The Coming Patent Apocalypse

Many people in computer science believe that patents are problematic. The truth is even worse—the patent system in the US is fundamentally broken in ways that will require much more significant reform than is being considered now.

The myth of the patent is the following: Patents are a mechanism for inventors to be compensated according to the value of their inventions while making the invention available to all. This myth sounds pretty desirable, but the reality is a strange distortion slowly leading towards collapse.

There are many problems associated with patents, but I would like to focus on just two of them:

1. Patent Trolls The way that patents have generally worked over the last several decades is that they were a tool of large companies. Large companies would amass a large number of patents and then cross-license each other’s patents—in effect saying “we agree to owe each other nothing”. Smaller companies would sometimes lose in this game, essentially because they didn’t have enough patents to convince the larger companies that cross-licensing was a good idea. However, they didn’t necessarily lose, because small companies are also doing fewer things which makes their patent violation profile smaller.

   The patent trolls arrived recently. They are a new breed of company which does nothing but produce patents and collect money from them. The thing which distinguishes patent troll companies is that they have no patent violation profile. A company with a large number of patents can not credibly threaten to sue them unless they cross-license their patents, because they don’t do anything which violates a patent.

   The best example (and proof that this method works) is NTP, which extracted $612.5M from RIM. Although this is the big case with lots of publicity, the process of extracting money goes on constantly all around your in backroom negotiations with the companies that actually do things. In effect, patent trolls impose an invisible tax on companies that do things by companies that don’t. Restated in another way, patent trolls are akin to exploiting tax loopholes—except they exploit the law to make money rather than simply to avoid losing it. Smaller companies are particularly prone to lose, because they simply can not afford the extreme legal fees associated with fighting even a winning battle, but even large companies are also vulnerable to a patent troll.

   The other side of this argument is that patent trolls are simply performing a useful business function: employing researchers to come up with ideas or (at least) putting a floor on the value of ideas which they buy up through patents. Unfortunately, this is simply not true in my experience, due to the next problem.

2. Combinatorial Ideas Patents are too easy. In fact, the process of coming up with patentable ideas is simply a matter of combinatorial application of existing ideas. This is a simple game that any reasonably intelligent person can play: you take idea 1 and idea 2, glue them together in any reasonable way, and get a patent.

   There are several reasons why the combinatorial application of existing ideas has become standard for patents.

   1. One of these is regulatory capture. It should surprise no one that the patent office, which gets paid for every patent application, has found a way to increase the number of patent applications.
   2. Another reason has to do with the way that patent law developed. Initially, patents were for processes doing things, rather than ideas. The scope of patents has steadily extended over time but the basic idea of patenting a process has been preserved. The fundamental problem is that processes can be created by the combinatorial application of ideas.

   The ease of patents is fundamentally valuable to patent troll type companies because they can acquire a large number of patents on processes which other companies accidentally violate.

The patent apocalypse happens when we project forward these two trends. Patents become ever easier to acquire and patent troll companies become ever more prevalent. In the end, every company which does something uses some obvious process that violates someone’s patent, and they have to pay at rates the patent owner chooses. There is no inherent bound on the number of patent troll type companies which can exist—they can multiply unchecked and drain money from every other company which does things until the system collapses.

I would like to make some positive suggestions here about how to reform the patent system, but it’s a hard mechanism design problem. Some obvious points are:

1. Patents should have higher standards than research papers rather than substantially lower standards.
2. The patent office should not make money from patents (this is not equivalent to saying that the patent applications should not be charged).
3. The decision in whether or not to grant a patent should weigh the cost of granting. Many private property afficionados think “patents are great, because they compensate inventors”, but there is a real cost to society in granting obvious patents. You block people from doing things in the straightforward way or create hidden liabilities.
4. Patents should be far more readable if the “available for all” part of the myth is to be upheld. Published academic papers are substantially more readable (which isn’t all that high of a bar).

Patent troll companies have found a clever way to exhibit the flaws in the current patent system. Substantial patent reform to eliminate this style of company would benefit just about everyone, except for these companies.