Last Wednesday, Feb 7, Robert Barr, who heads the Berkeley Center for Law and Technology spoke about the current political debate around patent reform, which has mostly stemmed from the differential impacts of the current system on the Biotech/Pharma industries versus the IT industry.

Almost none of what is below are my ideas, but rather my regurgitations of Robert’s talk.

For the pharmaceutical and biotech companies like Genentech and Merck, patents are lifeblood. These companies spend an estimated $700 million researching, developing and FDA testing to bring a new drug to market. Once all this work has been done, it is relatively simple for a competitor to copy the drug and begin producing it, completely skipping over the enormous fixed costs of development – if there is not strong patent protection. If a product can’t be patented, it probably won’t be brought to market. Pharma holds a patent for almost every product that they sell (for 20 years, anyway).

For information technology companies like IBM or Cisco (the company for which Barr used to head IP), patents are a perpetual thorn in the side. Companies like these generate hundreds or thousands of patents through the course developing their products. IBM just applied for over 3,000 patents in 2006. So they should love the system, right? Wrong. These companies also defend themselves from somewhere between 10 and 50 lawsuits AT ALL TIMES. Every product that they sell is implicated in tens of thousands of patents, held by hundreds or thousands of different parties. And this isn’t Microsoft getting sued by Apple. Major IT companies cross-license all their patents to each other. In fact, the major reason to generate a patent portfolio of your own is to induce other companies to cross-license their patents. No one sues anyone else, because everyone can counter-sue and once the injunctions start coming down, everyone’s business is shot. So who is doing the suing?

To the indiscreet they are called “patent trolls”, to the Federal government they are “non-practicing entities” (NPE’s). They are people who sell no products of their own. People whose business it is to file for patents, and then see who they can sue (blackmail) into licensing their patents. With the threat of shutting down an entire product line of giant companies like Blackberry, NPE’s usually receive generous settlements comparative to the fact that few would say they are adding any value to society.

This situation has been brewing for a few years now into loud calls for reform from the IT sector, and loud resistance to change from BIO and Pharma. There are a wide variety of proposed reforms, including making it more difficult to receive injunctions, apportioning damages by making a judgement as to how important a given patent is within a product (so that a product implicated in 10,000 patents wouldn’t owe 5% of revenues to a single patent-holder), requiring a higher level of originality to receive a patent, or changing the administrative rules of the PTO to make it more difficult to adjust patents to include competitors. But there has been a political stalemate so far.

The most radical change would divide the current unitary patent system into separate islands – there would be different rules for patents in IT from patents in BIO. Which might just make everyone happy (except the designers who value the current system’s simplicity). Until then, y’all play nice.

2 Replies to “A Tale of Two Patent Systems: Pharma and IT Square Off in D.C.”

  1. Interesting topic that we’ve covered today as well. The challenge definitely appears to be more about the quality of patents and the interest of players to cross-license their assets to others. In hopes of reaching higher levels of awareness about patents as an asset class, and to improve liquidity, I hope that the USPTO and market are able to sort out quality reviews as well as ensure a fair system that is self-policing. Regardless of the status of the technology owner, be it a university or an individual inventor (neither of which make products), how a patent’s rights are defined in a knowledge economy is very important. Probably more important than NTP v. RIM.

    Thanks for the thoughts.

  2. The objective of the patent system should be to protect researchers, authors and ultimately consumers. I would be interested in knowing more as to why dividing the system in two is such a radical alternative. It seems that it could hardly get more complicated than it already is.

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