The monopoly factory: want to fix the economy? Start by fixing the Patent Office

Washington Monthly, June, 2005 by Zachary Roth

But if Martin is right, the consequences could be disastrous. If investors lost confidence in the status of patents as reliable assets, it's not just big patent-holding corporations that would take a hit. Using figures from the Standard &Poor, Martin calculates that intellectual Property accounts for around $410 billion of market value. Around 50 percent of litigated patents are invalidated or altered by the courts, according to most measures. That means, says Martin, that "somewhere in the neighborhood of 7-10 percent of the total tradable market,"--around $200 billion--"doesn't exist. Not 'is overvalued.' It doesn't exist. So what you're left with is a bubble that is preserved for maintaining a selective ignorance. And that selective ignorance is something that will come back ultimately and haunt the market in some remarkable ways."-Z.R.

RELATED ARTICLE: Patent troll menace.

In the late 1990's, Brandon Shalton, a software developer, innovator, and long-time web enthusiast from Austin, Texas, developed a technology that allowed a user to pick up a telephone and record a message of up to five minutes length. Within 30 seconds, the message would be digitized into streaming audio format, so that it could be played back online. Fledgling web companies to whom Shalton pitched the technology were intrigued. But they were hesitant to pay for it, and, when the Internet bubble burst in April 2000, Shalton was forced to give up on the project.

Two years later, Shalton had a chance conversation with a friend who was about to become a nun. "She was aware of my technology," Shalton recounts in his genial Texas twang. "And she said 'hey listen, churches have money--they're not rich but they have a budget--and pastors love to talk ... Why not take your technology and apply it to churches? It's a perfect niche.'"

So Shalton created SpokenMessages.com. He recruited a group of nuns to sell the idea to local religious institutions, and, in the summer of 2003, began testing the service at 20 area churches. The response from pastors was overwhelming. "They loved it," says Shalton. "They said 'this is the greatest thing,' because it [gave them] an easy way of updating their website with their voice." Shalton was ready to go live with his service a month or two later, when he stumbled upon a news article reporting that a company called Acacia Research Corporation, based in Newport Beach, Calif., held a patent that, it claimed, gave it the rights to any streaming audio or video technology over the web. But after reading Acacia's patent and learning about its aggressive tactics, Shalton believed that Acacia's claims were bogus--its "invention" was far from novel: "I've been on the Internet since '89, and I've been downloading audio and video tapes from bulletin boards prior to that," he says. "So I knew that there was prior art [examples of earlier uses of the technology]."

Still, neither Shalton nor his team of sales-nuns had anything like the kind of money needed to challenge the patent in court. In addition, Shalton was concerned that if Acacia chose to come after SpokenMessages.com, it wouldn't be just him that would be held liable--it would be the churches themselves, as the ultimate users of the service. "That was something I did not want to be causing for other people," he says. So Shalton shut down the site. "I had a meeting with the sisters and I told them what I was doing, and they agreed." And just like that, an innovative, commercially-viable operation, nurtured by an honest, creative, risk-taking entrepreneur--in short, just the kind of project that a well-functioning patent system should encourage and protect--was stopped in its tracks.