Google/Android Patent Wars Highlight Need for Compulsory Licensing of Patents

The romantic notion of an individual inventor is not appropriate for industries like the computer, software or mobile phone markets, where collaboration and adherence to standards are key to success.
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The announcement this morning that Google wants to spend $12.5 billion to acquire Motorola Mobile -- for its patent portfolio, is just the latest evidence the patent system is not working. The issue that Google is struggling with is a common one. Some complex products, like mobile phones, computers or software, involve a lot of patentable technology.

When there are hundreds or even thousands of patents in a product, there is almost no chance that anyone can make and sell the product without infringing patents from third parties. Part of the problem is the "quality" issue -- the tendency of the USPTO and other patent office to grant patents that never should have been granted in the first place, because the concepts are old, or the innovation was so predictable that it did not meet legal standards for patents. But this is not the whole problem. Even if you could get rid of all of the poor quality patents, there will be cases where one small invention can block a much larger, and socially valuable product.

Many who are appalled at the current patent wars over mobile telecommunication devices see the patent system itself as outdated and nonredeemable. They may be right. But before getting rid of patents altogether --- a very difficult and unlikely strategy for reformers -- it makes sense to look at other reforms, which challenge the exclusive rights of patents, while allowing patent owners to benefit from reasonable royalties when their inventions are used.

Most countries outside of the United States have compulsory licensing statutes that can be used to force patent owners to license patents on reasonable grounds. The United States also has laws that can be used for compulsory licensing of patents, but the laws are not designed to deal with our current problems.

In 1917, the US government forced the Wright Brothers and other holders of key aircraft patents to form the Manufacturer's Aircraft Association (MAA), a patent pool that allowed more than 60 firms to manufacture airplanes, without fear of patent litigation. This patent pool focused the attention of airplane manufacturers on the quality of their aircraft, not the skills of their patent lawyers. Later, the US pushed to force greater access to patents on radios. In the 1950s, the U.S. forced compulsory licensing of thousands of patents in a wide range of fields. The U.S. government set up a special compulsory licensing statue for nuclear energy -- so investors would not be threatened by patent litigation after sinking millions into new power plants. In the 1970s, the clean air act came with a compulsory licensing statute, so that no one would have a legal monopoly on technologies related to government mandated clean air standards.

The romantic notion of an individual inventor is not appropriate for industries like the computer, software or mobile phone markets, where collaboration and adherence to standards are key to success. What is needed is a 21st century approach to compulsory licensing of patents, that facilitates voluntary licensing, and provides reasonable and fair rewards to patent owners, without becoming a tool for anti-consumer and anti-innovation cartels and monopolies.

One simple proposal for reform would be to provide for a liability rule approach, where firms retain the freedom to operate, when they pay into a fund to reward patent owners. For example, for consumer electronics, a firm could make any product it wanted, so long as they paid 6 to 10 percent of their revenues into a patent royalty fund. The money from the patent fund could be divided among the competing patent owners, by an independent arbitrator. That would speed up product development cycles - a lot.

There are other types of reforms to be considered also. But they all go way beyond the pathetically unambitious "patent reform" legislation Congress is considering.

(For an example of a very different type of reform, for new drugs and vaccines, see this discussion of S. 1137 and S.1138).

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