Patents in the dock

There are some worrying trends in the use of patents, argues Bill Pechey. But tampering with a law that has survived 500 years requires some very careful thinking

Patents have been around for a long time; the earliest known British example was granted in 1449 for a new way of making stained glass. A patent gives its inventor a monopoly of the invention for a period of time in return for the publication of the idea. Anyone who copies the idea can be prevented from making money out of it and ordered to pay damages.

The basic principles of the patent laws have not changed over those five centuries, which arguably indicates one of the more successful stories in the legal system. But does the law as it stands protect monopolies and cross-licensing agreements to the extent that market entry for smaller companies is hampered significantly?

It is highly likely that almost any new electronic device will infringe one or more patents, for instance, especially if it is built to comply with global standards. Companies will go to great lengths to get their patents incorporated into standards because the licensing income can be substantial. Standards bodies, such as the International Telecommunication Union (ITU), try to avoid problems by requiring members to disclose their patents and agree to license them fairly.

As systems become more complex, the number of patents increases. A GSM mobile phone is covered by hundreds of patents and, even if the licence fee for each one is small, the amount can easily exceed 25 percent of the cost of the handset. The major phone manufacturers are usually the main patent holders and have set up cross-licences between each other, a situation that results in them paying much lower fees than smaller companies which have only a few patents to trade. Therefore, new entrants to the market find it difficult to compete. The situation is likely to get much worse when more complex third-generation (3G) standards emerge.

One solution to the problem is the approach adopted by bodies such as the UMTS Intellectual Property Association. It aims to provide a one-stop shop for patent licences for 3G mobile devices by bringing together licensees and licensers. The benefits would be lower fees for licensees and more revenue for licensers. The IPA has just created a new legal structure called the Third Generation Patent Platform Partnership (3G3P) ­ see the Web address below.

The total licensee fees have been capped at five percent, but many of the major patent holders think this too low and have not signed up. Let's hope that 3G3P can reach an agreement soon or 3G technology will be even more costly.

Another problem is that it is very expensive to challenge the validity of a patent. It is often cheaper to pay up, even if the patent is invalid or not infringed, than to go to court. This situation is being exploited by specialist law firms, which will offer to take a patent and obtain more royalties for its owner. This is a good deal for the patent holder because the lawyers' fees come out of the extra revenue. However, it is not a good deal for the innocent licensees who have to pay up.

It is sad that a law devised 500 years ago to protect the underdog has now had the reverse effect. However, it is not patent law itself that has caused the trouble but the way it is applied. But still, any law that has survived 500 years of daily use should not be changed without extremely careful study.

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