The Patent System: Fix What’s Broken, Don’t Break What’s Working

Earlier today, I participated in an event on Capitol Hill about the U.S. patent system and software patents sponsored by BSA│The Software Alliance and the National Association of Manufacturers. Panelists included representatives of tech companies, manufacturers, and start-ups, and it was interesting to see the extent to which all of us innovate in software and rely on the patent system to incentivize and protect those innovations.  This is not surprising: we live in a digital world. Many things that used to be done mechanically or via hardware – such as throttle control systems – are now implemented in software. 

Recent studies from the Department of Commerce and the Brookings Institution show that patents drive job creation, productivity, and economic growth today.  Given the benefits of the patent system, it is important to ensure that it functions well. As I mentioned in my remarks today, there is no question that the U.S. patent system has tremendous strengths but also significant weaknesses. All of us – private companies, the USPTO, Congress and the courts – share responsibility for taking steps to improve the operation of the patent system. From Microsoft’s perspective, the key opportunities relate to increasing transparency, curbing litigation abuse, and improving patent quality.  Specific reforms we support include:

Transparency. One of the main functions of patents is to provide notice both of the invention and who owns it.  Disclosure of the real party in interest for a particular patent reduces the likelihood of opportunistic behavior and gamesmanship, helping to facilitate licensing.  Microsoft is committed to transparency. We pledge that by April 1 of this year, we will publish on the web information that enables anyone to determine which patents we own.  We hope other industry leaders will follow suit. With transparency, we can help bring additional sunlight to the patent system.

Standards-Essential Patents.  One of the main areas of abuse we see today is companies that seek injunctions on standards-essential patents (SEPs) that they have pledged to license on reasonable and non-discriminatory (RAND) terms. In February of last year, we pledged never to do this.  We call upon others in the industry to join us.  Stopping SEPs-abuse will curb one of the major misuses of software patents.

Loser Pays. Much frivolous litigation is driven by patent assertion entities (PAEs) – companies that lie in wait, exploiting the lack of transparency in the patent system to “hold up” others. As PAEs do not make products of their own and obtain litigation financing from third parties, they often face no disincentive to filing suit.  A technology-neutral “loser pays” system for patent cases would force companies to internalize the strength of their case beforehand, deterring frivolous litigation.

Improved Patent Quality. The USPTO has been taking steps to improve patent quality, but more can be done.   USPTO examiners need expanded access to prior art and more time to examine each application, allowing them to compare the claims to the specification to ensure a patent’s scope reflects what has actually been invented. Applicants should use standard terms in their claims where they exist, and define non-standard terms when they do not. Together, these steps will help avoid overbroad patents and clarify the metes and bounds of the patent grant.

We should fix what is broken but not break what is working. Importantly, a well-functioning secondary market in patents fosters innovation by enabling companies to access to the IP they need to bring new products and services to market, while at the same time fairly compensating inventors and preserving incentives for further innovation. Consumers benefit, too, both from the availability of new products and services and from the avoidance, through licensing agreements between responsible companies, of conflicts that can disrupt the dissemination of technology and distribution of products. Iconic inventors such as Thomas Edison and Nikola Tesla engaged in the sale and licensing of inventions they created but did not practice themselves, and today’s individual inventors and start-ups stand in their shoes. Indeed, on today’s panel, the CEO of Covia Labs mentioned the importance of patents to start-ups as they form the foundation for venture capital funding. 

By improving this engine of innovation, together we can help ensure that the patent system continues to support America’s position as a global high tech leader.

About the Author

General Counsel & Executive Vice President, Legal and Corporate Affairs, Microsoft

Brad Smith is Microsoft's General Counsel and Executive Vice President of Legal and Corporate Affairs. He leads the company's Department of Legal and Corporate Affairs (LCA), which has approximately 1,100 employees located in 55 countries. Mr. Smith is responsible for the company's legal work, its intellectual property portfolio and patent licensing business as well as its government affairs and philanthropic work. He also serves as Microsoft's corporate secretary and its chief compliance officer. Mr. Smith currently co-chairs the board of directors of Kids in Need of Defense (KIND) and is the chair-elect of the Leadership Council on Legal Diversity. In Washington state, Mr. Smith has served as chair of the Washington Roundtable, a leading Washington state-based business organization, and he has advanced several statewide education initiatives.