Patents For The People? 

August 2003

by Derek Kerton and Robert R. Kerton

The NTP vs. RIM lawsuit is a recent case of Patent Law missing the mark

In theory, a patent publicizes an invention to encourage others to use it. Where normally, society dislikes monopolies, for new inventions we set aside our reservations and have the government give a legal monopoly (patent) to stimulate (we hope) an increase in the number or inventions, which is generally in the public interest.

Yet in an increasing number of cases, Patent Law is being used against the public interest, and in fact often inhibits the flow of new ideas and inventions to the national market. Patents are being granted on ideas so obvious, their invention would be inevitable, and on ideas so vague they could apply to many future products. This gives an undeserved and counterproductive monopoly to the patent holder (PH). The patent restricts actual "doers" from providing the inventions, thus lowering supply, and increasing prices.

An important current case involving vague and obvious patents concerns Waterloo, Ontario-based Research In Motion (RIM) and NTP Incorporated. NTP, a holding company, applied for and received multiple patents in the mid 1990s for a technology they called "Electronic mail system with RF (radio) communications to mobile processors." NTP is a non-producing company, whose only output (from what our research could determine) is patents and lawsuits. NTP claims to have prototyped a device, but the actual business of bringing useful products to the public never materialized.

Meanwhile, RIM actively and independently developed the Blackberry line of two-way, belt-toted, email devices. Blackberries, the first devices of their type to hit the market, were received with great enthusiasm by professionals-on-the-go and geeks alike, earning the nickname "Crackberries" for their addictiveness. The ability to maintain real-time e-mail connectivity is an imperative for many businesses, and RIM sold about 650,000 of the ~$400 devices and the stock value rocketed.

But trouble was brewing for RIM, in November 2002, a federal jury decided that RIM violated five NTP patents. Earlier this month, U.S. District Judge James R. Spencer ordered RIM to pay $53.7M in damages, interest, and attorneys' fees. In addition to ordering NTP's rich payoff, the judge also ordered an injunction, blocking RIM from selling Blackberries, then immediately stayed the injunction pending RIM's inevitable appeal.

This ruling is counter to the people's interests. RIM produces new ideas and real products; NTP produces patents and lawsuits. Our legal system rewards the latter. Thanks to patent law, the "Brainstorm-Patent-Sue" strategy can be an entire business model. One need only think of ideas that are moderately innovative, but likely in the future, vaguely describe them, apply for patents, wait for a similar product, and sue for infringement. Business risk is avoided, and investment is very low; for a semi-original thinker, this is a fantastic business.

These patent laws motivate "patent stalkers" who behave like ticks, which exert only the effort required to scale a blade of grass, then wait for a deer to pass. RIM could simply be the unlucky deer that happened by first, while the tick parasitically prepares to gorge on blood.  Patent stalkers are not the inventors we should reward.

Through history, the US and Canada have hailed inventors like Thomas Edison and Alexander Graham Bell as national heroes. But besides ingenuity, their greatness is based on productive companies built on their inventions, whose legacies still exist today in Con-Edison, AT&T, and the Baby Bells. Would Bell be such a hero if his words in the first telephone call had been, "Watson. Come here, I need you...ahem... to help me patent this invention and hoard it. We'll sue anyone who tries to build something with it and extract a toll." If either great innovator had not competed furiously to build their business, we would scarcely know their name today.

Patent law was intended to bring improvements to the people. But at some point the system lost focus of that ideal, by rewarding squatters not "doers". Changes are needed to bring Patent Law in line with the ideal:

• Let's stop granting patents on obvious or inevitable inventions.

• Require the patent holder not to be a passive owner, to do something with the patent in a reasonable time frame, or forfeit the monopoly rights.

• Reduce patent durations to only 2 years if the inventor cannot clearly demonstrate "adequate development" of the invention.

Though some will argue that the burden of defining "adequate development of the invention" overwhelms the benefits, there is regulatory precedent. Take wireless telecommunications spectrum licenses for example. Governments sell monopoly rights to carriers, like Verizon Wireless and Telus Mobility, via licenses for certain radio spectrum frequencies. Unless the license holder provides useful services to the public on that spectrum within a set time, they forfeit the spectrum and the billions of dollars spent to acquire the license. The regulatory precedent has been set: use it or lose it - build something or get out of the way.

Could this suit result in the end of RIM Blackberries? Not likely, but RIM's prices may rise if they are forced to pay licensing fees to NTP.  In the Washington Post, Michael Abramsky, a technology analyst at Canaccord Capital said, "the thing about being a parasite is that you don't want to kill your host." Despite that argument, we fear NTP can endure the risk of killing RIM, since Good Technology, Microsoft, Danger, and a variety of other companies are in line for NTP lawsuits.

Wireless e-mail is an invention of the caliber of the windsurfer. Sailboats already existed, surfboards already existed. Some clever person combined the two. Similarly, wireless technology existed, e-mail existed, and a combination of the two was not only obvious - it was inevitable. Should a riskless, productless holding company be rewarded by our legal systems to the tune of hundreds of millions of dollars for the wireless equivalent of "getting your chocolate in my peanut butter?" Do we offer these companies a monopoly to generate fees for vague general ideas? Is it not time to tune up the patent system to reward the doers who actually bring us progress?

Robert R. Kerton is Professor of Economics and Dean of Arts at the University of Waterloo, consumer advocate, and current President of The American Council on Consumer Interests. Derek Kerton is Principal Consultant at The Kerton Group (www.kerton.com) a wireless business consultancy in San Jose, CA. Although both have a geographic connection to RIM, neither (sadly) holds any shares or financial ties to RIM or NTP.