As printed in the March 30, 2006 Wall Street Journal COMMENTARY…

As printed in the March 30, 2006 Wall Street Journal
COMMENTARY
Inventors Have Rights, Too!
By NATHAN MYHRVOLD
March 30, 2006

Why is the tech industry out to squash the rights of inventors? Aren't tech companies pro-
invention? That paradox played out yesterday as the Supreme Court heard a patent case
between eBay and MercExchange. Ebay has been found guilty of willfully infringing a
patent, and concedes as much (since that topic is not on appeal). The question the court
will consider, then, is more abstract: Does an inventor also need to create and sell a
product to enjoy the full rights of the patent system? If he does not, Ebay, supported by a
set of large tech companies, wants to overturn 200 years of precedent by weakening or
eliminating the right to injunction. Meanwhile, a collection of other innovative
companies, universities and inventors disagree, and support MercExchange. So how did
we reach this strange situation?

The roots of this case lie in differing corporate cultures and attitudes about the patent
system. In some industries, like pharmaceuticals or biotech, patents are crucial to the
business model, so they support and respect patent rights. Tech companies, on the other
hand, win by muscling their way to sufficient market share to become a de facto standard
(some would say monopoly). Because patents don't figure in this business model, tech
companies don't hold the patent system in high regard. Patents are simply not a priority
for many tech companies. Ebay, for example, has only 11 issued patents.

Other large tech companies do amass significant portfolios, but often not directly related
to their business model. If a rival company asserts a patent, a company like this plays
defense and threaten the asserter's products right back. While "defense" sounds benign,
what it can mean in practice is having enough patents that you can steal from anybody
else with impunity. Between big companies this works like a powerful shield, much like
the doctrine of mutually assured destruction with nukes. But the shield is impotent
against universities, companies without products or independent inventors. Owners of
large defensive portfolios hate that.

In the 14 years I served as Microsoft's first chief technology officer, I saw this firsthand
across the ranks of the computer industry. Tech companies work extremely hard to use
state-of-the-art technology, and either be first to market or a fast follower -- all else falls
by the wayside. Big tech companies are happy to hire the best people from rivals,
universities and small companies. Their employees attend conferences and study
technical papers to stay on the cutting edge. But they pretend that the patents on the
technology in those papers, or from universities or small companies, don't exist. Many of
the largest tech companies have a standing policy that engineers are not allowed to read
patents or check whether their work infringes. Why bother to look, if you know you'll
find lots of infringement? Besides the cost, it's a distraction that might hurt time to
market. Their strategy is simple -- damn the torpedoes, full speed ahead.
The trouble is, this cavalier attitude toward the law runs afoul of the rights of legitimate
patent holders and the big tech companies know this. Rather than pay out a small fraction
of their huge profits, they're fighting a campaign to weaken patent laws for the little guy.
Some of this has taken place in Congress under the banner of "patent reform." The eBay
case aims to achieve the same ends in the courts.

It's hard to go to Congress or the courts and admit that you're one of the richest
companies in the world, have huge profit margins and infringe lots of valid patents held
by honorable people . . . but you don't want to pay them. So naturally, these companies
paint a different picture. They claim that patents are low quality; yet there is no objective
evidence of this. They claim patent litigation is exploding; but the actual figures show
just the opposite. There are fewer patent lawsuits than copyright, trademark or other
major forms of commercial litigation.

Perhaps the biggest myth is the danger "patent trolls" -- people who supposedly
manipulate the patent system in a shady way. It does happen, but apart from some
anecdotes, no evidence has been offered that patent trolls are a major problem. Court
records show that only 2% of all patent lawsuits are due to plaintiffs that have no ongoing
product business. Of that 2%, the vast majority are perfectly legitimate companies or
universities. A tiny minority of patent suits are due to bad actors, but it's hardly a crisis.
While I was at Microsoft, we encountered a couple of patent manipulators, but frankly we
won those cases; at worst they were a nuisance.

RIM, the company behind the BlackBerry, recently paid $612 million to a company
called NTP to settle a patent lawsuit. People love their BlackBerries, so it's tempting to
see NTP as a villainous troll, but RIM wears the black hat in this story. It could have
settled for a reasonable rate (several of its competitors did). Instead it bet the farm in
court and proceeded to lose big. The judge ruled that "this was not a close case" and,
further, that RIM's litigation tactics were "egregious" and "fraudulent." When a judge
says things like that, most people would settle. Instead, RIM gambled on a series of ever
more desperate legal maneuvers and enormously raised the stakes through
brinksmanship. Hubris caused its loss, not the patent system.

The telling point in the troll debate comes if you look where tech companies pay big
money for patents. It's not trolls, but rather small and completely legitimate patent
holders -- the same ones that would be hurt by the "reform" proposals or the eBay case.
As one observer puts it, Goliath is crying "Unfair! Take David's sling away!" Without
full rights there is no way for a small inventor to get a big infringer to the table to settle.
Instead, they'll stall and drown the little guy with legal fees. The courts would be put in
the middle and have to decide all future licensing revenue. Is that the way we want to run
an innovative economy?

The patent system exists to give economic incentive to create inventions -- not products.
After all, profit is the incentive to create and sell products. In order to have a level
playing field, inventors must have a full set of rights, regardless of whether they are big
or little, or whether they make products or just invent. Those rights are what give them
the incentive to work long and hard on new ideas that may not work. A lot of big
innovative companies agree with this -- companies like DuPont, GE, Qualcomm and 3M,
as well as the pharmaceutical and biotech industry, have filed amicus briefs in support of
MercExchange and equal rights for all inventors.

Weakening patent laws, whether in the Supreme Court or Congress, is no more than a
government bailout of the infringement problems big tech companies deliberately made
for themselves. America needs to have future generations of inventions and technology.
We can't mortgage our future by taking away the rights and incentive of our inventors.

Mr. Myhrvold, Microsoft's first chief technological officer, is currently CEO of
Intellectual Ventures and holds 18 patents with more than 100 pending. He filed an
amicus brief with the Supreme Court in support of MercExchange.


No reproduction or distribution without express permission of Intellectual Ventures. ©
2006