Why the patents system needs a revamp

Lack of a universal patent system to protect intellectual property leaves innovating companies open to potentially ruinous infringements

When British inventor James Dyson won £4 million in damages from Hoover, a rival vacuum cleaner manufacturer, for infringing one of his company’s patents, he saw the risk of losing the case, had his firm been smaller.

Mr Dyson – he had yet to be knighted – explained that high costs and an effective bias towards infringers meant many small UK companies felt unable to seek redress over stolen intellectual property (IP). He said that only about 18 per cent of legal disputes were won by rights holders and called on the government to simplify the system.

You see people struggling to get their patents in the US because the system is so different

“Patents are expensive to file in the first place. Then you’ve got renewal fees; there’s no other walk of life where you lose your rights on your work of art if you fail to ‘renew’ it. And then the costs of actually fighting a case are out of this world,” he said.

Still no worldwide solution for patents

More than a decade on, and gripes and grumbles remain about the patent system, which is still the only legal route available to firms that want to protect their ideas. This is no more so than in engineering, where companies file countless patents in multiple sub-sectors, from aerospace to software design, telecoms to architecture, and rely heavily on the system to license essential technologies from each other.

One of the biggest challenges they face is in protecting their IP in multiple jurisdictions around the world, which is an important requirement in an evermore globalised world. According to the World Intellectual Property Association, there is no one single patent that covers IP worldwide, and there are at least six different regional patent offices and many more which are country specific, only protecting rights in one specific country or region.

Mario Bitter, head of IP at Siemens, says there has been a huge push for harmonisation throughout the European Union, but a fully international system is still a long way off.  The issue is this can leave you exposed to legal and financial risks as you seek to expand internationally.

“If you write a patent application and you get it in Europe, but you don’t get it in Japan, then it could have serious repercussions on your business in Japan. It happens quite frequently. You see people struggling to get their patents in the US because the system is so different,” he says.

Costs associated with patents penalise smaller companies

This feeds into wider concerns about cost which are less an issue for big firms than for small and medium-sized enterprises. Patent applications by their nature are complex documents that can run to hundreds of pages long and it can be difficult to know what IP is owned by rivals, particularly when they hold hundreds of patent applications.

James Leach, partner at IP law firm Mewburn Ellis, says: “These documents are very large for a reason. They take expertise to write and expertise to unpick. You generally need a patent attorney to understand a patent. Seeking expert advice from a patent attorney costs money and big firms are often better placed to pay these costs compared with small firms.”

So the system tends to favour larger firms with more resources. IBM, for example, spends billions of dollars a year on research and development, and employs more than 300 dedicated patent attorneys, an outlay most small firms could only dream of.

Big companies can afford to buy smaller firms’ IP

Such firepower not only helps firms protect their inventions, it also enables them to license essential technologies from rivals through a royalty system, which is key in areas such as telecoms.

“It enables those types of companies to build on an existing platform for the benefit of their consumers,” says John Brunner, partner at Carpmaels & Ransford. “Most of the technology in today’s mobile phones exists because of this cross-licensing, otherwise you would end up with devices with very narrow types of functionality.”

Again this leaves smaller firms and startups at a disadvantage because they are less likely to own their own IP and must buy it, often at prohibitive costs. In 2012, Google bought telecoms firm Motorola for $12.5 billion to obtain its patent portfolio, for instance. It kept hold of the patents, but sold the rest of the Motorola assets to Lenovo just two years later for under $3 billion, along with the right to license the patents from Google, calling the deal “a success”.

“That’s why you don’t often see new handset companies. When Apple started making phones, it needed to buy a load of intellectual property, but it could afford it,” says Mr Brunner.

Making patents simpler would bring greater fairness and lower costs

Experts say making the system less complex and improving international alignment would bring down the costs and allow a wider range of companies to benefit from protection. However, the system is likely to continue struggling to keep up with the latest innovations in rapidly changing sectors such as software.

There is a common misconception that software cannot be protected by law, when in fact patents are now available in many countries. But cutting-edge inventions in sectors such as blockchain or artificial intelligence remain a grey area; a pattern sure to continue as new discoveries are made.

It has led the biggest names in Silicon Valley, including Google, Amazon and Microsoft, to open up their patent portfolios for others to use and build upon. This will help drive the whole sector forward by improving collaboration, widening the available talent pool and creating economies of scale, or so the argument goes.

Is it better to reform patents than throw them out altogether

Electric carmaker Tesla boss Elon Musk has gone as far as saying he avoids patents wherever possible, describing them as “intellectual property land mines” that inhibit progress. But while the system may be imperfect, others say it needs improvements around the edges rather than radical reform.

“When you look into the history of the system, you realise there have been many changes,” says Siemens’ Mr Bitter. “Currently, because change is so fast, people don’t have trust in it. However, I have seen the pendulum reach near equilibrium and I am certain it will with computer technologies.”

Mr Leach at Mewburn Ellis concurs, arguing there simply isn’t a better means of protecting innovation available. “It is an imperfect system, and it could be implemented better and in a more cost-effective way. But it does do an important job. If we want a system that protects technological innovation, then we will always need some way of legally defining inventions. It is difficult to see how such a system could work without the involvement of experts and the associated costs that go with that,” he concludes.