from wired.com: We all know the patent system is broken. 


But most people believe that the biggest problem with it is abusive
litigants who extort so-called “license fees” from small businesses
unable to pay the cost of standing up to them in court. Their
activities, of course, have no more in common with real patent licensing
than a mob protection racket has with the sale of genuine “liability
insurance.”



The unspoken reality is that the U.S. patent system faces an even
bigger problem: a market so constricted by high transaction costs and
legal risks that it excludes the vast majority of small and mid-sized
businesses and prevents literally 95 percent of all patented discoveries
from ever being put to use to create new products and services, new
jobs, and new economic growth.



Even the most dramatic estimates of the
social cost of abusive patent litigation range in the low tens of
billions of dollars. But according to a new study by the distinguished
economists Robert Litan of the Brookings Institution and Hal Singer of
the Progressive Policy Institute—a study I helped to fund—liberating
patent licensing from its litigation-focused costs and risks would
enable tens of thousands of currently-dormant inventions to be
commercialized and conservatively add up to $200 billion a year in
increased output to the U.S. economy. That’s at least ten times bigger
than the litigation problem, and directly impacts job creation.

What Is Broken and How to Fix It 
 
Here’s the challenge in a nutshell: innovation drives the economy,
but much of the new technical knowledge required for such innovation is
contained only in patents. The U.S. patent database is the world’s
largest encyclopedia of technology improvements and technology experts
in the world. Some of that database is directly relevant to the new
products and services that any individual company is working on
improving or creating. But the database is too hard to access. 

Accessing the knowledge and expertise contained in the patent
data-base is not a problem for large Fortune 500 companies. Giant
companies have long recognized the value of the patent database and
spend millions, and in some instances billions, on dedicated teams and
expensive tools to mine the patent database for competitive advantage
and effective legal risk management. But for the vast majority
of smaller and mid-sized businesses that are responsible for the bulk of
U.S. job creation, patents represent not a treasure trove of new
technical knowledge but a growing multi-trillion-dollar database filled
with infringement risk.
 

As a result, most small and mid-sized firms instruct their employees
not to read patents that might help improve their products and services.
This deprives those firms from being able to build on the knowledge
these patents contain and, in turn, help other companies improve their
products and so on. This kind of behavior, though legally prudent,
defeats the patent system’s whole purpose of technological disclosure
and commercialization.

The problem is not just who is excluded from the opportunity to
commercialize patented inventions—i.e., the overwhelming majority of
sub-Fortune 500 firms who are the backbone of the U.S. economy. The
system also makes it all but impossible to commercialize any but the
biggest blockbuster inventions, including the more incremental advances
that are usually the most useful in solving the pressing problems of
daily existence.

In their study, Dr. Litan and Dr. Singer offered a sports analogy to
illustrate how such a constricted patent licensing system harms the
economy:

“It is as if the economy were playing a game of baseball in which
the only hits that counted were home runs by just those players on very
well-financed teams,” they wrote. “In such an economy, vast numbers of
other valuable or ‘run-producing’ innovations—triples, doubles, [or]
singles—generated by many other firms, universities or individual
inventors cannot be economically licensed given the potential risks or
costs of litigation.”

In short, confining the commercialization of invention to the risky
and hugely expensive machinery of our court-centered licensing system is
severely retarding innovation, not promoting it. And in the process,
the patent system itself is losing much of its original democratic
character and popular support.

Patents Were Created to Level the Playing Field

Remember, America’s Founders quite consciously created the first
patent system in the world aimed at the common man, in contrast to the
feudal and elitist patent systems prevailing in Britain and Europe at
the time. The first patent law passed in April of 1790 set patent fees
to a level any ordinary citizen could afford — less than 5 percent of
the rate in Britain. It encouraged large numbers of people, the vast
majority of whom lacked the wealth to build factories and manufacture
products from their patents (now called “non-practicing entities”), to
participate in inventive activity. And in a huge break from European
patent systems of the day, it facilitated the licensing and sale of
patent rights, thereby creating the world’s first market for new
technology.

The low patent fees and ability to license patent rights turned
invention into a new income-earning career path for thousands of poor
but technically creative citizens. And as a result, within 50 years the
U.S. per capita patenting rate reached three times the rate in Britain.
U.S. inventors were also far more prolific than their British
counterparts, creating five times as many patented inventions as Britain
did each year, even though our populations were then roughly equal in
size. By 1885, the U.S. per capita patenting rate was quadruple that of
Britain.

This democratized patent system thus directly stimulated America’s
growth from an economic backwater wholly dependent on imports into the
unrivaled leader of the worldwide Industrial Revolution. In the words of
historians Naomi Lamoreaux of Yale and the late Kenneth Sokoloff of
UCLA: “Observers attributed much of the country’s rapid technological
progress to its distinctive patent system. Quite revolutionary in design
at inception, the U.S. patent system came to be much admired for
providing broad access to property rights in new technological knowledge
and for facilitating trade in patented technologies. These features
attracted the technologically creative, even those who lacked the
capital to directly exploit their inventions.”

If we’re honest with ourselves, we must admit that the patent system
today has lost much of its original democratic character. Sure, anyone
with a good inventive idea (and at least $20,000 for legal and other
fees) can get a patent. But what can you do with that patent? More than
likely, you won’t be able to put it to good use unless you have the
multi-million-dollar resources required to launch a startup, secure a
licensing deal with a big corporation or, if necessary, litigate to stop
an infringer. Those are all unlikely pathways.

How ironic that we live in a democratized technological ecosystem in
which anyone can invent and patent anything, yet it is mostly just the
rich and powerful who can effectively partake of its resources. The
patent system is thus hostage to a costly and exclusionary legal system.

So let’s liberate it. 

My company and I are working to do our part. Soon we’ll be launching
an alternative to today’s litigation-based licensing system, aimed at
small business. Called The United States Patent Utility, it will be
aimed at smaller and mid-sized businesses that need a low-cost way to
mitigate their infringement risk. It will also offer universities and
other smaller patent owners a way to finally earn some revenue from
their inventions. We’re hoping to empower companies, because today
every company, large and small, spanning every sector of our economy
must be able to answer the following foundational questions:

• What relevant technologies and technologists are available to help
  us improve our products and services and improve the way we do our
  business?
• What technologies are our competitors investing in that may show up in future products, services or business practices?
• And what technologies are we using that might inadvertently trespass on someone else’s patent right?

The challenge for the overwhelming number of American companies is
huge, as it is with any new way of doing business. But the need is also
great, because any industry that does all its deals in federal court is
clearly not in good shape. 

source: Wired.com