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Patent sanity is pending

December 04, 2005

PATENT LAWS MAY BE AN inventor's best friend, giving someone with a groundbreaking idea the means to capitalize on it. But on many levels, the U.S. patent system is profoundly flawed. Too many patents are issued for "innovations" that are obvious, vague or already in wide use. Too many patent holders try to extend their claims to devices and services that weren't even contemplated when the patents were granted. And it's a difficult, costly exercise to overturn a questionable patent after it has been awarded.

Compounding the problem, federal courts have been quick to hand patent holders a sledgehammer when their patents have been infringed. The appeals court in Washington takes the position that, except in exceptional circumstances, courts must issue permanent injunctions to stop infringers from using the inventions in dispute.

As a consequence, someone who holds a patent over even a small piece of a product, service or business model could shut an entire operation down -- a nice bit of leverage when it comes to negotiating a licensing fee. As the Federal Trade Commission noted in a 2003 report, firms in some high-tech fields must obtain licenses to "dozens, hundreds or even thousands of patents" to produce just one product.

Last week, the Supreme Court agreed to review the appeals court's stance. The case in question pits MercExchange, a small Virginia company that holds patents related to online commerce, against online auction giant EBay. But the issue is vital to a broad array of other technology, pharmaceutical and chemical companies.

The courts may be right in this case to stop EBay from using technology patented by MercExchange, whose attempt to launch an online auction service fizzled several years ago. But judges need flexibility to provide different remedies in different situations. Patents must be enforced, but that doesn't necessarily require courts to award crippling injunctions -- particularly when the patent in dispute is just one of many involved in the product, service or business that would be shut down by an injunction. Nor is it good policy to encourage the creation of companies whose purpose is not to develop new products and services but to shake down businesses that do.

Besides, the near-automatic granting of injunctions can lead to the absurd result of a company being forced to pay royalties to license patents later found to be invalid. That's the potential result in the battle between Research in Motion, the company behind the popular BlackBerry wireless e-mail devices, and patent holder NTP Inc. A federal judge may reinstate the injunction he granted against RIM for violating NTP's patents even though the Patent Office, which is reexamining the patents, has issued preliminary findings that all five are invalid.

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