Microsoft Pushes Patent ReformMicrosoft Pushes Patent Reform

A longtime critic of the worldwide patent system, Microsoft on Thursday unveiled a proposal to improve the system's efficiency and lower the risk and cost of patent litigation. The company cautioned that a lack of reform by the U.S. Patent and Trademark Office and corresponding patent offices worldwide would slow the pace of technology innovation, lead to escalating legal costs, and exclude small businesses from the patent process.

"It is too easy for a litigant to manipulate the U.S. system and look to a patent lawsuit as the ultimate lottery ticket, hoping to confuse jurors with technical jargon that will yield the payment of a lifetime," Brad Smith, Microsoft's senior VP and general counsel, said Thursday during an intellectual-property panel in Washington, D.C., hosted by the American Enterprise Institute for Public Policy Research.

The U.S. Patent Office has seen a tripling of patent applications since the 1980s, with more than 350,000 applications now filed each year. Yet this increased patent activity has failed to help resolve legal issues surrounding intellectual property. Recent estimates show that the number of patent lawsuits filed annually in the United States has risen from less than 1,000 in the early 1980s to more than 2,500 today, Smith said.

"The [U.S.] Patent Office has reached a crisis of confidence," says David Kaefer, director of business development for Microsoft's intellectual-property and licensing group. "We're calling for a debate about how to correct the system."

Many of Microsoft's proposed reforms would clearly benefit the company by allowing it to more quickly have its patent applications approved while preventing frivolous lawsuits against the tech giant. But certain elements of Microsoft's proposed reforms seem less self-motivated, such as the suggestion that the cost of patent fees be evaluated.

One of the government's top priorities should be to ensure that the Patent Office has the resources it needs to give every patent application the deliberate, expert review it deserves, Smith said. Another proposed reform would allow interested parties an opportunity to alert the Patent Office to questionable patents while those applications are under review. "Under current law, parties have no effective means to raise such concerns during the examination process," Smith added.

"We have benefited substantially as an industry and a country from patent protection," Smith said. "But the combination of technological change and a globalizing economy are creating new challenges for the U.S. patent system."

Microsoft has significant experience on both sides of the patent issue. The company is among the country's largest investors in research and development, spending more than $7 billion per year. It will file more than 3,000 patent applications with the Patent Office this year alone. On the other hand, Microsoft typically spends close to $100 million annually to defend against an average of 35 to 40 patent lawsuits simultaneously, Smith said.

In a recent example, a federal appeals court earlier this month agreed to give Microsoft a second chance to prove that it did not infringe on a browser-technology patent and that it shouldn't have to pay more than $520 million in damages.

Another proposed reform with potentially more global scope is "international harmonization," which requires increased collaboration among patent offices worldwide, particularly in the United States, the European Union, and Japan. "Both Congress and U.S. industry should support the [U.S. Patent Office's] ongoing efforts to strengthen cooperation and information sharing among national and regional patent offices," Smith said.

The European Union appears to be divided in its views on software patents, an area that affects Microsoft greatly. In February, the EU Parliament dismissed a bill that would have established more liberal rules for awarding software patents. The Parliament also threw out an existing patent directive, paving the way for the entire issue to be examined again from scratch, even as demonstrators took to the streets in Brussels to protest against software patents.

Many supporters of open-source software likewise oppose software patents. Still, Microsoft believes the next step is to drive debate within industry associations, including the Intellectual Property Owners Association and the Business Software Alliance, as well as the open-source community. "They have a lot of strong views on patents," Kaefer says. "You can only improve things when you appreciate everyone's points of view."