2nd
ccia IP report
Often independent computer industry associations are never that, so one often reads their reports with more then a healthy dose of scepticism. Having spent some time last week at an ip conference it was quite useful to find this report from the CCIA http://www.ccianet.org ( thanks thiru).
http://www.wipo.int/scp/en/meetings/session_13/pdf/ccia.pdf
CCIA Comments on the WIPO Report on the International Patent System
The Computer & Communications Industry Association wishes to commend
WIPO for undertaking this report for the Standing Committee on Patents. This
synthesis of current conditions and issues is a landmark first step in reorienting
WIPO towards further understanding of how intellectual property functions in the
global economy and how patent law regimes can be improved or reformed to
better meet agreed-on goals. We believe that WIPO should take a leadership
role in integrating economic and legal analysis in collaboration with other
organizations that show a genuine commitment to disinterested research and
analysis. We hope that WIPO will build capacity both in-house and in engaging
the broader community of researchers and stakeholders.
We offer the following on this initial report in the spirit of assembling a more
coherent common understanding of the strengths and weaknesses of the patent
system. We mean “system” in a broader sense, not just as a collection laws and
bureaucracies, but as an economic tool employed by economic actors that
should lead to economically beneficial outcomes.
With this in mind, we focus on a set of issues that would benefit from closer
attention. The central theme here is the fact that there are substantial
differences among different technologies – and thereby different industries - in
how patents are used and experienced. CCIA’s experience centers on
information technology and its applications, so we have a special concern for
some issues that may not be seen as troublesome in other areas. We believe
that the report needs shed light on these problems and the tensions increasingly
apparent within a one-size-fits-all patent system (especially since these tensions
are thwarting a major effort at patent reform in the United States). We also note
that the European Patent Office’s (EPO) Scenarios Project recognizes many of
these challenges in the “Blue Skies” Scenario.
In many respects, these differences revolve around the structural differences
between complex-product technologies such as information technology and
discrete-product technologies, such as pharmaceuticals and chemicals. Under
present standards, complex products may include thousands of patentable
functions or components, while a discrete product may be protected by a single
primary patent. Accordingly, information technology is characterized by large
numbers of relatively low-value patents while pharmaceuticals are characterized
by a smaller number of high-value patents.
Thus demand for patents appears to be very high in information technology, but
in fact patents play a far lesser role than they do in pharmaceuticals. IT
companies want “freedom to operate” in order to build complex products and
services without being blocked by the many patents that belong to others. They
assemble large portfolios to be used defensively if and when they are threatened
with infringement actions by competitors. This deterrent effect is reminiscent of a
nuclear arms race, and is often referred to as “mutually assured destruction.”
Large companies commonly cross-license with each other, often with balancing
payments to adjust for the size of their respective portfolios. Cross-licensing is
problematic for a field like software, however, where there are a large number of
different-sized, differently-situated companies.
From a policy perspective, the evolution of the patent “portfolio” as the relevant
frame of reference (as opposed to the individual patent) is likely to discourage
new entrants. Conventional wisdom says that patents protect startup companies
– and within a narrow ambit, this may still be true. But a startup that wants to
develop fully functional products (rather than just technology to license to others)
will need access to the patents of others, possibly large numbers of patents. In
that respect, portfolios serve as barriers to entry for newcomers while reinforcing
the market positions of incumbents.
The high volume of patents in complex-product technologies such as IT creates
fertile ground for a major problem: non-practicing entities, commonly referred to
as “trolls.” The troll problem has several dimensions that need further
explanation
First, portfolio-driven demand, especially when combined with low inventive-step
standards and inadequate patent office review, results in large numbers of trivial
or questionable patents. This diminishes the value of patent information in IT
and ultimately make product clearances prohibitively expensive. As a
consequence, patents are ignored unless the patent owner asserts them. Thus,
independent invention is commonplace, and inadvertent infringement is the
inevitable result. (Recent empirical research shows that copying is rare in patent
litigation, and especially rare in IT.) This is especially problematic for software,
where the high search, information, and transactions associated with clearance
simply overwhelm the relatively low cost of authoring software.
The discussion of patent information in the report is especially deficient in this
respect. This section is lacking in documentation and expresses unsubstantiated
faith in the usefulness of patent information without differentiating among fields.
In fact, the virtual opacity of the information environment in IT creates
opportunities for arbitrage. Trolls can assert what were once low-value patents
against companies that produce complex products that may inadvertently
incorporate the trivial technology covered by the patents. The longer the troll
waits, the more fully the technology is adopted and embedded, the more
leverage the troll has. The leverage reaches an extreme in the case of standards
embedded in products all across an industry. This extreme vulnerability also
needs to be brought out in the discussion of standards and patents.
The development of markets for technology hailed in the report has a major
downside in that patents are often most valuable in hands of trolls. When
companies fail – as most startups do – patents are sold off as the remaining
assets. These patents enter patent markets where they can be acquired
knowing or speculating that they are being infringed by someone somewhere.
Finally, the discussion of subject matter gives short shrift to the patentability of
computer programs, which continues to provoke legal, economic, and political
controversy. Much of the controversy can explained as extreme version of the
problem set faced by IT generally, but in some ways software is unique:
Copyright is available for software, which may further diminish the value of
patents, and copyright appears to fit better with the high degree of simultaneous
innovation that takes place in software. Only software is suited to open source
models of development and distribution. For this reason, standards
organizations focused on information and software standards (W3C, OASIS)
prefer royalty-free licensing since it does not discriminate against open source
models.
Much of the global economy is dependent on IT. It is important that WIPO
members understand the economic dynamics around patents in information
technology – including the possible solutions to the problems they present. To
recapitulate, these include:
differences among technologies, especially between complex and discrete
products
conflict between standards and patents
direct costs, distorted incentives, and unintended effects created by
portfolio practices
the limited value of patent information in an overheated patent
environment
the destructive potential of patent arbitrage against producers and service
providers
the extent to which software should be patentable subject matter
Considerably more could be said about patents and standards, but since that has
been designated one of four priority areas for future work, we will furnish detailed
comments once plans are made public.
We would be happy to furnish references and further explanations for these
comments. Thank you for the opportunity to contribute to this much-needed
agenda.
