This is a writeup of a shallow investigation, a brief look at an area that we use to decide how to prioritize further research.
In a nutshell
What is the problem?
The current patent system for software, particularly in the US, may encourage abuse and deter innovation. Some firms collect patents and then aggressively pursue litigation to extract settlements from companies that may have infringed on their intellectual property.
What are possible interventions?
Changing the patent system in the US primarily involves political advocacy, litigation, and research. Possible interventions include advocating for legislation to change patent law, challenging the patent system in court, organizing and educating stakeholders, and researching the costs of the patent system.
Who else is working on it?
There are a handful of nonprofit organizations working on reforming the patent system for software. Some technology companies also fund lobbying efforts for patent reform. We do not have an estimate of the overall resources in this cause.
1. What is the problem?
Protecting intellectual property can serve both as an incentive for innovation (making it more lucrative to develop new ideas) and as an obstacle to it (making it harder for people to build on each others’ ideas when the rights to ideas are restricted). The current software patent system in the U.S. arguably acts more as an obstacle than an incentive.
One potential manifestation of this issue is the proliferation of “patent assertion entities” (PAEs): firms that do not manufacture goods or supply services based on their patents, but still pursue litigation for licensing fees from parties that may have infringed on their intellectual property. Advocates for patent reform often refer to PAEs that abuse the patent system as “patent trolls.”1 One study estimates the direct costs on defendants of patent troll disputes (including for instance pre-litigation legal costs, licensing agreements, litigation costs, settlements, and judgments) at around $29 billion per year and the overall costs on defendants of patent troll disputes (also including, for example, the opportunity cost of time spent on litigation), at more than $80 billion per year.2 These estimates do not include the costs of a patent system that may deter innovation more broadly. Advocates of reform believe that many patents protect obvious advances (rather than truly original work) and are overly broad.3
We focus here on patents in software, but other industries, especially the pharmaceutical industry, also grapple with patent issues.4 U.S. patent law often covers multiple industries, which has made changing the law for software more difficult.5
2. What are possible interventions?
- Challenging the legality of parts of the patent system in court
- Working with lawmakers to help draft legislation
- Mobilizing high-level executives in technology and prominent academics to engage in political advocacy
- Raising awareness of the issue in a younger generation of intellectual property lawyers
- Commissioning empirical research on the extent and costs of patent abuses
- Developing a long-term strategy for fundamental patent reform
- Connecting American reform efforts to work on patent reform in other countries
- Advocating for the expansion of the America Invents Act to software patents. In the finance industry, the America Invents Act expands the patent office’s review process for business method patents, provides a broader range of grounds to challenge patents, and permits petitioning the patent office to challenge a patent.8
- Encouraging companies to adopt non-aggressive approaches to patent licensing that include, for instance, making their patent portfolios available royalty-free to any other company in a network that agrees to similarly license its patents.9 In many of these approaches, the more companies that enter into the agreement, the more beneficial that agreement becomes.10
We do not have a good understanding of the likely costs or benefits of any of these approaches.
The Electronic Frontier Foundation (EFF) believes the debate around patent reform has recently shifted and that fundamental reform is more realistic now than it was before.11
Recent reform efforts have focused on:12
- Fee shifting: The proposed reform would require companies that lose patent lawsuits to pays the other side’s fees. This shift aims to discourage PAEs from threatening a lawsuit with a weak case for infringement.
- Protecting end users: Currently patent holders may target end users of a technology, rather than the companies that sell the technology. One case involved a PAE suing cafes for using a router to provide wireless Internet to their patrons, because they claimed the router infringed on one of their patents. Reform efforts aim to provide greater protection for end users.
- Greater transparency: PAEs may use shell companies and non-disclosure agreements in legal settlements. Proposed legislation aims to make it easier to determine the real party of interest in an infringement and to track how many times they make claims of patent infringement and who they target with these claims.
3. Who else is working on this?
A number of companies, including technology companies such as Google, Cisco and Rackspace, as well as retailers, hotels and travel websites, have funded lobbying efforts to push reform of the patent system.13 Trade organizations, including the Application Developers Alliance, are also involved in supporting reform efforts.14
Nonprofit organizations working on patent reform include:15
- Electronic Frontier Foundation (EFF) — EFF has 2.5 full time equivalent staff members working on patent reform and is currently focused on advocating for patent reform bills pending in Congress.16
- Computer & Communications Industry Association (CCIA) — CCIA’s Patent Progress project provides information and analysis related to technology patents.17
- Public Knowledge — recently hired someone to work on patent reform full-time.
- Public Patent Foundation.
- Free Software Foundation.
- Free Software Foundation Europe (FSFE).
- Foundation for a Free Information Infrastructure (FFII).
EFF told us that there are no serious efforts aimed at eliminating software patents (as opposed to reforming the patent system).18
Patent reform work has also been active in Europe.19 Our investigation to date has focused on the US patent system.
4. Questions for further investigation
Our research in this area has been limited, and many important questions remain unanswered by our investigation.
Amongst other topics, further research on this cause might address:
- What are the costs to firms and the economy of the current patent system? Academic research by Jim Bessum, Michael Mauer and Mark Lemley could help answer this question.
- What would the optimal software patent system be? What are the arguments for maintaining a patent system for software?
- How much money do reform proponents and their opposition spend on advocacy?
- How does the European software patent system work and should this be a model for the US?
5. Our process
We rely heavily on a conversation with the Electronic Frontier Foundation.
|Application Developers Alliance
|Bessen, Ford and Meurer 2011
|Bessen and Meurer Forthcoming 2014
|Electronic Frontier Foundation Conversation (October 15, 2013)
|Google, License on Transfer Agreement
|Google, Patent Licensing to Encourage Innovation
|Google, Non-Sticky Defensive Patent License
|Kent Walker, Senior Vice President and General Counsel at Google, blog post on patent reform, April 4, 2011
|Schwartz and Kesan Forthcoming 2014
|Stop Bad Patents
|The Internet Association
|Twitter, Innovator’s Patent Agreement