of all the "Internet business method" patents, in which companies have claimed that performing a long-established type of transaction over the Web counts as innovation.

Vonage thinks Verizon's voice-over-Internet-protocol patents also flunk the new obviousness criteria, and on Tuesday morning, the company asked for a new trial.

It took decades for the patent system to degrade into its current state -- one in which so many companies have tried to hoard so many patents that the Patent Office's backlog of applications now exceeds 700,000. This mess won't be cleaned up right away, and we may see a scary amount of litigation in the meantime.

But there's now real hope for clearing the patent thicket and allowing more customers to shop without hiring intellectual-property lawyers first.

Living with technology, or trying to? E-mail Rob Pegoraro

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