Copyright 2004 The New York Times Company
The New York Times
September 27, 2004 Monday
Late Edition - Final
SECTION: Section C; Column 4; Business/Financial Desk; Patents; Pg. 8
LENGTH: 974 words
HEADLINE: In a forthcoming book, two professors make suggestions on reinventing the patent system.
BYLINE: By Sabra Chartrand
SINCE 1793, the federal government has issued patents to inventors, giving them exclusive ownership of an idea as well as the right to prevent others from using it. Now some experts argue that achieving those rights stifles innovation.
Two professors conclude in a new book that a couple of unrelated and seemingly innocuous administrative reforms of the patent system have caused a shift away from encouraging innovation in favor of exploiting patents largely for lawsuits.
Josh Lerner and Adam B. Jaffe have written a book with a title: ''Innovation and Its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What To Do About It,'' to be published in November by Princeton University Press.
Mr. Lerner, a professor of investment banking at the Harvard Business School, and Mr. Jaffe, a professor of economics at Brandeis University, trace this breakdown to the early 1980's, when a single federal appeals court was established to hear patent lawsuits, replacing 12 regional courts of appeal.
Then in the early 1990's, Congress changed the patent office's financing, so the agency could pay for itself with user fees.
From his home outside Boston, Mr. Lerner last week described the patent system, 20 years after the reforms, as mired in ''the land of unintended consequences.''
''Again and again in the patent system, we see people set out to do reforms with one thing in mind, but that have quite an unintended effect,'' he said. ''The easier it became to get patents, the more people wanted to apply for them, and that led to a situation where examiners grappled with more patents to review, which led to them being pressed to do quicker reviews and a degradation in quality of patents issued.''
The patent agency has often struggled to keep up with the times. In recent years, the agency has confronted entirely new areas like biotechnology, software-related inventions, financial and business methods, Internet-based inventions and other information-technology innovations.
Some of the changes designed to deal with these occurred amid extensive public debate. Others got little attention because they seemed like innocuous administrative reforms -- like the ones that made patents easier to get, Mr. Lerner said.
But many of those patents caused a secondary reaction, he added.
''The ability to litigate and expect to get substantial award from litigation increased,'' Mr. Lerner said. ''So as a result we've got somewhat of a vicious cycle. Once you get one firm in an industry beginning a strategy of aggressive patent enforcement, it creates an almost inevitable response -- an almost arms-race dynamic -- where everyone else in the industry says, 'We better be doing the same thing.'''
He suggested that these changes for the worse occurred because ''there's a relatively small group of people in the D.C. patent bar, and they have a very powerful influence on how patent policy gets decided. There is a powerful incentive for them to keep a patent system that is complicated, and one that involves protracted, costly litigation.''
Also, Mr. Lerner said, businesses often fail to understand the importance of subtle changes in patent law.
''It is perhaps because of the complexity of patent issues, and because there is no long tradition of work by economists in this area, because a lot of corporations see it as second order relative to tax policy changes, for example, which directly affect their bottom line,'' he explained. ''Patent policy has an indirect affect.''
The book lays out a strategy. ''Our idea is that three things will potentially make a big difference,'' Mr. Lerner said. ''First of all, this idea which may well have made sense in 19th century of a patent examiner being able to sit and in few hours figure out what a relevant technology is, and then go out and make a decision as to whether a patent should be granted or not, that really doesn't make sense in an era like today.
''Second, to see the patent review process as 'one size fits all' is again a mistake. There has to be way to figure out how to devote more resources to those patent applications which are really the important ones, and less to the unimportant ones.''
The two professors say one solution is to get more information into the hands of patent examiners.
''Our recommendation is that we create very real incentives to third parties to contribute information to the patent-examining process,'' Mr. Lerner said. ''There should be one level of review before and after the patent is issued, but within the patent office.''
The authors' third remedy is to reverse the trend toward jury trials for patent lawsuits.
''Over the last 30 to 40 years, there has been real replacing of judges by juries,'' Mr. Lerner said. ''Patent disputes by and large tend to be highly technical disputes, and in many cases a lay person without much training in the area is hardly an expert.''
The Federal Circuit Court has already divided patent cases into two areas: the interpretation of claims and questions of validity. Judges handle the former, while juries can settle the latter.
''Our argument is that there is no difference between the two, so no clear reason why both questions couldn't be decided by judges,'' Mr. Lerner said.
But even with these remedies, he said ''dramatic change is unlikely until corporations start understanding how some features of the patent system today really affect them.''
''And not just understanding from an assistant general counsel in charge of intellectual property, but until it really gets to be an issue at the C.E.O. level,'' Mr. Lerner added.
''Last year, the Federal Trade Commission came out with a report that raised many of these same issues, but as good as the F.T.C. report was, I can't imagine that a lot of C.E.O.'s are going to be plodding through all the footnotes.''
GRAPHIC: Photo: Adam B. Jaffe, left, and Josh Lerner argue that past reforms to the patent system have been detrimental to innovation. (Photo by Robert Spencer for The New York Times)
LOAD-DATE: September 27, 2004