Patent leather: is the U.S. patent system giving small business the cold shoulder?

Entrepreneur, April, 1996

The u.s. Patent Office thrives on the perception that patents are an entrepreneur's secret weapon. Recently, this perception has snowballed into a sort of patent paranoia: These days, inventors seem to think the all-important patent is the only thing standing between them and the big bad wolves out to steal their precious ideas.

Yet some experts believe the so-called protection provided by the government's patent system is all a guise--that the system is actually anti-small business, serving more to protect the needs of monolithic, big- business patent holders than of entrepreneurs slaving to bring innovations to market.

Apparently, the turning point in this transfer of power can be traced back to 1982, when Congress established a centralized federal court of appeals for patent cases. The motivation seemed simple: "There were profound differences in interpretations of patent law--some circuits were considered a Death Valley for patent holders, while others were very pro- patent," says Josh Lerner, assistant professor of business administration at Harvard Business School. "That led to all types of inconsistencies in the law."

While Lerner believes establishment of the court was not intended to shift the scales between patent holders and patent seekers, it has, in practice, done just that. Under the old system, roughly one in three cases was found in favor of the patent holder; today, that ratio has risen to two in three cases. Inspired by the court's pro-patent orientation, some established companies are clutching on to their old patents while threatening younger, smaller firms with patent litigation. This, Lerner contends, has created an environment in which large companies can "basically shut down their opponents."

The new system "hinders the very companies that are developing technology for the next generation," claims Roger Borovoy, patent attorney with Fish & Richardson in Menlo Park, California. "The federal circuit is so pro- patent, it's willing to [interpret patent claims broadly for] old, stuffy, dead inventions that no longer have significance. Having to spend time defending lawsuits from fat-cat companies that are taking advantage of a misshapen court system hurts [entrepreneurs'] ability to get their products on the market. It inhibits innovation instead of encouraging it, which is what the system was designed to do."

Some signs indicate hope for equity: The patent quandary has crossed the desks of the president and Congress via the White House Conference on Small Business report, and Borovoy believes the court may slowly be moving in the direction of a more balanced federal circuit.

However, Lerner remarks that small-business advocates have remained curiously quiet on the controversy. "The people who are lobbying in the name of small, independent inventors have been really pursuing their own agenda," he says. "Truth be told, small inventors would benefit from a simpler, more standardized procedure for filing and signing patent awards. Yet all these purported advocates for small inventors [are serving to keep] the U.S. patent system complicated, arcane and idiosyncratic."

Perceiving a "need for a coherent response," Lerner believes entrepreneurs should push their own organizations and associations to "move this issue up the agenda."

Whether or not any agendas change, Borovoy argues that entrepreneurs should focus less on patents and more on being competitive. "The guy who gets to the market first is the one who wins," he says. "That's the way you make money, not by patenting."