Posted by: Spenceee | May 3, 2010

Patent Law in the 21st Century

For those of you that don’t know, I am a professional engineer. I make a living in the technology industry by developing products and utilizing technology. So I think I have earned at least the right to a controversial opinion regarding patent law as my future will be directly affected by any changes in this arena. I’ll start with a quick lesson in law regarding patent. A patent gives the owner the rights to control their innovation in any way they see fit and provides a legal means for enforcing violations of the patent through the courts. Via several international agreements the world intellectual property office (WIPO) has been created which many countries have agreed to honour and enforce, which registers relatively international patents (not all countries honour WIPO patents), with certain member countries being lax in enforcement of these patents.

Patents were created to protect innovation and development of new products, ie to improve the business case for performing product development by increasing the return on investment for these activities. At federation our leaders considered patent to be so important it is actually part of the Australian Constitution. When these laws were created more than 100 years ago the largest innovations Australians were having were in mechanical engineering, a slow development process with a truly tangible output. Much of the innovation was in the technique of the devices construction as opposed to only the concept that the final mechanism displayed. On the other hand we have Software, Electronics, the Internet and Bio-Technology that have emerged in the last 50 years, which differ greatly in both their application of patent law and the speed at which innovations can occur. I intend to demonstrate to you that these businesses have subverted the intention of patents so that instead of protecting and encouraging innovation they actually have the opposite effect. I also have a proposition as to how we could improve the current situation.

Several technology companies have policies setting targets for the number of patents to be registered by their businesses and may even link bonuses to the registration and exploitation of patents that the company holds. Visualise if you will a set of winner takes all poker games (a table representing a patent), where large companies have 100s of players and individuals/small business might get one. How many times will the individual lose compared to large companies? Please note the distinction that if a small business competes with a large one that revenue will be split like so, but nothing prevents a business from competing in a market (the ACCC is meant to crack down on anti-competitive behaviour.) Once a patent is registered it is usually used to prevent ALL competition in this area. To this day Microsoft is threatening every *user* of Linux with a patent infringement suit based on their portfolio of operating system and user interface patents. How could one possibly compete in a meaningful way if drawing a window with a mouse pointer is a violation of an enforceable patent? Software and electronics are an interesting walk here, because the discovery of an innovation can be an academic exercise, not requiring a true implementation and indeed not being a difficult thing to do in some cases. Take for instance this patent registered by Microsoft for a point payment clearinghouse. Microsoft have registered a patent that covers the delivery of a credit card reward system. They would never use this against any bank as they would lose, but they can use it to stifle competition in the online arena.

My proposal regards the application of a patent, in terms of the enforcement. I believe that there should be a court established to make a determination on the value of a patent in a given application. The court would then determine an appropriate licensing fee for the innovation which would be open to all to use. These licensing costs would then be reviewed over each year of the patents validity to ensure that the real value of the patent is maintained. What are the benefits of this approach? Primarily the use of patent innovations and the innovation upon them would be encouraged by all companies, not just the patent’s owner. Any patent could be used with a given licensing cost per unit or user fairly determined by the patent court, noting that if the patent’s innovation is truly ingeneous then the license cost will reflect this, ensuring that the owner of the patent is fairly rewarded. If the patent is flippant then it’s cost would be insignificant to an implementor, which would prevent patent trolling, where an insignificant or obvious discovery is used to prevent competitors from using the innovation without paying exorbitant fees.

A much greater benefit provided by this reform would be to the environment fostered in australia by this innovation. Not only could Australia be innovating on our own patents but we could start leveraging patents worldwide. Australian manufacturing to the Australian populace would increase and would encourage foreign investment to benefit from these changes. Imagine the benefits to our primary industries (i.e those that actually create real wealth for Australia) by giving them access to the latest in mining and farming technologies. Imagine our car manufacture industry being unencumbered by international patents from Asia, Europe and America. Given we are the smaller player we suffer the most by enforcing foreign patent here.

I am not so naive to think that other countries would not be opposed to such a stance, but foreign entities would also be subject to receive fair licensing payments and to innovate themselves within our environment here. It would also put us back on a relatively even keel with China, who have been following this strategy for many years now.  Patents are being used globally by the largest nations to ensure wealth and manufacturing stay in their respective countries. We are a small country and suffer due to the size of our industry compared to that of the world. Why not flip the power balance by taking Australia to a collaborative innovation model? Each company advancing and building upon the innovations of others. Imagine the benefits to our technology and to our country.  Granted there will be opposition to a stance like this but we will always lose against the largest economies such as America and Europe due to their size and this simply is not a viable option for Australia in the 21st century.

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