We Need To Reinvent The Patent Process

Intellectual property is the global commercial battleground of the 21st century, replete with intellect, but also property and theft. Three types of intellectual property dominate. Trade designs and marks are aimed at the clear offence of “passing off”, i.e. fraud and plagiarism. Copyright gives exclusive rights, though only for a limited time. Artists and corporations, especially ICT and media corporations, lobby to stretch and extend these rights to the limit.

However, the big, messy, wasteful battlefield is patents. Unclear intellectual property boundaries collide with national borders. Sir Tim Berners-Lee was interviewed saying: “Patents are often used by large companies who can afford the legal fees, or some one-man-bands who have nothing to lose and [are] hoping for a pay-off from a larger company.” Gorillas and guerrillas. We’ve had recent announcements that Tesla is opening or freeing up its patent portfolio for widespread use, the Supreme Court again questioning the soundness of software patents, and the Chinese government publishing a revealing list of patents that a Western firm allegedly used to bully Android-based firms into licensing deals to avoid litigation.

Society grants inventors temporary monopolies as patents in return for full disclosure. In this way intellectual property is not lost, and at some future point is shared. It is not about “intellectual rights”; rather it is about economic advantage. The United States Patent Office was established in 1790. The UK Patent Office followed in 1852 after concerns about protection raised during the Great Exhibition of 1851. US patent numbers grow steadily at over 4% compound per year since 1990. Yet we find that the creative periods in many industries, chemicals in the early part of the 20th century, computing in the 1960s or biotechnology in the 1980s precede, not follow, the appropriation of intellectual property. Why do open-sourcers drink herbal tea? Because property is theft.

Some argue that more invention occurs after patents come into existence, but this is typically measured in patents. Microsoft is on course to file nearly 3,000 patents per year, when in 1990 it received five. The success rate of applications is fairly stable, roughly 50% over the century. Patent awards are not a measure of success; they’re a measure of people’s belief that they can make money from patents. And where there is money, there are fights. On that battlefield, frivolous lawsuits, legal bullying by patent trolls, patent portfolios barring market entry, and no proof of increased innovation, all undermine the economic case for the patent regime. Some pundits believe patent legal fees in toto exceed license income.

Reform is essential. Patent offices are 19th century, fixed fee, stamping machines. There is no redress against a patent office if a patent is poorly awarded. Patent offices ration resource inputs (bureaucratic time) rather than balance supply and demand with risk. Instead of maintaining quality when things get busy, patent offices do poorer work. Poor quality patent issuance is an economic externality borne by society through the legal system and innovation foregone.

In “The Price of Fish” Ian Harris and I suggest forcing patent offices to offer a legal indemnity for each patent awarded. If a patent office issues a patent that is overturned in a designated court, the patent office pays up to a certain amount towards legal costs. The indemnity is a recourse to the inventor for the patent office failing to ensure the invention is novel and non-obvious, legal insurance if you will. The indemnity could be optional, purchased via a surcharge on the patent application. Patents would be worth significantly more with such an indemnity, especially to smaller players, because potential litigators would know that the smaller player will be supported by the patent office, and with some money.

We have to stop dumping patent offices failures on the legal system. Equally, we have to help patent offices show the value they add. Inventions have to be novel, non-obvious, and useful. Surely, it’s time patent offices put their money where their mouths are and used the offer of indemnities to prove their economic usefulness.

Michael Mainelli is Emeritus Professor of Commerce at Gresham College (founded 1597), Executive Chairman of Z/Yen Group, and Principal Advisor to Long Finance. His latest book, The Price of Fish: A New Approach to Wicked Economics and Better Decisions, written with Ian Harris, won the 2012 Independent Publisher Book Awards Finance, Investment & Economics Gold Prize.

An edited version of this article appeared in Wired, Conde Nast Publications (October 2014), pages 74-75