software and law: is regulation fostering or inhibiting innovation? brian kahin computer &...
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Software and Law:
Is Regulation Fostering or Inhibiting Innovation?
Brian KahinComputer & Communications Industry Association
and
University of Michigan
Brookings Institution
December 7, 2005
patents: a hybrid form of regulation
• property rights granted by the government– ex parte – database of private regulations
• privately enforced through costly litigation • subject to capture at multiple levels • “one-size-fits-all”• independent creation is not permitted
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
200000
cumulative softwarepatents
annual issuedsoftware patents
U.S. software patents: 1976-2002
source: Bessen 2003
a database of private regulations
privately enforced through costly litigation
average legal costs/fees for single-patent litigation amount in controversy
costs per side
X 2 =
total for both sides
total costs as % of amount in controversy
less than $1M
$0.5M $1M >100%
…
<32%
$1M to $25M
$2M $4M
more than $25M
$4M $8M
Report of Economic Survey 2003American Intellectual Property Law Association
amount in controversy
costs per side
X 2 =
total for both sides
total costs as % of amount in controversy
plus
< $1M $0.5M($0.3M)
$1M($0.6M)
>100%
…
<32%
staff time, oppor-tunity costs, distraction
$1M to $25M
$2M($1M)
$4M($2M)
>$25 M $4M($2.5M)
$8M($5M)
100 patent cases fully litigated each year
2500 cases filed each year
60,000 (?) notice letters received each year
25 X
25 X
“Rule of 25”
Chip Lutton, Apple Computer, testimony before the House Subcommittee on Courts, the Internet, and Intellectual Property, April 20, 2005
capture at multiple levels
• professional services (patent bar)
• regulatory capture (PTO)
• specialized court (CAFC)
• industry (pharmaceuticals, biotech)
• global politics
= inertia/inability to reform
Under CAFC, patents have become
• easier to get– lowered standard of inventiveness (suggestion
test; KSR v. Teleflex)
• more potent– automatic injunctive relief (eBay v. MercExchange)
• easier to assert– (unjustifiably) heightened presumption of validity
all matters on which FTC has recommended reform but nothing in the current reform package!
a legal fiction
inventive / nonobvious
uninventive / obvious
“in
ven
tive
nes
s”
volume of inventions
“in
ven
tive
nes
s”
volume
“flash of genius” standard (pre-1952)
mere novelty
current low standard
“in
ven
tive
nes
s”
volume
“flash of genius” standard (pre-1952)
mere novelty
current low standard
institutional pressuresspecialized court
patent officepatent bar
“in
ven
tive
nes
s”
volume
institutional pressuresspecialized court
patent officepatent bar
“flash of genius”
pre-1952
novelty
patentable
unpatentable}
zone of ambiguity
questionable patents
current low standard
valid patents
“one-size-fits-all” model
• focused on adjudication process, not results• confronts an increasingly diversified innovation
environment• does not distinguish discrete and complex
technologies– patents more potent, easier to get
• does not acknowledge alternative means of appropriating returns from innovation– copyright, complements, first-mover advantages, secrecy– implicitly devalues other forms of economic value: design,
integration, testing/debugging, interoperability, networks
basic science
biotech
software services
social sciences/ liberal professions
complex technologies
traditional subject matter
expansion of patent system
logic, mathematics
pharmaceuticals, chemicals– discrete technology
one patent, one product
business method problem– not “technology”
one patent covers many products/implementations
software problem– extreme complexity
one product, many patents
diverging characteristics
business method problem
“…[W]ith the advent of business method patenting it is possible to obtain exclusive rights over a general business model, which can include ALL solutions to a business problem, simply by articulating the problem.”
– IBM, Comments on the International Effort to Harmonize the Substantive Requirements of Patent Laws [USPTO consultation, May 2001]
software problem
• extreme functional complexity– fine granularity – multilevel complexity: algorithms to business methods– strong network effects
• block interoperability• importance of complements• danger of networking of tipping
• ease of producing patentable functions• opportunities for extreme economies of scope/scale,
global distribution, accelerated take-up– enables open source
millions of producers
widespread independent invention
100s of millions of users
massive potential for liability
complex information products with 10,000s of functions
http://webshop.ffii.org
the specter of massive downstream liability
who should search?
cost of searching = $2-15K per functionx 1000s of functions
x uncertainty of unpublished patents
+ exposure to willful infringement
Information failure in the ICT sector
[T]here are too many patents to be able to even locate which ones are problematic. I used to say only IBM does clearance … but IBM tells me even they don't do clearance searches anymore.
Robert Barr, Vice President, Worldwide Patent Counsel, Cisco Systems, Inc., FTC Roundtable, October 2002
TI has something like 8000 patents in the United States that are active patents, and for us to know what's in that portfolio, we think, is just a mind-boggling, budget-busting exercise to try to figure that out with any degree of accuracy at all.
Frederick J. Telecky, Jr., Senior Vice President and General Patent Counsel, Texas Instruments, FTC/DOJ hearings Feb 2002
The President’s Commission on the Patent System “To promote the progress of useful arts in an age of exploding technology” (1966)
“The Commission believes strongly that all inventions should meet the statutory provisions for novelty, utility and unobviousness and that that [data processing programs] cannot readily be examined for adherence to these criteria.”
Reliable searches not feasible or economic because of the “tremendous volume of prior art being generated.”
the consequences….
• Systemic failure of the disclosure function• Prohibitive costs of litigation drive real costs
underground• Bias toward capital-intensive development
models• Massive embedded liability in user base• Highest and best use = extortion• Inter-industry cross subsidy