Patent Law Affects You…Really

Jan 06, 2005

By Bill Bittner

As EPCglobal basks in the release of the new “Gen 2” Specification for EPC tags, a storm cloud rises over the successful implementation of a “royalty free” version of EPC technology. The Gen 2 specification describes the transmission formats and data content for EPC tags. It does not cover how the transmission is created. Intermec Corporation in Everett, Wash. makes it clear that they have patents, which they feel cover the hardware that must be used to produce the EPC Signals.

The patent system in the United States has become a government-sanctioned source of legalized monopoly for the companies with the resources to exploit it. In their recent book Innovation and Its Discontents, Adam Jaffe and Josh Lerner outline how the patent system is broken and endangering both innovation and progress. They also offer some potential solutions.

The authors contend the difficulties arise out of two changes in the way patent law is administered. The first change occurred when, in an effort to standardized patent litigation, enforcement was moved to a single specialized appeals court (Court of Appeals for the Federal Circuit or CAFC). This occurred in the early 80’s. In the early 90’s, Congress decided to make the patent office “self funding.” The focus on licensing fees and patents granted as their primary source of income has led to the patent office to grant more and more patents. Many of these patents are issued without the depth of analysis necessary to avoid trivial or non-existent inventions. (In 1997, a patent was granted on the PB&J sandwich.) So, while the new court has stepped up enforcement, the patent office has become more liberal in the issuance of questionable patents.

Most retailers require suppliers to provide some type of confirmation that their products are safe, effective and owned by them. These “letters of indemnification” and “certificates of insurance” insulate the retailer from any lawsuits that may subsequently arise from misrepresentation by the supplier. The retailer is thus protected from complaints associated with merchandise it sells.

The bigger issue is “how does the patent turmoil stifle business process innovation.” The CAFC has opened up a Pandora’s Box through its apparent acceptance of patents on business methods. The classic was when Amazon was granted a patent for their “one click technology” which allowed a user to purchase goods based on previously stored identification information with “just one click of their mouse.” Enforcement of the patent actually stifled the implementation of the Barnes & Noble Web site until the two companies reached an out of court compromise.

My personal experience with business method patents came when our decade old practice of automatically verifying store unit price tags through a proprietary bar code was challenged. This approach avoided much of the cost associated with auditing the accuracy of shelf tags. Our corporate lawyer announced that in his 27 years of retail experience it was the first time he ever got involved in a patent dispute. The dispute was finally resolved, but the patent still exists.

Patent holders have become more and more aware of the potential value of the patents they own. Kevin Rivette and David Kline in their book Rembrandts in the Closet, outline how companies have come to realize the hidden value of the many patents they may own on various subjects. This has only served to increase the level of enforcement activities as legal departments have established specialized “patent sections” to pursue infringement.

Moderator’s Comment: How can we avoid the costs associated with frivolous patents that simply increase the cost of doing business and instead of encouraging
innovation can actually stifle it?

Jaffe and Lerner recommend the creation of incentives to motivate parties who have information about a patent subject to provide it during the patent review
process. This reduces the reliance on the patent examiner to recognize something that is not truly novel. They also suggest multiple levels of review with the replacement of juries
by judges, and the introduction of “special masters” who are experts in specialized subject areas.

As we continue to innovate and improve the retail supply chain, it becomes more important than ever that companies be free to experiment. In addition to
Jaffe and Lerner’s recommendations I believe there has to be reconsideration on the patentability of business methods in general.

Bill Bittner – Moderator

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