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Registered patents devalued by outdated IP laws

IP law reform must take account of technological advances if it is to be effective.

Keeping technology in perspective Agsandrew

The recent ruling in the Alice Corp v CLS Bank case highlights some of the key problems with the legal system in relation to intellectual property rights protection in a changing technological landscape. Alice Corp accused CLS Bank of infringing patents relating to computerised trading and the Supreme Court in the US ruled that Alice’s patents were not valid. At appeal, this ruling was reversed, sparking outrage from a third judge who argued that the appeal court violated Supreme Court guidance by allowing a patent on a financial technology that was ‘literally ancient.’

In a final twist, the highest patent court, the Federal Circuit, decided to hear the case as ‘en banc’ (to set legal precedent) and the greatly anticipated ruling ground to a halt when ten judges were split 5-5, meaning that no legal precedent was set and CLS Bank can continue to use the technologies.


Incompatible with technology


This case highlights that the IP laws in place across the globe are not compatible with the technological landscape. This is not surprising when you consider that the laws were never designed with today’s technologies and software in mind. More crucially, the existing laws are highly open to interpretation due to the lack of legal precedent, dividing the courts and creating a ‘stale-mate’ scenario, which inevitably creates a ‘free for all’ in the courts. This sees IP laws and more specifically patent laws and patents themselves, devalued.

There has been growing discontent as patent wars in the mobile technology sector rage on and the current patent system is questioned for its ability to encourage innovation and protect developers. Patent wars are a prime example of patents being used in an unconstructive way, with Google, Apple, Samsung, AOL, Yahoo, Blackberry (RIM) and Motorola all being key players.

A recent case saw a judge question the validity of the patents, for which Apple won a $1bn case vs. Samsung last year. This is just the latest in a string of high profile cases for which large sums of money in royalties of license fees (and very possibly legal fees) have to be paid out to the other party.


Sticking with the pack


Tech companies will fight tooth and nail to ensure a competitor does not break away from the pack and get competitive advantage. As a direct result of this, a lot of the M&A in the technology sector is related to patents – with Google’s $13bn takeover of Motorola being related to a large portfolio of patents.

In a more sinister development, patent trolls take this to the next level, with their business model’s purely being based on making money out of suing companies (82% of which is targeted at companies earning under $100mn a yea according to American Senator Schumer) for using technologies for which they own the patents. This is particularly sinister as the companies’ business models are centred around litigation, and they do not create or sell anything.


This has been recognised as a global issue, with business associations, councils and governments from all over the world collaborating to address the patent system issue, which all met in May at an event hosted by the coalition for Patent Fairness. President Obama has also publicly condemned patent trolls stating they ‘hijack’ peoples’ ideas.

Senator Cornyn has targeted patent trolls with a bill called the Patent Reduction Act which supports victims and puts legislation in place to require the accuser to reveal the substance of the claim and Senator Charles Schumer has introduced a similar bill to decrease the number of infringement cases in court, making it easier for the US Patent and Trademark Office to stop cases reaching the courts through a review process. 


Growing call for reform


There has been a growing call for IP legal reform in the UK, and the Intellectual Property Office has responded with the Intellectual Property Bill, which had its second reading last week. This ‘proposes changes that would help businesses to better understand what is protected under the law, reduce the need for costly litigation, and provide greater certainty for investors in new designs and technologies.’

There has been similar confusion with copyright laws, with a controversial ‘three strikes’ French copyright policy facing being thrown out after a damning report stated it has wasted money and ‘achieved nothing.’

The so-called ‘Instagram Act’ has also been slammed by critics for inverting the Berne convention on copyright by allowing orphan works to be licensed for commercial use and allowing publishers to license images from a collecting society, even if the copyright owner isn’t a member of that society.


A contentious issue


It is clear that IP laws effectiveness in the technological landscape is a contentious issue, and protecting companies’ brands and brand value is right at the heart of this. Companies are notoriously protective of their intellectual property and litigation is often used as a means of safeguarding brand value. It is integral that the legal framework we have in place supports companies and brands, and is relevant to the market in the modern era.

With tensions building regarding the issues relating to the flaws in the current system, modernisation of the laws are necessary. It is important that the reforms are properly considered in the context of technological change – change is necessary but should not be rushed to ensure that patents, trademarks and copyright protection is not devalued, negatively impacting on the companies and brands that rely on them for their protection and future growth. 


Thayne Forbes is joint managing director at independent brand valuation consultancy Intangible Business




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31 May 2013

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