Will The Supreme Court Clean Up the Patent Mess?

[Timothy B. Lee]

During my previous stint as a McMegan guest blogger, I did a series of posts about the state of patent law. The picture was pretty grim. The previous 15 years had seen a huge increase in the number of patents that were granted, which in turn caused off a huge surge in patent litigation. I highlighted research by Bessen and Meurer suggested that outside of the pharmaceutical and chemical industries, the patent system may actually be creating negative incentives for innovation. That is, the costs to innovators of defending against infringement lawsuits exceeded the benefits they got from their own patents. This is a little bit like a world where landlords spent more money defending against trespassing lawsuits than they received in rents. Property law that perverse would destroy the real estate industry.

The patent system does the most damage in the software industry. Due to the complexity of software products, a single software product can easily infringe hundreds of patents. Microsoft, for example, has charged that the Linux operating system infringes 235 of its patents. This isn't a sign that Linux developers stole Microsoft source code, it's simply a reflection of the fact that Microsoft holds so many patents that it's essentially impossible to create a non-trivial software program without infringing some of them.

Bill Gates used to be concerned with this problem back when his company was still a relative underdog in the technology industry. In 1991, Gates wrote a memo to his senior executives about a series of recent court decisions that had begun allowing patents on software. ""If people had understood how patents would be granted when most of today's ideas were invented, and had taken out patents," Gates wrote, "the industry would be at a complete standstill today." Mr. Gates worried that "some large company will patent some obvious thing" and use the patent to "take as much of our profits as they want." Of course, this is exactly what has begun happening, with incumbents using the patent system as a weapon against more innovative competitors.

This may seem like the most esoteric of inside baseball, but it has real implications for the lives of ordinary users. For example, the development of open video formats has been stunted by patents. If you're a Firefox user, you may have noticed that certain videos (such as those in H.264 format) don't work in your browser. That's a patent licensing issue. Indeed, patents make it almost impossible to produce open source video software, which is one reason the open source movement hasn't revolutionized the market for video software the way it did for web browsers.

Patents are also causing mischief in the mobile phone industry. A "patent trolling" firm nearly shut down the BlackBerry network in 2006. More recently, the smart phone market has become embroiled in pointless patent litigation that forces virtually every smartphone vendor to devote resources to lawyers rather than engineers. These disputes will eventually be worked out, but in the meantime the litigation will drive up the cost of phones and slow the pace of progress.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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