Business & Finance
04:45 PM

The U.S. Patent System In Crisis

The U.S. patent system is in disarray. Change requires not just a better system, but better patents, too.

Tom Woolston is about to have his day in court, again. This time, it's the United States Supreme Court.

Vilified by some, a hero to others, Woolston is CEO of MercExchange, an online auction house that couldn't compete with eBay and dropped out of the auction business six years ago. Since then, MercExchange has exacted some $25 million in patent-infringement damages from eBay's hide, but Woolston wants more. He wants the Supreme Court, which will hear arguments next month, to force Virginia's Eastern District federal court to issue an injunction that would stop eBay from continuing to use the infringing "Buy It Now" technology.

"We want to compete, we want to go back into the market, we want to see our own site back up," Woolston says. "Money damages aren't going to make a difference against eBay."

MercExchange and eBay aren't the only ones duking it out over tech-related patents. Among the highest-profile cases: NTP's challenge of technology in Research In Motion's BlackBerry; mobile E-mail vendor Visto's suit against Good Technology over patents for synchronizing data with mobile devices; Broadcom's suit against Qualcomm over Bluetooth technology patents; Microsoft's loss to a Guatemalan inventor for technology in Office 2003 and XP; and Eolas' fight with Microsoft over use of browser technology in Internet Explorer. This long and growing list reflects the U.S. patent system's inability to keep up with changing times, particularly in IT.

We've moved toward this litigious point over the past two decades as the courts strengthened the rights of patent holders while the standards to grant patents were weakened. It's a "perfect storm, a complex and intensifying combination of factors that increasingly makes the patent system a hindrance rather than a spur to innovation," Harvard Business School professor Josh Lerner said before a House subcommittee last summer.

''I don't know of any other agency ... that allows you to retry your case until you get the answer you'd like,'' Patent Commissioner Doll says. -- Photo by David Deal

"I don't know of any other agency ... that allows you to retry your case until you get the answer you'd like," Patent Commissioner Doll says.

Photo by David Deal
The number of patent applications filed with the Patent and Trademark Office mushroomed 73% in the last decade, from 236,679 in 1995 to 409,532 last year. About 10% of all patents issued are for software; more than 19,000 in 2003, up from 1,100 in 1981, the year the Supreme Court ruled that software could be patented, says Gregory Aharonian, editor of the Internet Patent News Service.

Patents are popular because they confer a competitive edge on their owners: 20 years of exclusive rights to profit from the use of the patented innovation. They're worth so much money that some companies--including Acacia Technologies Group, Forgent Networks, Intellectual Ventures, and NTP--make trafficking in them their primary business. Earlier this month, merchant bank Ocean Tomo launched an auction business to buy and sell patents--one more sign of just how hot this market is.

With the growing number of applications has come a huge backlog. The Patent Office started last year with more than 500,000 new applications in backlog and ended it with almost 600,000 waiting to be examined. "We'll add another 100,000 cases to the backlog this year," Patent Commissioner John Doll says, "so the two problems really are how to do the amount of work we have to do, and then how do we do it with as much quality as we possibly can."

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