Build a better mousetrap, the saying goes, and the world will beat a path to your door. That is, unless you fall prey to a patent troll – a firm that stockpiles patents and tries to shake down would-be innovators. If that happens, you could be tied up in court for years, fending off accusations that your shiny new solar-powered rodent catcher infringes on someone else’s proprietary technology.
Welcome to the world of intellectual property (IP) litigation, a high-stakes game in which inventors square off against deep-pocketed competitors, and companies that don’t actually create anything have the power to shut down promising start-ups.
Internationally, the battle over intellectual property resembles a new kind of arms race, with patents as the principal form of ammunition. Particularly in the information technology sector, companies are looking to shore up their defences by amassing large numbers of patents.
As companies rush to protect their IP, the total number of annual patent applications worldwide has soared – up almost 60 per cent between 1998 and 2008, according to the World Intellectual Property Organization in Geneva. This rising tide of applications has made it difficult for patent offices to distinguish between significant innovations and less important advances. Poor quality patents can slow innovation by encouraging frivolous lawsuits and forcing innovative firms to negotiate expensive licensing agreements before bringing a new product to market.
The escalation in the number of poor quality patents should concern both Canadian businesses and government. Smaller firms in particular face a thicket of litigation by competitors and “non-practising entities” – the polite term for patent trolls. (A recent study by three Boston University researchers found that patent trolls have cost publicly traded companies an average of $83-billion annually over the past four years, more than a quarter of all U.S. industrial research and development spending during that period.)
To spur innovation and economic growth, Canada needs an intellectual property framework that fairly balances the rights of creators, consumers and society as a whole. In addition to passing a new copyright bill, the federal government should undertake a comprehensive IP policy review to address barriers that hinder opportunities for companies and inventors. Such a review, says the Canadian International Council, should examine “how much of an obstacle our corporations face when obtaining licences from Canadian patent holders, and the extent to which this barrier impedes innovation and growth.”
Of equal importance is the need to improve the quality of patents issued in Canada and internationally. By some estimates, close to a third of all new U.S. patents are of questionable quality, often because the invention claimed is not new or because the patent is vague or overly broad. One way to address this is to make it easier for third parties to challenge these applications without resorting to litigation.
At the same time, it’s vital to speed up the patent application process. Obtaining a patent now takes as many as three years in Canada, 3½ years in the U.S. and a decade in Europe. As the CIC points out, “Such delays hurt innovation, particularly in the informative-technology sector, where the commercial value of a patent may last only a year or two.”
The U.S. Congress and the Obama administration took a step in the right direction last month by approving increased funding for the federal patent office to reduce the backlog of 1.3 million patents pending. The measure “will give entrepreneurs the protection and the confidence they need to attract investment to grow their businesses and to hire new workers,” the President said on signing the bill. The Canadian government should consider similar action.
Canadian companies have to become much more vigilant about protecting their intellectual property. Smaller firms in particular need better training in IP management. A 2007 study for Industry Canada found that 42 per cent of small and medium-sized companies in Canada were unfamiliar with the term intellectual property, and that four out of five could not name an organization in Canada responsible for IP protection.
Our prosperity depends heavily on our abundance of natural resources, but we need to focus more on an asset that’s equally important to our economic future: our intellectual property.
John Manley is president and CEO of the Canadian Council of Chief Executives.