Court fails to protect software from out-of-control patent system

interns Contributor
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In an interview with ABC News on Sunday, David Axelrod, the president’s chief political advisor, touted patent reform as a potential spur to innovation and job creation. But it’s not clear that the patent backed by the White House nearly enough to tackle our out-of-control patent system. There’s a patent war going on in the cell phone industry, and virtually all of the major manufacturers are involved. Apple is suing HTC and Nokia. HTC is countersuing Apple. Nokia is suing Apple, LG, Toshiba, Hitachi, and Qualcomm. Research in Motion is suing Sharp, and recently settled a patent dispute with Motorola.

In the last two decades of the 20th century, the courts dismantled traditional limits on what could be patented, unleashing a flood of low-quality patents and a surge of frivolous patent litigation. The patent system is supposed to reward innovation by making the creation of innovative new products more profitable. But in some of America’s most innovative industries, it has had just the opposite effect: high-tech companies are increasingly being forced to divert resources away from research and development in order to hire more patent attorneys.

Last month, the Supreme Court missed an opportunity to begin repairing our damaged patent system. The high court could have used its ruling in Bilski v. Kappos to re-institute common-sense limits on what can be patented. Instead, the court handed down a narrow ruling that does almost nothing to rein in our out-of-control patent system. The system remains in desperate need of reform.

To get a sense for just how dysfunctional the patent system has become, it helps to examine a few of the specific patents at issue in the cell phone patent wars. Engadget offers a helpful breakdown of some of Apple’s key patents. One patent covers the concept of using a “swipe” gesture to unlock a touch-screen phone. Another covers using a proximity sensor to automatically deactivate a phone’s touch-screen if the user places the phone near his face.

Apple’s opponents have equally broad patents. Palm, for example, holds a patent on the concept of automatically adjusting the brightness of a cell phone screen in response to ambient light. Palm has also patented the concept of a touch-screen phone that displays a telephone dial pad, a list of speed dial numbers, and a call history.

This is just a sampling of the tens of thousands of software-related patents the Patent Office has issued in recent years. Together, they form a kind of legal minefield. Even the most talented team of engineers and patent lawyers could not design a working phone that avoided infringing dozens of patents. Indeed, there are so many patents that it’s not even feasible to identify all the relevant patents for licensing purposes. And there would be little point because thousands of additional patents are issued every month. Even if your product infringes no patents today, it’s likely to be infringing some tomorrow.

Faced with an impossible legal landscape, most IT firms have simply stopped trying to work within the patent system. As Stanford’s Mark Lemley has documented, most firms in the IT industry today completely ignore the patent system when they’re designing new products. Instead of trying to avoid or license existing patents, they simply assume that they’re infringing and stockpile patents to use as ammunition when the inevitable patent litigation arrives. Some companies have gone so far as to forbid their engineers from reading patents, because patent law imposes triple damages if a company is found to have infringed “willfully.”

Unfortunately, policymakers seem not to grasp the magnitude of the problem, and have been content to tinker at the margins of the system. The Patent Reform Act of 2010 makes a variety of procedural changes, such as switching to a “first to file” rule for granting patents. The legislation contains a few worthwhile ideas, such as reforming the “willfulness” standard, but by themselves they are not going to solve the problem. Instead, policymakers should consider a solution that’s guaranteed to solve the problem: make software ineligible for patent protection.

This might sound radical, but it would actually represent a return to tradition principles of patent law. The Supreme Court ruled three times — in 1972, 1978, and 1981 — that mathematical algorithms (which is all software is) are not eligible for patent protection. Those precedents have not been overturned so much as ignored. During the 1990s, the US Court of Appeals for the Federal Circuit, which has jurisdiction over patent appeals handed down a series of decisions that gradually dismantled the traditional rules against patenting software. The Supreme Court declined to these decisions, so the Patent Office was obligated to follow them. Beginning in 1998, there were no meaningful restrictions on patents covering software.

Eliminating patents on software would not only be good law, but it would be good policy as well. Boston University scholars James Bessen and Michael Meurer have estimated that for the average software firm, the costs of defending against frivolous lawsuits actually exceeds the value of holding patents in the first place. This is because the decentralized and fast-paced nature of the software industry makes it a poor fit for the bureaucratic and lawyer-centric patent system. Software already enjoys copyright protection, so the patent system is both burdensome and redundant.

The Bilski decision was not about a software patent. The plaintiff, Bernard Bilski, sought a patent on “a method for managing the consumption risk costs of a commodity.” If that doesn’t sound like the sort of thing patents are supposed to cover, that’s because it’s not. Virtually everyone expected the patent to be invalidated, but the important question was how; a broad ruling could invalidate not only Mr. Bilski’s patent but thousands of others. Advocates of patent reform urged the court to adopt the tough “machine-or-transformation” for patent eligibility, which would have invalidated most “business method” and software patents.

Unfortunately, Justice Kennedy wrote an exceedingly narrow opinion for a bare 5-vote majority. He invalidated Bilski’s patent and rejected the machine-or-transformation test, but he failed to provide the Patent Office with meaningful guidance on how to proceed with future patent applications. In one section of his decision, Kennedy waxes rhapsodic about the “Information Age” and suggests that patents are essential to the software industry. However, Justice Scalia opted out of that section of the opinion, meaning that it is not binding precedent. As a consequence, the legal status of software remains in limbo.

This means that companies building cutting-edge IT products will continue to be forced to divert resources away from the R&D budgets to defend themselves against frivolous patent litigation. The information technology industry is one of the most important sectors of the American economy, and it deserves better.