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Is the patent system broken or simply misunderstood?

BY MELVIN C. GARNER AND YUVAL H. MARCUS

Like the patent infringement case that resulted in a $612.5 million settlement payment in 2006 by Blackberry-maker Research in Motion to NTP, Apple Inc.’s $1 billion patent infringement verdict against Samsung Electronics Co. this summer has once again placed a spotlight on patents and their impact on businesses.

One question that has fueled public debate is whether the patent system encourages or stymies innovation. As explained below, the benefits and rewards of patents are often misunderstood.

On Oct. 7, The New York Times published an article by Charles Duhigg and Steve Lohr that recounted the problems of Michael Phillips of Vlingo. Phillips worked for three decades on software to allow computers to understand human speech and which later became part of the Siri software in Apple products. He was hit with six patent infringement suits by a larger company.

Apple switched to the larger company and Phillips spent millions of dollars defending the suits. Eventually a jury found that his company did not infringe the patents, but by that time the company was so weak that Phillips had to sell it to the larger company. Based on this story, the authors of the article took the position that the system that allows the patenting of software is so flawed it often stymies innovation. However, the authors got the wrong message. If Phillips had been working on voice-recognition software for three decades, where were his patents?

Rather than hurting small companies, the patent system in many cases is the only protection that they have against larger ones. If Phillips had pursued patenting of his three decades of work, when the larger company came around, it is likely he could have sued. Thus, the result of the litigation would not have been mere attorney’s fees he had to pay, but damages he recovered from the larger company. Also, the existence of his own patents would have been helpful in establishing that his technology was different. His patents could also have been used as the bases of a cross-license with the larger company that could be the basis for a settlement of the dispute.

Dean Kamen, best known for his invention of the Segway, is an example of the right way to operate in the modern world. He got his start with the invention of the first drug infusion pump, which he patented. His company, DEKA, also holds patents for the technology used in portable dialysis machines, an insulin pump and an all-terrain electric wheelchair known as the iBOT. He is a successful and wealthy inventor because he used the patent system the way it was designed to be used.

Kamen is working on a product known as the Slingshot that would serve as a water purification system. He hopes the project will help improve living standards in developing countries. A patent has already been issued to Kamen on his water purifier, U.S. Patent 7,340,879, and other patents are pending.

The purpose of the patent system is to promote the progress of science and the useful arts. This is accomplished by granting to inventors exclusive use of their inventions for limited times in return for disclosing their inventions in patent applications. The result of the disclosure is to make the technology known to all, which can promote others to invent improvements in the technology or to design around it. The inventor can then use the patent as a basis for his business or license it to generate income. This is what Kamen did, while Philips (of Vlingo) worked in secret and did not benefit himself or society.

When properly utilized, the patent system offers significant benefits to individuals and companies and offers incentives for those inventors to create innovative products and services. The public benefits when the economic motivation of the patent system spurs companies to devote research and development resources to create new products and services. Like any system, it does not work perfectly and it can be used for improper purposes.

Too many journalists and academics, however, find fault in the system without having a real understanding of its operation. Articles, such as the one in the Times, sometimes offer a false picture of the system, which results in misleading the public as to the value of the system. It is incumbent on business owners, therefore, to take a close look at the patent system, especially the newly enacted America Invents Act, so that a true understanding of the benefits of patents can be obtained.

Melvin C. Garner (garner@leasonellis.com) and Yuval H. Marcus (marcus@leasonellis.com) are Partners at Leason Ellis L.L.P. (leasonellis.com), the largest intellectual property boutique law firm in Westchester County.

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