Patented Innovation and Patent Wars: Some Historical Perspective

[This was originally posted at IBM’s A Smarter Planet Blog on January 11, 2013.]

The America Invents Act (AIA) was signed into law in September 2011, and it is rightly recognized as “the most significant reform of the U.S. patent system since 1836.”  The AIA’s provisions are not even fully implemented yet — its ink isn’t even dry, as we used to say in the analog world — but people are calling for more changes and reforms to the patent system.

This push for change is largely due to the widespread belief today that the “patent system is broken,” a trope repeated in many hyperbolic newspaper accounts and blog postings. The din about the “broken patent system” has become so incessant that USPTO Commissioner David Kappos recently stated in a speech at the Center for American Progress, “Give it a rest already. Give the AIA a chance to work. Give it a chance to even get started.”

Director Kappos’ sense of frustration is understandable. One of the primary examples that many people like to identify as Exhibit A of the “broken patent system” is the smart phone war between Apple, Samsung, Microsoft, Google, and many other high-tech firms. Oftentimes, the smart phone war is characterized as merely part of an alleged “patent litigation explosion” that allegedly plagues the high-tech industry. Software patents in particular are now viewed by some commentators as a scourge of innovation.

But much of this public outcry about the “broken patent system” generally, and high-tech patents in particular, suffers from the same lack of context and careful consideration of the facts of which Director Kappos complained.

To take but one small example: despite the news reports on the smart phone war, few people know that patent litigation rates are roughly the same today as they were in the early nineteenth century.

The patent litigation rate today is around 1.5%.  As reported by award-winning economist, Zorina Khan, the average patent litigation rate between 1790 and 1860 was 1.65%.  In fact, for three decades in Khan’s study patent litigation rates were higher than today’s litigation rate. Between 1840 and 1849, for instance, patent litigation rates were 3.6% — more than twice the patent litigation rate today.

Moreover, so-called “patent wars” are nothing new. The first such patent war was the Sewing Machine War of the 1850s, which had all of the same issues as we see today in the smart phone war: numerous overlapping patents covering single products; high-profile lawsuits; expensive litigation; lawsuits in multiple venues; patent-licensing entities obtaining injunctions against manufacturers and entering into licensing agreements; patents sold and traded among firms, etc. It was even called the Sewing Machine War in the newspapers of the day. The patent-owners solved this morass of litigation by inventing a new, innovative business model: a cross-licensing arrangement between all the patent-owners that we now identify as a patent pool. In 1856, it was merely called “the Sewing Machine Combination,” and it operated successfully until its final patent expired in 1877. Today, we’re beginning to see similar types of commercial and legal arrangements in response to the smart phone wars, such as the December 2012 purchase of Kodak’s 1,100 patents by a consortium of firms.

As I also have detailed in my historical research, the Sewing Machine Combination unleashed tremendous technological and commercial innovation, including the first widespread civilian adoption of manufacturing with machine-tooled parts, and the invention of the first rent-to-own and trade-in programs. The result was that the sewing machine industry was fundamental to the success of the Industrial Revolution in the U.S. As is proven time and time again with patented innovation, an invention is merely the first step in a long process of dynamic innovation in both technology and commerce.

The end of the Sewing Machine War in 1856 was not the end of patent wars, as patent litigation continued to occur with each pioneering leap forward in technological innovation — the incandescent light bulb, telephone, automobile, airplane, and radio were all subjects of patent wars. The 1980s were dominated by the diaper wars and the stent wars, which are well known by patent litigators who worked at that time. If cutting-edge innovation in disposable diapers, a multi-billion-dollar industry, could be the subject of intense patenting and extensive litigation, then we shouldn’t be surprised to see it occur again in cutting-edge innovation in smart phones, tablet computers and other digital devices.

In fact, pharmaceutical patents were first accused in the early twentieth century of being plagued by vagueness, uncertainty, and extensive litigation — the same complaints we hear today about the allegedly unique problems with high-tech patents. This is ironic, because today’s critics of high-tech patents acknowledge that pharmaceutical patents are a field in which the patent system works. This just proves that disruptive technological innovation eventually leads to legal certainty and dynamic innovation. One hundred years from now, commentators will likely be pointing to software as one of the few fields in which patents work, and thus criticizing whatever new, unforeseeable, disruptive technology is being patented at that future date.

The point is that understanding historical innovation and even historical patent wars is important. These patent disputes were not resolved by Congress constantly amending the patent statutes year after year, or governmental agencies constantly changing the regulations on competition policy (as the FTC has done recently on “standard essential patents.”) No, these and the many other patent disputes throughout history were resolved by letting the courts do what they do best — resolving the legal disputes by securing valid patents on innovative technology against infringement, and signaling to both patent-owners and market participants that the patent system provides a stable legal framework to support the commercialization of these property rights through sales or licenses.

If there is going to be an end to the smart phone wars, just as there were ends to the previous patent wars, the best thing for Congress and governmental agencies to do right now is to sit back and let the courts do their jobs and let the AIA be implemented. In this way, inventors and patent-owners can continue to innovate in the technology and business models that have long been at the heart of U.S. economic prosperity.