Friday, May 17, 2013

A patent decision to remember

I learned from that there has been an incredible decision at the Federal Circuit of Appeals concerning patents. In CLS Bank v. Alice Corp., the court issued an en banc ruling, that, if left to stand, will likely wipe out more than 320,000 business method and software patents. This isn't just my own estimate. This is an estimate by one judge who wrote a dissenting opinion attached to the courts decision.

One judge even expressed concern about a "free-fall" in the patent system, that the decision will destroy an enormous amount of wealth in terms of patents. What is interesting to me is that the judge seems to pay no mind to the public domain, to the soil needed for innovation. Losing these patents and more like them, means that business owners won't have to wake up in the middle of the night worrying that they could go bankrupt defending against a troll.

I'm sure the losing party, Alice Corp., has already filed an appeal or is planning to. The question remains as to whether or not the Supreme Court will hear the appeal. Given the breadth and the scope of the decision, it is likely that SCOTUS will hear it. On the other hand, if certiorari is denied,  the SCOTUS could easily let those patents fall.

Patents are a form of regulation. Many conservatives have complained about regulations, but they don't talk much about patents. I never hear them saying that it would be a good idea to severely restrict the number and increase the quality of patents. To compare, if we removed 320,000 patents from the marketplace, that would be like removing a million plus pages of regulations from the market.

These "idea patents" are written in vague, broad language. The language is so broad that the patents offer no specific way to build the invention, providing no effective limit on the enforcement of the patents. The Constitution prohibits vague laws. Why is there an exception for patents?

I wouldn't be surprised to find that many investors who are aware of the ruling are taking short positions on publicly traded companies with a large software and business method patent portfolio. That would include companies like Microsoft, Apple, and Nokia. Patent trolls like Intellectual Ventures and Acacia would become much less of a threat. Most interesting of all is the patent portfolio of MPEG-LA. What will become of them and their threats against VP8 and Ogg? What about patent protections for DVDs and Blu-Ray?

This is one incredible decision that should be allowed to stand. I hope it does.

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