Protect your intellectual property

PRESS DEMOCRAT: Lawsuits over U.S. patents have doubled in the past 10 years. What's driving the trend?

SHERMAN: A couple of factors. The last 10 years saw tremendous growth in telecommunications, computers and biotechnology, micro-electronics and related fields. The absolute number of patents grew tremendously. For example, 10 years ago, roughly 2,400 patents issued per week. Currently, about 3,600 U.S. patents issue per week. Of the more than 7 million U.S. utility patents granted since 1790, roughly 1.6 million were issued in the last 10 years.

Second, patent litigation is economically driven. A patent is a right to exclude competitors, so it is one of the few forms of legal monopolies that exist. When a patent controls a market worth $10 million to $100 million or more, it is worth spending a few million on legal fees to enforce a patent, to protect the monopoly, or to gamble a few million on the chance that it can be broken.

A third factor is the boom and bust cycle of technology. Great growth followed by contraction tends to inspire lawsuits to protect market share.

PRESS DEMOCRAT: How do patent disputes affect consumers?

SHERMAN: In the short term, it depends on who prevails. If the alleged infringer prevails, then consumers are likely to benefit from the availability of more products and lower prices. Until recently, if the patent owner prevailed, it was almost certain that on top of getting monetary damages, they would also be able to stop the competitor from using their technology. The result is less choice for the consumer and higher prices.

However, a recent Supreme Court ruling allows some losing defendants to continue to sell the contested products, and just pay the patent owner a royalty. This ruling, if not changed substantially by pending legislation, would give consumers more choices and lead to lower royalty rates being passed on to the consumer.

In the longer term, consumers ultimately benefit from a strong patent system that rewards innovation, as this encourages investments in new and risky technology. Risk-taking innovation ultimately provides consumers with better and innovative products. A weak or ineffective patent system favors established companies that generally tend to make only incremental improvements that are less risky. Strong patent protection is less important to established companies as their reputation and strong distribution systems tends to stabilize their market share when the general level of innovation is low.

A strong patent system fosters a high motivation to make breakthrough improvements and true innovations, which bring consumers the greatest long-term benefits.

PRESS DEMOCRAT: Sonoma County's telecommunications and biotechnology companies depend on patents for their success. What are some of the other local businesses that rely on patents?

SHERMAN: As an amateur winemaker, I especially enjoy helping local companies protect innovative equipment used in viticulture and winemaking. Occasionally, I work with local building contractors and entrepreneurs who develop improved tools and hardware for building and public works construction. Independent and small software developers are also increasingly seeking patent protection.

PRESS DEMOCRAT: How can companies and individual inventors protect their ideas?

SHERMAN: A common mistake made by many inventors is failing to document their concepts and eventual implementation in a bound journal. Each new entry in the journal should be signed and dated by the inventor and a witness. It may be necessary to produce portions of the journal to obtain the patent as well as defend it.

Another common mistake is not working with a patent attorney early enough in the development cycle. This will help ensure that non-disclosure and joint development agreements are appropriately used with potential suppliers, fabricators and/or customers. Unfortunately, patent law is very complicated, making it easy to overlook activities that might prevent issuance of a patent. For example, the first public disclosure, knowledge or use an invention, as well most attempts at commercial transactions involving the invention, start the clock on a 1-year deadline or grace period for filing a U.S. patent application.

Furthermore, clients interested in non-U.S. patent rights must recognize that most countries do not have any grace period. For these clients, the U.S. patent application needs to be filed before any disclosure.

PRESS DEMOCRAT: Congress and the Bush administration are considering changes in the patent system to encourage innovation. What steps would you recommend?

SHERMAN: Competing drafts of a Patent Act of 2007 are currently being debated and reworked in the House and Senate. Many of the proposed changes have more to do with the cost and available remedies in patent litigation, and less to do with the process of obtaining patents. Thus, I doubt any of the proposed changes in the patent laws will actually encourage innovation.

Many provisions seek to harmonize our patent laws with the rest of the world, notably the change from a "first to invent" to a "first to file" system. I don't think this change will be good for most businesses. First, it would probably eliminate the one-year grace period (from the first public disclosure or offer for sale) that a business has to decide if they want to apply for a patent. The grace period gives smaller companies time to evaluate whether inventions have sufficient commercial value to justify the expense of a patent application.

One positive potential change would be an opposition period after a patent application publishes. This would allow a challenge to patents before they are issued by the U.S. Patent and Trademark Office. Although this will favor larger companies that can afford to routinely challenge competitive patents, I think it will ultimately result in stronger and better patents being issued and minimize more costly litigation. This process works reasonably well in the European Patent Office and exists in our federal trademark registration process.

PRESS DEMOCRAT: The Supreme Court has been showing more interest in patent disputes. How have the court's recent rulings changed the patent environment?

SHERMAN: One of the biggest recent changes is the lack of certainty concerning the remedies available when the patent owner prevails in litigation. It is no longer certain that prevailing in the lawsuit means they will be able to stop the infringer from continuing to use the technology. Now, the prospect of an alternative forced royalty lowers the risk of infringing a questionable patent.

Another very recent case has given patent examiners broader authority to reject patents on the grounds that the invention is obvious. This ruling is likely to make it more difficult and costly to obtain patents, requiring more skill and care in preparing patent applications. We can expect to see even more patent litigation as a result of this ruling.

This interview was conducted via e-mail by Staff Writer Steve Hart, who can be reached at 521-5205 or steve.hart@pressdemocrat.com.