Crovitz on our Broken Patent System

It’s a little old, but I wanted to highlight an excellent column by L. Gordon Crovitz, the Wall Street Journal publisher turned technology columnist, about the damage our broken patent system is doing to innovation:

Companies as diverse as Verizon, Google, Cisco and Hewlett-Packard recently formed the Allied Security Trust to buy patents they may want to use some day and that otherwise could end up in the hands of “patent trolls.” These firms buy up old patents not to produce anything, but instead to work the system to extract settlements. A similar group formed against trolls to protect the Linux open-source operating system. A Google executive explained that helping to buy up and license patents is the “legal equivalent of taking a long, deep, relaxing breath.” Companies can rest easier, and legitimate inventors get paid for their work.

These corporate trusts seem like odd ways to protect products, but the memory is still fresh of the BlackBerry device almost being forced to shut down. Parent company Research in Motion paid more than $600 million in 2006 to settle a case. But in this and many other cases, companies can’t be sure whether or not they are complying with patent law. For example, by one estimate there are more than 4,000 patents that must be reviewed and potentially licensed by firms selling products or services online. The legal abuses arising from uncertainty are legion. More than 100 companies are being sued for alleged patent infringement by using text messaging internationally.

When our most innovative companies are spending large sums to buy protection from the patent system, you know something has gone awry. Crovitz also highlights important new research suggesting that outside of the pharmaceutical and chemical industries, the patent system as a whole actually creates a net disincentive for innovation:

New empirical research by Boston University law professors James Bessen and Michael Meurer, reported in their book, “Patent Failure,” found that the value of pharmaceutical patents outweighed the costs of pharmaceutical-patent litigation. But for all other industries combined, they estimate that since the mid-1990s, the cost of U.S. patent litigation to alleged infringers ($12 billion in legal and business costs in 1999) is greater than the global profits that companies earn from patents (less than $4 billion in 1999). Since the 1980s, patent litigation has tripled and the probability that a particular patent is litigated within four years has more than doubled. Small inventors feel the brunt of the uncertainty costs, since bigger companies only pay for rights they think the system will protect.

These are shocking findings, but they point to the solution. New drugs require great specificity to earn a patent, whereas patents are often granted to broad, thus vague, innovations in software, communications and other technologies. Ironically, the aggregate value of these technology patents is then wiped out through litigation costs.

Our patent system for most innovations has become patently absurd. It’s a disincentive at a time when we expect software and other technology companies to be the growth engine of the economy. Imagine how much more productive our information-driven economy would be if the patent system lived up to the intention of the Founders, by encouraging progress instead of suppressing it.

It’s great to see another prominent commentator throwing his support behind patent reform.