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October 23, 2014

Innovation: The Shape of Things To Come

  The Hill

Michael Malone of the Wall Street Journal recently wrote that major tech companies are more often buying the "inventiveness of others"  than innovating themselves.  Several companies have been distracted by litigation, or the threat of litigation, causing them to invest their energy and resources in litigation rather than in the successful commercialization of innovation.  While recently Apple and Samsung agreed to drop litigation between them internationally, which seems smart given slowing growth rates of Apple’s small number of smartphones and the growing demand for larger screens, Apple’s domestic patent litigation persists.

Much of that fight has been over “design patents,” which cover visual, not functional, characteristics of an item -- perhaps a change in looks but not much more.  Such patents, and their rapid growth, have been the root cause of much tumult in the patent world.  In fact, according to the Patent and Trademark Office, the number of design patent applications jumped by 40 percent since 2009, with the 700,000th design patent issued in March.  As these statistics indicate inventors have been increasingly relying on design, rather than other patents.

When design patents began they typically covered an entire product and any infringement needed to be intentional, so for infringement to occur the entire product would need to be copied intentionally.  Now design patents are granted on small features of a product, such as rounded corners on a phone, which obviously increases the number of possible disputes even while devaluing major innovative advances.  Today smartphones are a complex web of hundreds of thousands of patents, held by hundreds of organizations with design as only one piece of the whole.  The patent system is straining to keep pace with modern technology. 

As opposed to other patent infringement cases, where design patents are concerned the plaintiffs are awarded all of the profit from sales even if the infringing element had nothing to do with those sales. Even if the infringed design were part of the reason for a purchase, valuing that one discreet patent in the mesh of thousands is nearly impossible.  The total profit award is part of the problem of high stakes infringement lawsuits.

So, the perverse incentive is to bring design patent infringement cases even with the weakest merits while defendants are incented to settle to avoid the unbalanced risk if a case resulted in a loss.  In other words, the system itself is biased to settlement regardless of the quality of the claim. The unbalanced economics weigh against innovation and invention.

Even if the law is clear, is this what we want in a patent system?  Design patents and penalties for infringement are part of the system but such should not result in the perversion of the system.

And the problems with design patents do not end there.  Design patent applications, as opposed to utility patent applications, are kept confidential, increasing the chance of unknowing infringement and ending the opportunity for others to design around the new patents.  This secret system produces broad design patents being awarded perhaps covering a change in color or rounded corners.  Even a casual observer can understand how the award or consideration of such applications works against inventors and can unnecessarily complicate innovation.

Real advances in design deserve to be protected, but not to the exclusion of all else.  As currently awarded and enforced design patents lead companies to litigation instead of to the commercialization of innovation.  Broad, ambiguous patents, and the litigation this breeds, cause skepticism of our patent system and weakens the whole.  For our innovation economy to flourish, we need a robust, functioning patent system, and Apple could play a positive role by ending the litigation treadmill.

Cleland is resident scholar of tax and innovation policy at the Institute for Policy Innovation (IPI), a conservative think tank. 


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