Mr. Smith Went to Washington For Patent Reform

Microsoft General Counsel Brad Smith said that, in a global economy, patent reform should begin at home.

In a lecture on Thursday at the American Enterprise Institute, Smith delivered Microsoft’s four-point plan for reform. The American Enterprise Institute is an influential conservative think tank whose fellows include Lynne Cheney and Newt Gingrich.

“There is plainly a new generation of patent issues arising,” he told the audience, “and it merits attention from a broad cross-section of the technology community, the legal profession and the public at large.

Smith identified four areas where change is needed: patent quality and quantity; minimizing abusive litigation; international harmonization of patent laws; and increasing access for individual inventors and small companies.

U.S. patent examiners are drowning in a flood of patent applications, with more than 350,000 filed each year. Plus, some critics charge that the examiners don’t have the expertise needed to evaluate complicated or novel technology applications.

To increase patent quality while helping examiners deal with the quantity, Smith called for a permanent end to Congress’s practice of diverting USPTO fees to other budget areas.

“Second, we need to ensure that interested parties have sufficient opportunities to alert the PTO about questionable patents within the PTO review process itself,” he said. Smith proposed establishing a post-grant patent opposition procedure that would let third parties challenge patents without going to court.

Under current law, while patent applications are posted on the PTO Web site, outsiders aren’t allowed to comment or intervene until the examination process has been completed.

Once the patent is issued, protestors must ask for a reexamination, which can take years, or file suit.

Eolas versus Microsoft is a case in point. Eolas’ patent was granted in 1998, and it immediately sued Microsoft for infringement. The two parties have fought a long and expensive court battle at the same time that a reexamination is taking place.

To minimize the risk of abusive litigation, Microsoft recommended the creation of a special court that would hear all patent cases at the federal district level. Smith called for revising the standard for “willful infringement,” limiting it to truly egregious behavior.

In our global economy, Smith said, countries should have similar standards and laws for patents — and he said that in some cases, the United States should change its laws to mirror those of Europe and Japan. For example, he said the United States should adopt the “first-to-file” standard for granting patents; current law awards the patent to the first inventor.

He said the United States should also follow international practice by publishing all patents 18 months after filing. He said this move would help avoid duplication of effort by later inventors and discourage “submarine patents” that surface long after the technology has come into general use.

Finally, Smith called for increasing access to the patent system for individuals and small companies by letting them qualify for a “zero filing fee system.”

“The proposal would reduce barriers to entry to the patent system for these sometimes resource-constrained inventors,” Smith said.

Microsoft said it’s one of the largest holders of U.S. patents, with plans to file more than 3,000 applications in 2005 alone. It’s also, as Smith said, “a perennial patent defendant,” spending close to $100 million a year to defend an average of 35 to 40 patent suits at any time.

David Kaefer, director of business development in Microsoft’s intellectual property licensing group, said this was the first time Microsoft has directly set out its recommendations, which were the subject of internal discussions involving top executives. According to Kaefer, Microsoft does most of its advocacy on patent reform through trade organizations, notably the Business Software Alliance.

While harmonizing U.S. patent law with that of other nations is hard, it must be done, Kaefer said, echoing Smith’s statement that of the top 20 applicants for U.S. patents, half are foreign companies.

“To believe our system can’t learn from and benefit from some of the best aspects of these other systems is a mistake,” he said. “When our system is in conflict with someone else’s, it’s a waste of resources and time.”

Providing Internet access to U.S. patents and patent applications is a relatively new step for the USPTO, and it’s led to greater openness and more debate on the system, Kaefer said.

“It’s allowed people to shine a bright light on the system. It’s good, but it’s also why people are asking the hard questions,” he said. “People have more ammunition on which to base their arguments and suggestions for how to improve.”

The ideas Smith presented have been tossed around for years, according to intellectual property attorney Christopher Brody, a partner of Washington, D.C., law firm Clark and Brody.

He pointed out that the USPTO filing fees are a small part of the expense of patents. Attorney’s fees for preparing applications and litigation are a much bigger barrier for individuals and small companies, he said. And, while awarding patents to the first to file is interesting, he said, “It’s so ingrained in our system, and there’s so much law behind it, it would be a major hurdle to change that.”

Still, the ideas have extra weight when they come from Microsoft.

“Microsoft is the proverbial 800-pound gorilla in the business,” Brody said. “That does get the attention of the patent office and the commissioner there, and it will get the attention of the legislature.”

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