An Alternative to Google's Proposal to Congress on Patent Reform

According to All Things D, Google is petitioning Congress to consider technology patents that have become popular in a given field to be treated as FRAND patents. Google is basically saying that Apple’s innovations are so good they should be available for everybody to license at fair and reasonable rates. They are calling these “commercially essential” patents.

This thinking is flawed for host of reasons, but I will outline a few here. But first, I will open with analogy I have made here on these forums before. Liken this to the Gold Rush of 1849. Prospectors could stake their claims and they were legally entitled to anything they found on their land. However, if a prospector was especially successful he would either find himself dead when somebody else decided they wanted access to the gold on his land, or he would find his land overrun with no ability to defend it. Even some land owners like Sutter who had no interest in mining for gold found their land overrun and pilfered by prospectors looking to strip it of gold. Few would argue that anybody should be allowed to pilfer anybody else’s land and that trying to defend your claim was tantamount to stiffling or suppressing competition. That is because there is such a thing as fair competition and unfair competition.

Now the analogy is not perfect. A prospector was allowed to stake his claim and was immediately given rights to his claim; however, a patent typically takes three to seven years to issue. This means that while an innovator is waiting for a patent to issue the only thing the innovator has to ward anybody off is the ability to post a “patent pending” notice. Few competitors would heed such a notice because there is no guarantee that the innovator is indeed going to get a patent and years of revenue and profit could be lost if one does not try to leverage the best innovations of a competitor that are not (yet) patented. So the innovators of the mobile technology era are in a slightly worse situation than the prospectors of the 1849 Gold Rush, save for the fact that nobody is getting shot.

That said, Google is missing the whole point of “standards essential” or FRAND patents. These patents are labeled as FRAND not because somebody forced them to be. It is because when standards are being considered there are usually multiple standards competing. If Company A holds 20 patents related to standards candidate “Foo”, but holds no patents related to the competing standards candidate “Bar”, then Company A has a vested interest in Foo becoming the standard rather than Bar. In order to fascilitate the standardization of Foo, Company A will pledge their 20 patents for FRAND licensing. By doing so, they increase the chances of Foo becoming the standard. If Foo does indeed become the standard then Company A will have a wide audience to license their 20 patents to at reasonable and fair rates. However, if Bar becomes the standard, then Company A's patents on Foo will likely have no potential licensees. FRAND is a trade off that most companies are willing to make to generate a revenue stream from their patents. This is similar to how Apple recently said that any standards they might own pertaining to Nano SIM technology would be freely available to all competitors providing their proposal for Nano SIM was chosen as the standard. However, when the so-called “standard” is simply due to the popularity of the innovator’s implementation in the marketplace, then it is hard to argue that the innovation should be available to anybody without the innovator’s consent.

That said, Apple’s patents are typically not standards essential. Apple probably did not even hold a single patent pertaining to Nano SIM, but were simply responding to allegations of acting in their own interest for extracting licensing fees with respect to the proposed Nano SIM standard. Apple’s iPhone was extremely innovative and introduced the world to many new concepts. The basic technologies were not new, but nobody had yet solved many of the problems of running a smartphone OS on a multi-touch device. There were plenty of issues to be solved especially since they removed all but a few physical buttons. Things like “slide to unlock” and push/pull scrolling with vanishing scroll indicators had to be thought up by somebody. Many of these patents are easy to work around, but each represents an elegant solution to a problem that was faced by Apple engineers in designing the iPhone.

For Google to ask for Congress to grant access to innovations that Apple spent years developing is ludicrous. That is like saying that if a drug is wildly successful in treating an illness that the pharmaceutical company should be forced to license it to competitors at a reasonable rate, rather than reap the profits from the sale of the drug.

That leaves us with the problem of Apple absolutely refusing to license their patents. While Microsoft owns many patents, they are typically more than happy to generate revenue from them. Microsoft has been masterful at extracting licensing fees from Android manufacturers. A change is certainly needed in the patent system, but it is not the change that Google is suggesting.

What the patent system needs is an actual definition of a “software patent” -- which incidentally, currently does not exist. Currently there are “utility patents” and then their are “design patents” (there are also “plant patents” in case you are genetically engineering plants). Software patents fall under the normal utility patents. They typically have titles like “A Method for X” or “A System for Y” or “A Method and System for Z”. The “method” claims usually cover a step-by-step process involving inputs, transformations or calculations on those inputs, comparisons of inputs and derivative values against thresholds and taking some set of actions (usually in a prescribed order). The “system” or “apparatus” claims usually say the same thing but phrase it as "An apparatus performing X" where X is the “method” claim.

I think that in order to protect an invention in software that the inventor should have to designate it as a “software method” or a “system implementing software”. If the USPTO were to carve out a new kind of patent for software (and I am not opposed to a new kind for pharmaceuticals either) then they could impose specific rules for it. Today patents are issued about 5 years after filing, are good for four years unless renewed. The patent holder has the right to renew the patent at the 3.5 year mark, the 7.5 year mark, and the 11.5 year mark. Patent protection can be extended for 16 total years with each renewal costing progressively more. This means that an innovation created in the year 2000 could still be protected by a patent until the year 2021 (assuming an initial five years to issue). That seems a bit crazy given the pace of technology. It is also not optimal for the innovator since they had to wait five years for a patent issuance and the pace of technology allows for all competitors to build on that patent while the innovator patiently waits for issuance (note that they can pay fees to expedite things as well).

That said, I think a new system is in order. Congress should mandate that software related patents must:

1) Be prioritized by the USPTO to be issued or denied within 8 months of filing, allowing up to 4 months for appeals in the case of denial. This would allow the fate of a patent application to be absolutely certain within 12 months of filing. This is good for competitors too since they will know if they can make an investment that leverages the invention without getting sued later.

2) Patent issuances should still last for 4 years, but now that 4 years will occur during the first 5 years since the innovation (assuming 1 year for issuance). During this period, the inventor is allowed to withold or license the patent as they see fit. They are essentially given an exclusive to the innovation.

3) After 4 years the patent will expire unless the patent holder renews it during a renewal period that begins at the 3.5 year mark (as it does today). However, the renewed patent would not receive the same protection as when it was originally granted. The renewed patent would be required to be licensed for a flat and fair per-unit fee that would be equal to all licensees. Licensees can still use cross-licensing equivalents to gain access to a patent rather than cash. In this model, the next 4 years of the patent would be an opportunity for the inventor to make money from competitors who wished to use it, but not to withhold it from competitors. This would clear up the issue with Apple’s “Universal Search with Multiple Heuristic Modules” patent that is causing problems for the Galaxy Nexus and Galaxy S III since that patent is rather old at this point.

4) Up to two more renewals are allowed (at the 7.5 and 11.5 year marks) each for 4 year terms, but each renewal is at an increased fee to the USPTO. Only profitably licensed patents would ever get renewed. These are the same renewal periods as we have today, but the renewed patents must continue to be made available under FRAND licensing terms.

The other problem that this addresses is that of Patent Trolls. Most patent trolls use very old patents that are vaguely worded and long forgotten to extort money from small and large companies. Under these rules, the patent trolls could at most extort a “fair and reasonable” rate with these older patents. Patent Trolls would have to obtain rights to patents that are recently issued to really do any harm.

I feel that we won’t see these kind of suggestions from Google because these rules would not give them access to the bulk of the recent Apple patents. We also won’t see this coming from Apple who would like to keep asserting Mac patents from 12 to 15 years ago. As consumers, we should be pushing consumer activists groups to start making suggestions along these lines. It seems to me that this is a fair solution to the inventor and benefits the consumer as well.