Vendors say patent system needs work

The U.S. patent system has veered off course and is being abused, executives of three top technology companies said Wednesday.

The problems include damages that are too great, patents for insignificant innovations, and poor-quality patents that haven't been researched enough, participants said in a panel discussion at the AlwaysOn Stanford Summit in Palo Alto, Calif.

"The patent system, right now, is tilting out of bounds," said Chip Lutton, chief patent counsel at Apple. He compared the situation to a bubble market, as companies buy up patents just to use them to get overinflated awards. Courts have failed to rein in these speculators, he said.

Michelle Lee, associate general counsel and head of patents at Google, said the patent system is in crisis, and a top legal official at IBM said some recent awards for damages have been "bizarre."

A frequently mentioned example of how extreme technology patent cases have become was NTP's $612.5 million settlement with Research In Motion last year to settle a suit that threatened to take down BlackBerry service for most U.S. users. In that case, a federal court ruled that RIM had infringed on NTP patents, even though the patent office had issued several preliminary decisions that the NTP patents were invalid.

IT vendors are stockpiling patents and using them as weapons against rivals' patent claims -- or potential claims. But David Hayes, an intellectual property lawyer at Fenwick & West, said he advises startups to do the same as they develop their technology. Google's Lee agreed it's needed in case another company claims some of your technology and demands you license it.

"When they come knocking at your door, you want to come back with something other than a check," Lee said.

The panelists applauded the Patent Reform Act of 2007, now working its way through Congress. The bill would make it harder to get a patent and easier to challenge one, and it would change how courts determined a patent's value. But they said more change is needed.

Patent inspectors don't get enough time to look at applications because of the sheer number, Apple's Lutton said. He estimated each application gets an average of 20 hours or less. About 400,000 patent applications are filed each year, so it takes three to five years for a company to even get one examined, according to Fenwick & West's Hayes.

But just adding more inspectors isn't the solution, said David Kappos, vice president and assistant general counsel at IBM. If he proposed solving a business process problem like that just by throwing more money at it, IBM would fire him, Kappos said. Instead, the Patent Office needs to change its approach and use new technologies, he said. The process should be targeted because most patents are never used or challenged, Apple's Lutton said.

Another looming issue for startups is international patents. Hayes of Fenwick & West said if a startup has limited funds for getting patents outside the United States, it should seek them in China, India, and Europe, in that order.

Despite China's lawless reputation, it isn't a waste of time to get patents there, Google's Lee said. The country's patent system is changing fast and rapidly approaching European standards. And as more innovation happens within China, the country will have more incentive to protect intellectual property, she said.

Google knows something about Chinese intellectual property law firsthand. In April, Chinese portal Sohu.com threatened to sue Google for copying part of a dictionary of Chinese words and names developed by Sohu. Google apologized for copying it, saying it was done inadvertently.