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Gaming a Dysfunctional System: Winning the Battle but Losing the War


While perusing a recent copy of Intellectual Asset Management (IAM) Magazine, a high-end publication aimed at corporate IP managers with a similarly high-end annual subscription rate, I came across an article that mathematically illustrated counter assertion strategies using the wireless patent wars as its model.  (Note: I am not a subscriber to IAM, but was sent a copy so a salesman could pitch me on a subscription.  My guess is that after this blog post, I will be removed from their marketing list.)  The article was written by Art Monk, a VP at UBM TechInsights, an IP consulting firm that specializes in helping its clients maximize the value of their IP portfolios if they are willing and able to pay the price.

Although the findings of the study were not surprising to anyone who follows the patent system and the patent wars reasonably closely (the study basically concluded that the higher market share you have, the higher number of patents you must have to defend yourself because you have more to lose), the “action plan” at the end of the article caught my eye.  It was a set of seven bullet points advising corporate IP managers on assertion and counter-assertion strategies, and it was surprisingly frank in delivering its particularly cynical advice to them.

Below, I’ve taken some of the more egregious recommendations and translated them from patent-ese into English so you can understand what’s really being said.

Undoubtedly, this advice is solid if your goal is to game the current system to your advantage–and to the advantage of Mr. Monk, his fellow employees, and the children they all want to put through college.

Provided you are compelled (or resolved) to play the patent game, the advice is not bad.  But who wins, if everyone plays this game?  Not consumers, whose will face higher prices to account for the costs of legal gamesmanship.   The winners will be a handful of companies who come out on top in the legal arms race, and the arms vendors – the thousands of “IP maximization consultants,” attorneys, and speculators who benefit from the churn and chaos of the system.

The objective, and constitutional purpose of patents is utilitarian. (The Constitution allows Congress to grant temporary monopolies “to promote the Progress of Science and the useful Arts.”)  It is to encourage the production and disclosure of inventions and innovations.  In other words, the patent system gives temporary exclusive rights to an invention to incentivize the creation and dissemination of innovation in general.  It does not stem from natural law or rights and if it isn’t working it should be fixed.

In the software and Internet industries, the patent system has become divorced from its original purpose.  Innovators are actually advised to avoid researching patents [see page 81] (in order to avoid accusations of wilful infringement and, as a result, liability for treble damages).  There are simply too many patents, many of which are obscure, abstract and immaterial.  (In an analysis of recent trends in software patenting, James Bessen finds that, since 1999, the rate of software patenting has increased dramatically, and the likelihood that these patents will be involved in litigation is three times greater than the average patent–largely due to the unclear nature of the boundaries of software patents). The cost benefit analysis simply does not add up.  In the software space, patents are usually ignored until they are asserted.

As far as incentivizing innovation, empirical research doesn’t support that either.  An exhaustive survey and subsequent analysis conducted by some of the top patent scholars in the country (including the current chief economist of the PTO, Stuart Graham) found that patents are perceived to have little or no effect on innovation by executives and entrepreneurs in the software and Internet industries.  NPR’s expose on the patent wars also makes this point:

That same afternoon, we talked to a half dozen different software engineers. All of them hated the patent system, and half of them had patents in their names that they felt shouldn’t have been granted. In polls, as many as 80 percent of software engineers say the patent system actually hinders innovation. It doesn’t encourage them to come up with new ideas and create new products. It actually gets in their way.

Many patents are so broad, engineers say, that everyone’s guilty of infringement. This causes huge problems for almost anyone trying to start or grow a business on the Internet.

“We’re at a point in the state of intellectual property where existing patents probably cover every behavior that’s happening on the Internet or our mobile phones today,” says Chris Sacca, the venture capitalist. “[T]he average Silicon Valley start-up or even medium sized company, no matter how truly innovative they are, I have no doubt that aspects of what they’re doing violate patents right now. And that’s what’s fundamentally broken about this system right now.”

“IP professionals” have no interest seeing the forest for the trees–and are reluctant to admit that the way the game is played now is divorced from the purpose for which the system was created.  As Upton Sinclair astutely pointed out nearly 80 years ago: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”  Or, to offer another analogy, when you are a paid mercenary, you don’t question the underlying war.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.