December 26, 2000, 9:55 AM

Patents Impending

(Page 3 of 3)

As the number of patent applications has soared over the last decade, Congress has cut the office’s budget. It can’t hire new examiners, and Stern says the result is that the office simply issues patents. “The patent office lacks the tools and resources to do the job of acting as a screen.”

The lack of screening from the patent office means the cost has shifted to the private sector. Defendants are saddled with huge expenses, and the court system is overtaxed. A 1999 survey by the American Intellectual Property Law Association put the cost of patent lawsuits at $1.5 million on average, with a quarter exceeding $2.5 million. These costs don’t include the burden a trial imposes on executives’ time, along with the diversion of otherwise productive resources. As more cases clog the courts, the time it takes to litigate a case-hence the cost-is increasing. In the Silicon Valley, the number of patent infringement cases doubled in the last five years, and Bay Area lawyers reportedly charge hefty premiums.

Like other civil cases, more than 90% of patent lawsuits are settled before trial. Critics say patent claimants are banking on it. Weighing the fees and costs of going to court, a decision to settle is usually justifiable on a cost-benefit basis. And juries find the patent at issue valid in 70% of cases that go to trial.

One reason for the high win-rate is that a patent is presumed valid unless proven otherwise. Unlike most civil cases, defendants must prove that a patent is invalid by offering “clear and convincing” evidence. In legal circles, this is equivalent to proving a murder defendant is guilty “beyond a reasonable doubt.” Juries are instructed that they must reach a firm moral conviction before invalidating a patent.

The patent industry?

“The situation is going to get much worse,” says Stern. The Internet’s continued growth, along with the high court’s support of business method patents, will give birth to a new industry dedicated to garnering patents. “Today you have people sitting in a backroom writing up patent applications,” he adds. “The days of the inventor-driven patent system are history.”

Others agree, but see a solution in the Internet itself. One of the difficulties in screening new patent applications is determining whether the innovation in question is really new. “Historically there was a body of data that told you what was around before,” says John E. Daniel, a patent attorney at Kramer, Levin, Naftalis & Frankel, New York, who represents clients like Nokia and Honda. “In the case of business methods, there isn’t a comprehensive database like in the case of carburetors to determine if the business method or idea has been practiced before. In many cases, claims are just too broad.”

Aurigin’s Rivette proposes bringing the power of the Internet to bear by applying the open source movement’s philosophy to the problem. In his plan, defendants in an infringement suit would post the patent on a Web site and let 10,000 engineers have a go at it. Rivette imagines postings such as this: “Greetings, Rivette: Their patent is trash. A posting by Dobbs covered the idea in detail six years ago and cited two prior examples. Let me know if you need a copy.” He sighs: “That’s exactly what we need.”

Business of patents is business

In their book Rembrandts in the Attic: Unlocking the Hidden Value of Patents, Kevin Rivette and David Kline call patents “the greatest source of competitive intelligence on earth.” Not surprisingly, they consider that intelligence worth safeguarding, urging executives to think of patents as ways to:

- Generate new revenues through licensing.

- Boost earnings per share and total shareholder return.

- Improve return on investment from R&D and seed innovation.

- Raise corporate valuations while enhancing equity and other financing opportunities.

- Plot competitors’ strategies and ways to “patent-block” them.

- Gain patent-protected entry into lucrative, hotly contested markets.

- Acquire exclusive rights to emerging market-leading technologies.

- Increase R&D effectiveness and avoid infringement minefields.

- Detect possible infringers and likely sources of licensing income.

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