Microsoft Calls for Patent Law Reform

Critics of the United States patent system have found an unforeseen ally: Microsoft. During his keynote speech at the American Enterprise Institute for Public Policy Research, Microsoft General Counsel Brad Smith proposed a series of reforms to correct flaws in the US patent system.

If implemented, Microsoft's proposal will amend the current system to validate the quality of patents, reduce litigation, increase accessibility, and become consistent with international patent laws. Redmond will work with like-minded reformers to encourage the adoption of its ideas.

The opposition against the current system alleges that the downside to the volume of IP rights being granted to the technology sector is that obtaining patents has become a cottage industry onto itself. Companies often lay down "patent traps" to profit from their IP portfolios at the expense of innovation, small business and, ultimately, the global economy.

Critics consider too many patents to be as harmful to society as too few, citing the enormous economic cost of litigation. The incentive to invent and be awarded a patent must outweigh the sly incentive to use patents as a barrier to avoid open competition, advocates of patent reform say.

With $4 billion a year budgeted for research and development, Microsoft is one of the largest holders of IP rights in the world, and filed more than 3,000 patent applications to the U.S. Patent and Trademark Office in 2004 alone. During his address, Smith revealed that the software giant pays nearly $100 million annually to defend itself against infringement claims and averages 35-40 simultaneous patent lawsuits.

In recent years, corporations have been transforming IP rights into streams of revenue and patent litigation has markedly increased leading to what many consider to be a "shakedown." In spite of its success in filing for patents, Microsoft faces what could be seen as a zero sum game: One company files patent lawsuits only after another company claims that it is in violation of its patents.

This means patents become like bullets in an IP arsenal; some may miss, others may hit their target. That being said, a company with more assets has an inherent advantage over competitors with fewer assets.

The USPTO reviews in excess of 350,000 patent applications per year, tripling in number since the 1980s. Microsoft insinuates that an overworked patent office is strained for resources in the face of unreasonable demands.

In essence, Microsoft is saying that the system that sustained the right mix of invention and entrepreneurship for the past 2 centuries is under siege by the industry. In order to ensure patent quality, Microsoft would like the USPTO to transfer some of its responsibility to the private sector for peer review.

Microsoft would like third parties to be permitted to administratively challenge patents and stay out of the courtroom. Under the plan, third parties would also be able to submit evidence of "prior art" during the review process rather than after. Microsoft is currently trying to prove prior art existed in the ongoing Eolas patent saga, in which Microsoft stands to lose $565 million.

Judicial reform is also on the agenda; Microsoft suggests that a single dedicated Federal district level court be established to hear and review all patent cases and provide more consistent outcomes. The company would also like to see a definition that measures "willful infringement" and caps excessive damages.

Other potential reforms include halting the diversion of funds to the USPTO from the United States Congress, "harmonizing" patents laws internationally and a "first-to-file" system in place of today's "first-to-invent" system. A "first-to-file" system is more commonly used worldwide. Several of these ideas have been debated by legal experts over the past several years.

Redmond is soliciting help from IT industry associations, the US Chamber of Commerce and the National Manufacturers Association to form a unified front promoting patent law reform.