Can This Legal Heavyweight Remake Our Broken Patent System ...

When Richard Posner dismissed the dueling lawsuits between Apple (Nasdaq: AAPL??) and Motorola Mobility (now a Google (Nasdaq: GOOG??) subsidiary), it was hardly his first turn in the national spotlight. The esteemed judge of the Seventh Circuit?s Court of Appeals has been named the most cited legal scholar of the 20th century, and The Washington Post says that he?d be a lock for Supreme Court duty if he wasn?t so darn controversial.

So nobody?s surprised when this legal scholar takes the podium to stretch the Apple-Motorola spotlight a bit further. But his ideas are definitely worthy of some watercooler talk.

A battle report from Captain Obvious?
Penning an op-ed for The Atlantic, Posner ponders why there are too many patents in America.
Why are patents of arguably no value to society or the industries that spawned them allowed to clog up the approval system? The worthless bulk then delays more worthy patent applications, often until they, too, lose their relevance and worth.

Questionable patents are worse than merely worthless, in Posner?s eyes: ?The cost of patenting and the cost of resolving disputes that may arise when competitors have patents are a social waste.?

The current system is a drag on innovation across nearly any industry you?d care to mention, Posner says, with the notable exception of prescription drugs. There, it takes massive investments of time, money, and risk to develop and test new drugs while the actual production of said drugs is cheap. Here, patent protection is absolutely necessary to give pharma companies an incentive to develop new products. But that?s an exception to the rule.

?Most industries could get along fine without patent protection,? Posner contends. More often than not, ?the cost of invention is low; or just being first confers a durable competitive advantage because consumers associate the inventing company?s brand name with the product itself; or just being first gives the first company in the market a head start in reducing its costs as it becomes more experienced at producing and marketing the product; or the product will be superseded soon anyway, so there?s no point to a patent monopoly that will last 20 years.?

This barb seems pointed right at fast-moving markets where innovation is fast and furious, like the hardware and software that go into today?s consumer electronics. By the time a new invention makes it through the three-year approval process, chances are that competitors have already copied your idea or just developed it on their own anyway. Then you have a rubber-stamped patent (still subject to expensive challenges) covering what everyone is treating as common knowledge and obvious ideas already. When the lawsuits start flying, the products they address are already ancient history.

How to fix a broken system
Posner offers up several ideas on how to improve this sorry state of affairs:

• Reduce patent terms for industries that don?t match the pharma profile.
• Make licensing of patented inventions compulsory, like the ?mechanical license? you?d need to publish a cover song.
• Leave jury trials out of the patent system, replacing them with specialist panels from the Patent and Trademark Office.
• Require inventors to make and/or sell something based on their patents, thus removing patent trolls from the equation.
• Give federal judges special training on how to handle patent cases.

?There appear to be serious problems with our patent system, but almost certainly effective solutions as well,? Posner concludes. ?Both the problems and the possible solutions merit greater attention than they are receiving.?

Did I mention that Posner is controversial?
I?d imagine that Posner?s article doesn?t sit well with companies that rely on patent lawsuits for their very survival. Somewhere in Seattle, Nathan Myhrvold is probably throwing lawn darts at pictures of Posner. Rambus (Nasdaq: RMBS??) and VirnetX (AMEX: VHC) shareholders pray that the ?make something? idea never bears fruit: Both companies would quickly lose all their patents unless the whole business was acquired by some hardware builder. And law-school students on the patent track might want to rethink their career choices, given Posner?s imposing stature in the legal field.

Of course, Apple would still be making billions of dollars with or without iPhone patents. Our brand-new premium report on Apple spells out exactly how Apple?s cash machine works. If you want a broader picture of the smartphone revolution, click below to find out why investors are so excited about this exploding trillion-dollar revolution.

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Source: http://www.avidtrader.com/2012/07/can-this-legal-heavyweight-remake-our-broken-patent-system/

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