The Costliest Battle in the High-Tech World

On the front lines of the new Cold War

Caught in the middle are the agency's examiners, a perpetually underpaid, understaffed group that is constantly being asked to make its own version of Sophie's choice: Grant few patents and get yelled at, or grant a lot and suffer the same fate.

"That's why I love the patent office—because they have a constitutional mandate for an impossible task," Swanson says.

In the past 30 years, as our reliance on computers has grown, so have patents. Since 1980, the number of applications has tripled. It took the feds more than a century to grant their millionth patent. It took only five years to go from 7 million to 8 million.

Tony Fadell, who helped design the iPod, is the creator of the Nest thermostat. Nest ran into a patent dispute with Honeywell.
Courtesy Nest
Tony Fadell, who helped design the iPod, is the creator of the Nest thermostat. Nest ran into a patent dispute with Honeywell.

Many factors contributed to this gold rush. The first was the creation, in 1982, of a new federal court established specifically to hear patent disputes. Unfortunately, the court was staffed by lawyers with a clear bias toward those whose patents were being challenged. A succession of rulings subsequently expanded the already-wide limits of what could be protected and what couldn't.

Finally, while it might be easy to understand what's new about a saw, it's much harder to assess the originality of something that exists only in a line of computer code. Especially when that assessing is being done by a white-haired man in a black robe.

But perhaps the single biggest reason for the patent explosion is that the agency's "impossible task" got a little less possible just when it was needed most.

In 1991, right before the gold rush began in earnest, Congress changed how the patent office got its funding. Rather than being financed by taxes, the agency would now have to fend for itself using only the fees paid by applicants.

With that directive, lawmakers essentially gave the agency an incentive to grant more patents—and that's exactly what it did. Melissa Wasserman, a law professor at the University of Illinois, notes that the office grew especially generous toward large tech companies, since they were the most likely to keep their patents up to date by paying costly renewal fees, and thus brought in the most money.

"Take semiconductors, for example," Wasserman says. "[Manufacturers] renew at a very high rate. Not necessarily because they make these successful commercial products, but because they just want this arsenal of patents."

Why companies began hoarding patents became particularly clear in the early '90s. A decade earlier, Texas Instruments was headed toward bankruptcy when it decided to start suing its Asian rivals for patent infringement. When those competitors agreed to pay hefty licensing royalties, the company realized it was sitting on a gold mine. Over the next three decades, Texas Instruments would make more than $5 billion from patent royalties alone.

To the kings of Silicon Valley, this pay-or-we'll-sue strategy initially seemed ridiculous. At a hearing in 1994, the most important tech companies of the day testified how patents were a negligible ingredient of their success. Adobe's principal scientist noted how the company had revolutionized the world of printing without a single patent. A representative from Cisco Systems said it had more than $1 billion in annual revenue despite holding just one.

Then IBM, the country's leading patent holder, started cribbing from the Texas Instruments playbook. Suddenly, in the words of one software lawyer, the entire industry embarked on a "patent anything" approach.

In 1990, for example, Microsoft held only one patent. By the start of the next decade, that number had jumped to 800. Today, it stands at an estimated 20,000, which doesn't include the many thousands more at its disposal through licensing deals and acquisitions. In April, it spent $1 billion just to buy 800 patents from AOL.

Still, Congress wasn't done subverting the patent office. In 1992, a year after lawmakers said the agency could only make money from fees, they began diverting what would amount to $750 million over the next two decades. This prevented the hiring of new examiners at the time they were needed most.

"The biggest problem of all was that the patent office didn't have examiners who knew anything about software," says Paul Michel, a former chief justice of the patent court set up in 1982. "There were lots of claims granted that never should have been."

Bob Stoll, the former number three at the agency, puts it more bluntly: "There's a lot of crap out there."

Stoll remembers his boss's reaction one year when Congress diverted another $90 million from the office. "He ripped the phone out of the wall."

But even if the agency had had enough examiners, that probably wouldn't have stopped the flow. Among its many flaws, the office's most fundamental is that it's much easier for an examiner to say yes than no. Like a prosecutor, an examiner alone bears the burden of proof. He's also under a time crunch—while the handsomely paid lawyers hired to persuade him have an infinite number of billable hours at their disposal.

To calculate just what kind of absurd damage this catch-22 produces, Mark Lemley, director of the Law, Science, and Technology program at Stanford, set out to see how many people not only claimed to have invented Wi-Fi, but also persuaded an examiner to grant them a patent saying as much. The final tally: 150. "They can't all be right," Lemley says.

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2 comments
calebhannan
calebhannan

@franckhertz Not all that helpful, huh?

 
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