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Case for Patent Reform

Written by on Thursday, March 15th, 2007

Patent reform continues to be a hot topic around the country, particularly in the Bay Area, where the world revolves around the patent system.  The topic of debate is of course, whether the current system which regularly churns out multi-million dollar jury verdicts, is broken and requires a complete revamping. Or whether our system, with all its flaws, is the best it can be. 

On one side of the debate, of course, is the argument that this push to litigation is stifling innovation, which goes against the goals of the patent system, which was intended to encourage innovation.  On the other side of the debate is the argument that litigation is a necessary consequence of the system, and that companies need litigation to protect their investment in innovation. 

Newsweek columnist Steven Levy recently took on the issue in his column, arguing the case for patent reform, taking issue with the argument that our system is the best in the world and far from broken, stating:

I’ll wager, however, that China would be less than delighted to emulate us if the consequences included events like the one in a San Diego courtroom last month. Following the rules of our system, a jury laid a whopping $1.52 billion judgment on Microsoft for infringing on a patent involving the mechanics of playing MP3 music files. Here’s what is outrageous: Microsoft had already licensed MP3 technology from the consortium that developed the standard, for $16 million. Years later, after MP3 technology took off, Alcatel/Lucent (inheritor of patents filed by the fabled Bell Labs) emerged to file its suit, and won almost 100 times as much as what was determined a fair license fee originally (because Microsoft had unwittingly infringed that patent). Unless the judgment is overturned, more than 400 other firms using MP3 technology are prone to a similar ambush.

I’d also guess that China or Brazil does not envy the outcome of the case where Rim (BlackBerry) had to pay $612 million to settle a case—even though the patents in question had been re-evaluated as invalid after the suit had been filed. Those are only two of a number of cases where patent holders used the system to extract huge, apparently unearned, sums.

Are these two cases, both in the high tech industry, really examples of a flaw in the system as Levy suggests?  Or is he taking an extreme position regarding a system that may not be perfect but is the best available?

The answer perhaps lies somewhere in between.  The costs of litigating in this country have skyrocketed generally in recent years, and the high costs of litigating intellectual property infringement cases are only a reflection of that trend.  Moreover, verdicts around the country have gotten larger over time, and verdicts in infringement cases reflect that trend as well.  One could argue that if a flaw exists, it is not really with the patent system but with the trial court system generally that has created these trends toward increased litigation and higher verdicts. 

Oddly enough, that viewpoint does not seem to be getting much airtime in the patent reform debate, but perhaps we should be giving it more consideration as we ponder a large overhaul of the patent system.  Are we focused on the wrong issue?




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