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Patently Unfair? - InternetNews.
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Patently Unfair?

Part of the series: They Claim The Workings of the Web

Pity the overworked patent examiner. The U.S. Patent and Trade Office handles close to 300,000 applications a year, which works out to about 1,000 applications arriving every business day. New applications are growing at the rate of 10 percent a year. No wonder it described itself in a report to Congress as "an agency under siege."

One group on the attack is a horde of critics who charge that the USPTO has issued overly broad rights on Internet technologies and business processes. Critics say such patents place control of e-commerce, digital media and the Web itself in the hands of a few.

License demands for everything from Internet shopping carts to streaming video to rich media ads have sent scores of companies to the courts, where they spend years and millions in litigation over patents.

Last year, eBay was hit with a $35 million judgment for the "buy it now" function originated by MercExchange, a defunct e-commerce player. Microsoft has been in litigation with Eolas Technologies since February 1999 over the latter's claim of the rights to inserting media into Web pages.

Such patents on business processes are a new phenomenon, largely the result of a seminal case, State Street Bank & Trust Co. v. Signature Financial Group, in 1998. In State Street, a U.S. Federal Circuit Court ruled that computerized business methods could be patented, which tossed out a long-standing exception in the patent rules.

Signature held a patent on a "Data Processing System for Hub and Spoke Financial Services Configuration," which covered the use of a data processing system to allow one administrator to pool several funds for central management in one portfolio. Before this ruling, business methods were legally unpatentable. After the ruling, the rush was on.

"The floodgates opened," said David Jacobs, an attorney specializing in intellectual property issues with the law firm Gesmer Updegrove, not because of the technology but because of one decision."

Everyone, from kids in dorms room to startups flush with capital, was madly thinking of things you could do on the Internet. A lot of them had the same ideas -- and some of them filed for patents. Now, a lot of people doing business on the Internet are crying foul.

"There are unquestionably patents getting issued that are invalid," Jacobs said. But he also said plenty of patents, if they were to get scrutinized in litigation, would stand up; business process patents are held to the same standards of novelty, utility, sufficiency and non-obviousness, the same criteria as any other patent award. "The problem is, obviousness is fantastically gray."

Another problem, said Greg Aharonian, is the patent office has a lot of trouble detecting multiple patent applications for the same idea if they're applied for at the same time. "Unless the same examiner happens to get assigned them both, they'll get patents at the same time," said Aharonian, who publishes the Internet Patent News service.

That could be the case with the Eolas patents. After two courts ruled in Eolas' favor, the W3C interceded and begged the USPTO to review the patent. In a preliminary ruling in February, an examiner overturned Eolas' patent after considering early drafts of the original paperwork involved in the patent. The entire review process could take another year.

Brigid Quinn, deputy director of public affairs for the agency, said by law, the USPTO must approve any patent unless the examiner can find prior art that says the invention is not new or that it's obvious. "It's not the applicant proving to us that it's new, it's us having to prove it isn't."

Under the law, she said, patents can never be too broad, but can be as broad as prior art allows. "If you're the first one doing something, you're going to have a broad patent. You're in on the ground floor."

Another element of the process that created problems for developing industries was ameliorated in 1999, when Congress passed the American Inventors Protection Act. Before that, until a ruling was made, the patent application process is one-on-one between the applicant and the examiner. Other stakeholders -- companies working on similar technology or employing technology or processes that would be covered by the patent, were in the dark.

Now, the USPTO publishes most applications to a database 18 months after they're filed. Quinn said this gives others working in the field a heads-up, and also allows them to present prior art. "You can't argue the case, but you can send in the art itself, and it will be put in a file, and the examiner will see it."

Quinn defended her band of approximately 3600 examiners, each of whom has deep technical expertise. For example, she said, those who handle software patent applications are themselves software engineers. "They didn't just fall off a truck," she said. But they are overworked. Each handles 40 to 50 cases at a time in a process that takes a year to 18 months.

The USPTO does have a huge backlog in handling the close to 300,000 applications a year it receives. That's about 1,000 applications arriving every business day, and applications are growing at the rate of 10 percent a year. Quinn estimated the agency has 500,000 cases sitting at some point in the process.

Last October, the Federal Trade Commission weighed in with a whole book of recommendations for USPTO operations, saying that poor patent quality and legal standards could have anticompetitive effects. For example, it said, overlapping patents may create "a 'patent thicket' -- a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology."

The FTC recommended included instituting process enabling post-grant review of and opposition to patents; changing the basis of determinations from "clear and convincing evidence" to "a preponderance of evidence," and providing more funding for the agency.

The USPTO's Quinn said that her agency already had planned to implement the post-grant review process, as well as an expansion of "second pair of eyes" in-process reviews before granting patents in emerging and complex technologies, such as biotechnology and semi-conductors.

Patent-buster Aharonian said he thinks applicants themselves should be required to do more of the research. While the last thing applicants want is to find prior art, Aharonian said, he would expect any company basing its business on a patentable technology to want to know the worst at the soonest. "Unless your goal is to get a stupid patent and harass people," he said, "would it kill you to spend a thousand bucks to find out whether you're wasting the remaining $19,000 you'd spend in the application?"

For all the talk of reform, Aharonian believes there are too many vested interests for real change to take place. The patent office makes money by issuing patents. Then, the lawyers make money off the resulting lawsuits. "The FTC report," he said, "focuses on what to do after patents are issued. That's a waste of time.'