Darin Gibby is a patent attorney with 18 years of experience, as well as the author of Why Has America Stopped Inventing. He’s obtained patents on inventions ranging from the latest mountain bikes to life-saving cardiac equipment.
The patent market, like financial markets, thrives on certainty. When inventors are sure their products will be protected, more people invest in patents and, more importantly, in the technologies they protect.
But when patents cannot be understood, are difficult to obtain, or become nearly impossible to enforce, much of the money that would go toward research and development is spent on lawyers. These legal fees drastically increase the barriers to investment for a promising new idea, dulling America’s technological edge. The modern trend of bundling patents into large portfolios for sale on the open market further demonstrates how the patent market currently favors large corporations over the individual entrepreneur.
As a patent attorney, I am constantly meeting hopeful inventors who dream of securing a patent to protect their ideas. They have been told by potential investors that they need a patent before they are willing to invest in their technology. When I explain that a patent will cost upwards of $30,000 and take around five years to obtain, their hopes are dashed. The news only gets worse when I inform them that enforcing a patent is a multi-million dollar proposition. At that point, most simply give up.
In an effort to remedy this problem, President Barack Obama signed into law the Leahy-Smith America Invents Act (AIA) on Sept. 16, under the auspices that it would “speed up the patent process so that innovators and entrepreneurs can turn a new invention into a business as quickly as possible.” This law, in fact, does the opposite.
The AIA does little to reduce the cost of obtaining or enforcing a patent. For example, under the new laws, when a patent infringer is sued by the rightful patent holder, the infringer has the right to have the patent office reconsider its decision to grant the original patent, thus keeping the infringement case out of the courts for years—long enough for an independent inventor to throw in the towel.
Today, the legalese surrounding patent law has made it nearly impossible to define how broadly a patent can be asserted, whether the patent office will grant a patent holder additional patents, or whether a patent will be upheld in a lawsuit. Patents, like mortgage backed securities in the financial markets, are only understood by a select few. This is due, in large part, to a myriad of doctrines that have been added to the patent laws over the last 150 years in an apparent effort to make patent laws more egalitarian.
The uncertainty associated with the procurement and enforcement of today’s patents has resulted in a patent-price hike that inevitably forces out smaller inventors and leaves them unable to compete against a larger company’s patent war chest.
Google, for example, paid $12.5 billion to obtain Motorola Mobility’s approximately 17,000 patents—roughly $705,000 per patent. If even only a few of those patents are relevant to the company’s smart phones, the mere act of owning the patents is all Google needs to lock down a valuable segment of the technology market.
This is not to say that patents are a bad thing. In fact, the opposite is true. Patents create exclusivity, and exclusivity is valuable. Investment money follows when a company’s technology can be valued and protected with a measure of certainty, and when potential infringement risks from other patents can be ascertained.
Patents become overvalued, however, when the legal issues surrounding their enforcement become unwieldy. This incentivizes companies to acquire them en masse—not for the underlying technology, but to secure a place in the market. The loser in this scenario is the same one that resulted from the failure of mortgage-backed securities: the small- or medium-cap investor. When start-ups can’t compete because they have no way to combat an arsenal of uncertain patent rights, it will choke off competition and cause prices for patents to rise. In sum, Americans should expect to eventually pay for the current rush for overvalued patents.
Given this, why not return to the original patent laws of 1836? Back then, aspiring inventors were required to submit a physical patent model to clearly demonstrate what they had made. A patent examiner’s discretion was limited because there was no obviousness requirement, and courts couldn’t expand the scope of a patent’s claims using the doctrine of equivalents. Reverting to our original laws would drastically cut the time and cost to obtain patents and slash litigation costs, bringing the total cost of patents down to a rational market value.
Although this overhaul may sound radical, it could easily be implemented in the same fashion as the new AIA. This would allow all granted patents and pending patent applications to be grandfathered under the old rules. Thus, for roughly a decade, you would have two sets of patent laws until all the old patents expired. That would be fair to the existing patent holders, but still enable all new inventions to proceed under the new rules.
In addition to improving the cost and speed of patent litigation, this overhaul would also better define the scope of patents and the specifics of the technologies they cover. This clarity of purpose and language would stimulate more inventors to invent, and more of the investment community to fund the development of the resulting ideas. Only then can we expect to see the results that are currently being promised us via the AIA: increased entrepreneurship, decreased unemployment and worthwhile protection for America’s next generation of innovators.