Patent Problems Might be Obvious; Solutions Less So

Patents aren’t just for inventors and IP counsel, anymore.  Patents are hot.  Thanks to billion dollar deals like the Nortel auction, Google/Motorola Mobility and Microsoft/AOL/Facebook, as well as a flurry of high-profile infringement fights between big names in high tech, patents have been in the news a lot lately.  After decades of obscurity, patents have captured the attention and imagination of the general public, and it’s rare to scan an Op/Ed page or visit the blogosphere without seeing a new point of view.

Holly Finn, for instance, who writes the general-interest Marvels column for the Wall Street Journal, weighed in on patents recently (A Patently Obvious Problem), and while we think she has definitely identified many of the fundamental problems in the current patent system, we can’t agree with most of her prescribed solutions.

Finn writes, “The problem is that the system allows too many inessential patents, which leads to even more inessential litigation.”  No argument.  There aretoo many patents issued, too vaguely worded and with too much overlap with prior art.  Finn (echoing many other observers) is right that the USPTO needs to look at overhauling its processes.

But even if the system for approving patents were to become more rigorous overnight, we still need to deal with the millions of patents that are already in circulation.  Here we think Finn’s suggestions are wide of the mark.

She believes, for instance, that the law should “insist that filers of patents be provably active and productive in an industry.”  This would contravene the underlying logic of our patent system: that inventors should be able to invent for invention’s sake.  Some of our greatest innovators – including commercially active entrepreneurs like Thomas Edison – licensed their patents.  Should the system prevent someone from selling and profiting from their intellectual property alone?  Of course not.

Finn makes no secret of her disdain for NPEs, who she feels are exploiting inventors (“Actual inventors in Silicon Valley are incensed, their faith in fair play as bruised as their bottom lines”).  We can’t completely share her opinion because we feel the system is as much to blame as the participants.  After all, patentsdo have value, and inventors/owners of patents deserve to receive that value.  NPEs are undeniably spurring that transfer of value.

That said, using litigation to do so is wasteful, and using legal means to establish valuation creates deep distortions in price.  In fact, many operating companies settle with NPEs simply to avoid legal costs with no regard to the underlying value of the patent.  These kinds of “nuisance suits” can be eliminated as more and more companies adopt market-based mechanisms like the defensive acquisition service RPX provides for its large network of member companies.

Finn does correctly point out that the average infringement case now takes 18 months to conclude and costs more than $1 million.  What she doesn’t say is that 98% of cases settle.  We believe it is simply more logical to make that settlement – transfer to the owner of the patent the appropriate value for the asset – at the outset rather than after wasting many months and many hundreds of thousands of dollars on legal proceedings.  This, of course, is the central logic of pursuing a defensive acquisition strategy.  At RPX, we pay fair value to the owner of a patent through a transparent, multi-party, open-market process.  By removing the need to determine value through litigation, we eliminate uncertainty for the seller and dramatically reduce cost and risk for any potential targets of litigation.

Finn also makes an important point that settlements are confidential, so companies have no information to make decisions about whether and how much to pay.  In Finn’s mind this is strictly the fault of NPEs, but we aren’t so sure.  Defense counsel have their own reasons for not wanting settlement data to be public.  The resulting lack of transparency has been a huge obstacle to rational decision-making for any company in an NPE suit.  We do agree with Finn that participants should seek to “… rid settlements of nondisclosure agreements – or at least encourage the sued not to sign them.”

The final sentence of Finn’s column is a call to action, exhorting a visionary high-tech CEO to champion the cause of fixing the patent market’s systemic problems.  Of course, RPX is already doing this.  We have brought more participants into the market and helped spur far greater price transparency.  And through ongoing defensive patent acquisition on behalf of our 116 clients, we are helping operating companies avoid or limit NPE litigation, while dramatically reducing their overall patent legal costs.  If tech CEOs decide to take Finn’s advice, they will find there is a ready-made way to champion the cause of a more rational patent market: join RPX.