To Patent or Not?
A beginner’s guide to utility patents
Launching a product in a new market? Commercializing a prototype and making it market ready? — Getting a patent or a clearance from a patent holder are among a few issues that may concern you in a competitive market scenario.
Legal counsellors of tech firms spend a considerable amount of time drafting patents, performing searches, negotiating licensing agreements, and ideating workarounds to ensure that the firms product or service does not potentially infringe someone else's intellectual property. The present intellectual property landscape in the US is extremely fragmented and the rights to various technologies are held not only by corporations but also universities, individual inventors, and the infamous non-practicing entities (NPEs) or holding companies. The fragmented nature of the market, specially with respect to patents in Hi-Tech, leads to issues such as royalty stacking, patent trolling, and privateering.
In the subsequent sections I’ll discuss broadly about the nature of patents, how to get one, present problems in the system, and finally some potential solutions.
A Primer on Patents
A patent is an exclusive right granted to an inventor or assignee by a sovereign state for an invention or a new technical solution to a problem. The right is granted upon public full disclosure of the patented technology for a limited period of time during which the right holder can exclude others from making, using, selling, offering for sale, or importing the patented invention without acquiring a license from them. While there is constant argument about the effectiveness of the system, it is still widely believed that patents incentivize R&D effort by placing barriers for competitors to create imitations and by allowing right holders to recover the R&D costs by licensing during the term to the patent.
Patent laws vary in each country and it is important for a person developing a product to understand the implications of patent laws in the geography where the product is to be launched.
While the first known patents were granted in Venice during the 13th century to Venetian glass makers, the value of patents rose with the development of railroads during the Industrial Revolution. Patents were seen as more of an economic privilege during those periods since they were granted without examination to inventors who were able to afford the high costs associated with acquiring it. Gradually, judicial systems started getting involved in the process and began to define legal statues around patents and other forms of intellectual property.
Structure of a utility patent
Structurally, a patent has a Title, an Abstract, a set of legally drafted claims, a set of drawings, a detailed specification including a background and a summary along with a description of various embodiments, bibliographic information including important dates, names, and legal events, and finally a set of references and citations. The claims are the most important part of a patent since they define the legal scope of the invention and are used by attorneys to draw boundaries around the disclosed idea.
In the United States, patents took their present form when the structure for modern Patent Law was laid down in Patent Act of 1952. Patents issued in the US after 1976 are available in full-text form on the United States Patent and Trademark Office (USPTO) website or on other databases and search engines such as Google Patents.
A claim from U.S. Patent 6,285,999 which covers an aspect from Google’s PageRanking process invented by Larry Page is cited below. The patent is assigned to Stanford University where PageRank was developed by Larry and Google holds exclusive licensing rights, which was obtained by giving Stanford 1.8 million shares of Google. Here is a claim from the patent:
What is claimed is:
1. A computer implemented method of scoring a plurality of linked documents, comprising:
obtaining a plurality of documents, at least some of the documents being linked documents, at least some of the documents being linking documents, and at least some of the documents being both linked documents and linking documents, each of the linked documents being pointed to by a link in one or more of the linking documents;
assigning a score to each of the linked documents based on scores of the one or more linking documents and
processing the linked documents according to their scores.
How to get a patent
A patent application can be filed by an attorney or a registered patent agent at the respective Patent and Trademark Office (PTO) where it will be prosecuted once the filing fees are paid. The prosecution phase involves an examination process wherein a patent examiner evaluates a patent based on the guidelines laid down by the PTO. In the US, the Manual of Patent Examining Procedure (MPEP) serves as the guideline for examining patents.
While finer aspects of the law vary in each geography, examiners broadly evaluate a patent application on the following criteria:
- The invention must be eligible for a patent based on the statutory laws governing patentability in the state where the application is filed. The USPTO defines four broad categories for patentable subject matter: Process, Machine, Manufacture, and Composition of Matter. While most countries have agreed that abstract ideas and laws of science and nature do not fall under patentable subject matter, much of the debate today is based on whether computer algorithms and business methods are patentable.
- The invention must be novel i.e. the patent application must describe a new idea or a significant improvement over a prior art. The term “Prior Art” is used to refer to literature that contains a portion or entirety of the invention for which a patent is being sought.
- The claimed invention should demonstrate utility i.e. it should provide some identifiable benefit and must be capable of use.
- Finally, the invention should be non-obvious to a person having ordinary skill in the art. This implies that the novel and inventive step should be significant and should not be the next logical step of an already patented invention. Much of the argument between the USPTO and patent applicants is around the issue of non-obviousness.
A patent is granted on the application when a “notice of allowance” is issued after the examination process. During the examination process, the scope of the claims is argued in light of the prior art identified. Once granted, periodic maintenance fees need to be paid to keep the patent alive and to prevent the right from lapsing.
The following image illustrates the costs associated with filing and maintaining a patent across its lifecycle.
Problems with the Existing System
Many experts today state that the “patent system is broken” and that the legal statutes need to be re-evaluated and reformed.
A major complication began to rise with the issue of “software patents” towards the end of the 20th century. Right from when the first software patent was granted for a sorting system in 1968 (U.S. Patent No. 3,380,029), there has been endless debate on the validity of software patents. Many argue that software based on algorithms that recite a logical series of steps to solve a problem and implemented on a general purpose computer is not patent eligible. Patents for software also tend to be broad and vague unlike patents for hardware or pharmaceutical drugs.
In the United States, a series of Supreme Court rulings in some landmark cases during the 1970s and 80s such as Gottschallk v. Benson and Diamond v. Diehr led to the conclusion that significant improvements in data processing using algorithms that run on general purpose computers could be considered as patentable subject matter. The situation was worsened when the Supreme Court issued its ruling for Bikski v. Kappos in 2010, alluding to the notion that business methods implemented on a general purpose computing system are patent eligible as well.
Under-resourced patent officers at the USPTO were made to quickly examine a large number of applications to reduce the backlog which led to a decline in selectivity at the USPTO and increased the grant rate for patents. This led to the generation of numerous ridiculously broad software and business method patents in the US.
In 2014, Christopher A. Cotropia and his colleagues working in the Intellectual Property Institute at the Richmond School of Law published a paper which calculated a corrected grant rate for patents in the US by devising a model that accounted for abandoned applications, continuations, and backlogs. The corrected grant rate arrived at by Cotropia approached a staggering 90%.
Experts also argue that providing exclusive rights for a period of 20 years does not make sense for the software industry. Protection for 20 years works in the pharmaceutical industry where it can take more than a decade in going from drug-testing to ready-for-market. But in industries like information technology, the time from ideation to product launch is usually much shorter and cheaper. A 20 year term on a software patent leads to certain firms ending up with monopolies on the building-blocks of the industry.
The securitization of patents by companies that were running low on capital added fuel to the fire by triggering the growth of Non Practicing Entities or “Patent Trolls”. Patent trolls are called so because they are essentially patent holding companies that purchase patents and use them not for making products but to obtain money by licensing them. When a patent troll threatens to sue a company for infringement, most companies are forced to settle for a license since it costs anywhere between $ 1–5 million to defend a patent lawsuit. A counter suit cannot be filed against a patent troll since they do not produce any products.
Recent Developments and Potential Solutions
In June 2014, the US Supreme Court issued a ruling in Alice Corporation v. CLS Bank which has changed the perspective of the industry on patentable subject matter. The issue in the case was whether a computer-implemented electronic escrow technique for facilitating financial transactions was patent eligible. The Supreme Court ruled that the claims were invalid which led to a lot of attorneys declining to enforce patents that have claims on general purpose computer software and business methods.
The Leahy-Smith America Invents Act (AIA), a federal statute passed by the Congress and signed by Obama in 2011 provides certain provisions that may be used as ammunition for shooting down patent trolls. The Act also changed the US system from a first-to-invent to a first-to-file system.
One of the major issues at hand other than software patents is royalty stacking due to fragmentation of rights wherein a single product infringes on many patents held by different entities, thereby bearing multiple royalty burdens and increasing the cost to market for a product. Fragmentation has also resulted in the creation of patent thickets and patent landmines i.e. a dense web of hidden and overlapping intellectual property rights that a company must hack its way through.
Experts are proposing the use of “portfolio cross licensing deals” and “patent pools” to mitigate this issue. A portfolio cross license, under which two firms license large blocks of their respective patents to one another removes the need for patent-by-patent licensing. Portfolio cross-licensing agreements are suited for larger corporations in the semiconductor, telecom and software industries seeking to avoid infringement litigation by bilaterally agreeing to license broad portfolios of technology related to a particular field of use.
This bilateral licensing solution is not likely to be of much help when a firm requires licenses to a small number of patents held by each of many firms. In such cases, patent-pooling agreements may create substantial transaction efficiencies by enabling multiple patent holders to pool their patented technologies and license them as a group to each other and to third parties. Patent pools can reduce the transaction costs of multiple licensing negotiations and can mitigate royalty stacking and hold up problems that can occur when multiple patent holders individually demand royalties from a licensee.
Patent pools, if managed properly, allow startups to license only necessary portions of a technology from third party entities. If patent pools are organized around technology, such as the MPEG-2 pool or Via Licensing’s LTE patent pool, startups can possibly avoid the damaging effects of royalty stacking by seeking a license from the pool rather than from multiple fragmented rights holders. While these techniques provide a solution, they also pose a risk of increasing the probability for collusion and antitrust activities.
Proponents of free software come up with various arguments against software patents and organizations such as the Electronic Frontier Foundation provide reasoning and support to fix the system.
Conclusion
As a product specialist or an entrepreneur, it is important to realize that protection of intellectual property needs to be done is a proper manner to ensure healthy innovation and growth of a business. Both over protection and under protection of intellectual property is not ideal. An optimum solution wherein the core business idea is protected and differentiated using a well crafted IP strategy is the ideal way to go about commercializing a new product.
Connect Deeper
If you resonated with this article and need advice on patents, reach out to us at iRunway - a boutique specialising in technology consulting and diligence for patent litigation and licensing. We are based out of Austin and Bangalore. Please check out the company website for a list of our clients and services.
