by Manny Schecter, IBM Chief Patent Counsel

As the leading recipient of U.S. Patents for 20 consecutive years, we take pride in knowing that over the last 20 years the innovative talents of IBM inventors have generated thousands of original ideas and inventions that will enable fundamental advancements in technology and society. We are also proud because we believe patent leadership comes with a responsibility to continuously strive to improve the patent system, and we have taken many steps with a goal of fulfilling that obligation.

Patent leadership is an important reflection of IBM’s commitment to R&D and innovation. We believe our role as a leader places us in a unique position to help shape the patent system in the U.S. to promote innovation. Of course, this is a task that is never truly finished.

Among the steps we’ve  taken were to unilaterally commit to raise the bar on the technical content of business method patent applications; organize the Peer to Patent project to validate the ability of the public to assist patent examiners in identifying prior art (a capability now codified in the America Invents Act);  promote open innovation by pledging not to assert our patent rights in select areas of societal importance such as open source software, health care, and the environment; and demonstrate how metrics can be used to improve patent system transparency. We have also submitted numerous amicus briefs urging courts to interpret the law so as to best encourage innovation.

These were not actions that promoted our self interest or favored our short term business prospects.  We believed, however, that they were in the long-term interest of the health of the patent system and that what is good for innovation is ultimately also good for IBM.   That is why we continue to strive to optimize the patent system for all constituents.

Today, with many pundits arguing for the elimination of patents relating to software, we are advocating for the need to continue to protect this pervasive platform for innovation, and pointing out the inconsistency of protecting processes implemented mechanically or electrically (but not protecting the same processes implemented using software).

While some may question our motives, we will continue to take actions that we believe aid the patent system in fulfilling its objective of promoting innovation.  We view that as one of the responsibilities of patent leadership.

One message transcends political parties, national borders, and enlightened corporate boardrooms. Innovation is critical to economic growth and economic growth is critical to our future.

IBM, through its 12 research labs on 6 continents and its global development efforts has, for decades, been committed to innovation in a broad range of technologies. This dedication is reflected in IBM’s $6 billion annual investment in fundamental research and development.

And it is also reflected in a recent announcement that, for the 20^th consecutive year, IBM leads in U.S. patent grants. In 1992, IBM edged out the prior year’s leader Toshiba and has led in U.S. patents ever since. In 2012, IBM was granted a record 6,478 patents.

But the real message is how IBM’s innovation, growth, and valuable patents are intertwined. A robust portfolio of patents enables IBM to exchange (or cross license) with others who have patented inventions that IBM may wish to access. This provides IBM with “freedom of action” in developing technologies for its offerings and, in some cases, royalties which can also be re-invested in further innovation. And, by making patented technology available to others, we often see the market expand for all, resulting in greater benefits for IBM, customers, and the industry.

In some instances, innovative patented technology cultivates new industries. Consider the IBM Watson innovation of Jeopardy! fame. The Watson computerized “contestant” understood complex and nuanced clues and derived a desired result in the TV game show Jeopardy!. Years of research and re-work resulted in innovative algorithms and processing methods that leapfrogged existing technology. Well, the Watson computer system has been adapted to innovative health care and other sophisticated applications. With patents, new opportunities have followed.

Patents provide IBM with the assurance that others will not dissect the Watson computer system and cancel the value of time, effort, and investment made, and they are an important part of the incentive to create the next Watson computer system. So, Watson innovation, protected by patents, is driving new markets, new product value, new jobs, and new choices for the public, contributing to IBM’s product, service and IP licensing returns, which can be invested to further fuel R&D. Similar synergies can be told about other recent IBM innovations ranging from semiconductors and nanotechnology to Smarter Planet solutions.

In achieving U.S. patent leadership, IBM recognizes the need for quality as well. Which is why IBM has led in supporting measures allowing questionable patents to be challenged. Improvidently granted patents adversely impact not only makers and users of products, but also the holders of sound patents. Not all patented inventions are game-changing breakthroughs — most inventions are incremental advances on which further inventions are made. But granted patents should satisfy the Constitutional promise of “promoting …progress in…the useful Arts” as reflected in U.S. laws.

The interplay of innovation, growth, and patents has placed the world’s information at our fingertips. IBM is proud of the inventors and innovators who contributed to this landmark of two decades of patent leadership and more importantly the role they have played in making our world a better place.

As the patent community attempts to navigate the complex set of rules associated with new proceedings under the America Invents Act that enable challenges to issued USPTO patents, there is a simpler and potentially more effective way to improve patent quality — submitting prior art references as a third party under the pre-issuance submissions provisions. The provisions are designed to improve the third party submissions process to enable higher quality, more efficient patent examination. Yet, key features of these new provisions are often overlooked and, upon closer evaluation, it’s evident that taking advantage of these provisions is a good idea.

Under prior law, a third party could submit a prior art reference to the USPTO, but could not include an explanation of its relevance to a pending patent application without the consent of the applicant. A third party was thus discouraged from making a submission out of fear that a patent examiner would not recognize the significance of a submitted reference to a patent application and issue a patent anyway. The America Invents Act now requires a third party to submit an explanation of the relevance of a prior art reference, thereby improving the likelihood that a patent examiner will recognize how it relates to a patent application to the fullest extent possible. A prior art reference already identified to the USPTO by an applicant may even be a candidate for a submission: for example, it may have been incompletely or inaccurately characterized and submitting it with a statement better characterizing its relevance may help a patent examiner apply it correctly.

In considering whether to make a third party submission of prior art, one must still weigh the opportunity to eliminate or narrow claims of a patent against the risk that a patent will be strengthened because a submitted reference will be “of record.” That is, if the reference is considered by an examiner and recorded in the patent file, but the claims are unaffected, it may be more difficult to bring a successful challenge to those claims based on the same reference after a patent issues, as compared to a reference the examiner never considered. Some organizations opt to withhold references to save them for later use upon assertion of a patent against them. Although a reference may have more value after patent issuance if it had not been previously considered by a patent examiner, submission of a reference during patent application examination allows it to be considered by the patent examiner without having to overcome the “clear and convincing” standard for proving patent invalidity that will apply in court once a patent issues.

Other benefits of a pre-issuance submission are also worth considering. As members of the public and patentees, we all have an interest in improving the efficiency of patent examination. Once applicable prior art references are made available to patent examiners they are apt to perform a better examination not only on the patent application then under examination but with respect to later patent applications relating to the same technical area because the examiners will add the references to their arsenal of applicable prior art. In this way the benefits of active public participation promise to enhance the quality of patent examination generally and not just for a specific patent application for which a reference was submitted. We should also favor getting examination correct at the outset rather than trying to fix a problem later (after patent issuance) when the expense of doing so increases significantly and the burden of proof may be higher. Even if a post-issuance challenge is successful, during the interim the public is needlessly forced to concern itself with a meritless patent.

by Manny Schecter, IBM Chief Patent Counsel

I’d like to clear up a myth about patents. I frequently see public discourse about alleged infringers of patents having “stolen” the patented inventions. Sometimes other terms are used instead of stolen, such as “misappropriated,” “pirated,” “ripped-off” and so on. The implication is that infringers intentionally used the inventions with full awareness of the patent protection. The infringers are portrayed as “bad guys.”

Not so fast. There is no requirement to show intent to prove patent infringement. Unlike copyright or trade secret, which do not protect against parallel independent development, a patent confers rights against another who makes, uses, or sells the patented invention — regardless of whether the other party had knowledge of the patent. In this way, the patent system encourages significant investment in the development of technology. In return for such powerful protection, there are stricter requirements for patentability than for obtaining other forms of intellectual property protection, including complete public disclosure of the invention.

It is indeed sometimes the case that an infringer acts with full awareness of a patent. To discourage such behavior, additional remedies are provided if patent infringement is found to be “willful.” It is impossible to know how often willful patent infringement occurs because most patent disputes (about 95%) are settled out of court. Although roughly 90% of patent lawsuits allege willful infringement, willfulness is found in only about 2% because suits are settled or patents are often found invalid or non-infringed. Willfulness is found in about half of the suits where the issue is reached, and about half of the suits with a finding of willfulness actually result in increased damages.¹

It is therefore safe to assume that a substantial portion of patent infringement is inadvertent and the patent infringers are not “bad guys.”

With the increased coverage of patent lawsuits in recent years (I express no opinion here with respect to any particular lawsuit) it may be tempting to read bad intentions into every act. One should not simply assume the accuracy of an attention-grabbing headline.

by Manny Schecter, IBM Chief Patent Counsel

Am I the only person who noticed that the USPTO opened its first ever satellite office in Detroit on Friday, July 13? Friday the 13^th! I am not superstitious. Apparently, neither is USPTO Director David Kappos.

More seriously, much has been written about the Detroit satellite office and the subsequently announced offices to be located in Dallas, Denver, and Silicon Valley. How will the satellite offices improve our patent system?

It will be impossible for the satellite offices to allow for local examination of all patent applications filed by all local inventors. Consider that many inventors collaborate with other inventors located around the world. In addition, as the size of the patent application pipeline varies over time, it may be asking too much of the USPTO to employ precisely the number of patent examiners in precisely the appropriate mix of technologies at a satellite office servicing the local community.

The satellite offices will enable the USPTO to provide community education and outreach. The public may gain access to USPTO resources such as search tools and facilities for communicating with the remainder of the USPTO and patent examiners may gain access to local industry information. And, naturally, the satellite offices will provide local jobs.

The most important benefit of the satellite offices is access to talent. IBM has research labs around the globe for the same reason – to attract and employ world-class scientists. The USPTO has a deep bench in Virginia, but certainly there are a wealth of talented people unwilling to live in the Washington, DC metro area. Improving the patent examiner talent pool will surely improve the quality and efficiency of patent examination. For this reason, the successful implementation of USPTO satellite offices is both a USPTO and US patent system imperative.

by Manny Schecter, IBM Chief Patent Counsel

Enactment of the America Invents Act has generated considerable excitement in the US. The USPTO is developing implementation rules, legal associations are recommending strategies for operating under the new law, and pundits are speculating as to what aspects of the Act will achieve their desired objectives (or not). As exhilarating as all of this is, we should not forget the basics.

At its core the patent system still revolves around patent examiners who compare inventions described and claimed in patent applications with the most relevant prior art. Examiners must be able to sufficiently understand the inventions and the prior art to adequately do their job – a huge challenge given the newness of the information examiners work with every day. As the pace of technological advancement quickens, it becomes even more difficult for examiners to maintain the cutting-edge knowledge they require.

There are, of course, publications and databases to help examiners. But real world exposure to technology and interactive exchange with researchers in the field can be particularly useful.

Users of the patent system should take an active role in the examiner education process. Extending the knowledge-base of examiners promotes more robust examination and helps ensure that granted patents are novel and non-obvious. For patentees, this means more confidence in the validity of their patents. At the same time, the public can avoid diverting resources to designing around, challenging, or defending against questionable patents. It is also simply wrong for users of the patent system to criticize examiner performance, as many do, without helping to provide the technical education needed for improvement.

IBM is often asked to provide educational speakers on information technology for examiners. We are proud to cooperate and provide such education in the hopes of improving patent examination efficiency and accuracy, and in promoting the public’s confidence in the patent system. We encourage others to do the same.

While the USPTO and the public are currently tackling a daunting array of rules packages to implement the AIA, the USPTO’s proposed fees have come under attack — from within the patent community. It is disappointing that users of the patent system would oppose the USPTO’s authority to recover its costs, yet nevertheless expect the patent office to fulfill its expanded responsibilities under the AIA .

There is no dispute that the USPTO should have sufficient funding to operate efficiently and effectively. During the years of wrangling over more controversial elements of the AIA, the vast majority of stakeholders agreed that USPTO fee diversion should be prevented. The AIA doesn’t go that far, but it does give the USPTO the power to set fees, a power that was also widely supported (particularly if the USPTO could keep those fees). The USPTO also succeeded in obtaining an appropriation from Congress sufficient to recover its fees, so it seems that for this fiscal year at least, the stars have aligned.

Under the AIA, the USPTO is required to set fees to recover aggregate costs. In an initial fee proposal, the USPTO did just this, with some adjustments designed to encourage certain activities such as filing new patent applications. While some have raised concerns over whether the method for calculating costs or the value proposed for the USPTO reserve fund is optimal, few dispute the USPTO’s goals in establishing them, i.e. to effectively and efficiently examine patent applications and review issued patents.

The USPTO has already put in place a number of procedures required by the AIA, such as accelerated examination and the new threshold for granting inter partes reexamination. In the upcoming months, the USPTO will begin to conduct an array of new post-issuance proceedings. Just as the patent community should have the opportunity to provide input on how these new procedures and proceedings work, we also need to work with the USPTO on how much they should cost. Sufficient funding at the right stages of the patent process is a requirement for a well-functioning patent system.

Members of the public should be encouraged to share views regarding specific fees proposed by the USPTO as part of the overall framework for the USPTO to recover its costs. As this process moves forward, the USPTO is expected to publish a final proposed fee schedule in June so the public can submit comments directly to the USPTO. By doing so, those with concerns about the fees should constructively engage in the fee setting process to help the USPTO help itself. But we shouldn’t expect the USPTO to get the job done without the fees.

By Manny Schecter, IBM Chief Patent Counsel

After a recent respite, plenty has been said in the blogosphere of late in defense of non-practicing entities (NPEs) often referred to derogatorily as patent trolls. Perhaps the renewed discourse stems from the passage of the America Invents Act or the smartphone patent wars. Before the conversation gets too passionate, let’s examine a few facts, which reveal that NPEs still pose serious problems.

Some pundits recently dismissed the impact of NPEs by noting that the number of patent suits initiated in the US remained flat from 2001 to 2010 and that only about 100 lawsuits actually go to trial each year. The inference is that the impact of NPEs cannot be substantial if patent litigation has not increased. But this is a plateau that was reached after the number of suits doubled to 3,000 annually over the previous decade, according to data from the Administrative Office of the US Courts.

Furthermore, in 2011, the number of patent suits initiated in the US spiked once again – so the upward trend has apparently renewed. A snapshot of a carefully chosen time period is simply not a fair assessment, particularly when a broader time period results in a different outcome. In addition, even if the number of suits levels off again, who is to say why or whether the level is acceptable?

And what should we glean from only 100 patent suits actually going to trial per year? Not much. Might the capacity of the federal court system be at play? Should we only concern ourselves with the number of trials? The number of suits is, obviously, far greater than the number of trials. And let’s not forget that the number of disputes (settled out of court) is certainly far greater than the number of suits. So, the impact is far greater than a statistic such as 100 suits per year suggests at first blush.

A narrow view of the total number of patent suits or trials is also not the best perspective of the negative impact that NPEs have on innovation and the economy. Better data is available from Patent Freedom, a community that shares information on NPEs. As the chart below shows, the number of patent suits initiated by operating companies has remained flat in recent years, but spiked up in 2011 in correspondence with the uptick in all patent suits. More significantly, the number of counterparties (defendants plus declaratory judgment plaintiffs) in patent suits involving NPEs has increased at a compound annual growth rate over 30% during the same period. The growth rate is also not uniform throughout the economy – the growth rate is significantly higher in some industries, such as financial services. NPEs frequently sue multiple defendants in the same suit, something that operating companies typically do not do. Clearly, there is something different about NPEs and the way they operate.

Concerns about the significantly increased rate of patent litigation by NPEs led to certain provisions in the America Invents Act, including an enhanced ability to challenge patents without resort to litigation, and an “anti-joinder” provision preventing patentees from joining unrelated defendants in the same suit based merely on the infringement of the same patent. These reforms could curb the way NPEs operate.

More data on the impact of trolls may be forthcoming as a result of patent reform legislation. While the AIA was the most extensive patent reform in the US in decades, it simply could not address every NPE behavior that operating companies have expressed concern about – such as shielding the true ownership of patents, assertions of irrelevant patents, strained interpretations of patent claims, and outrageous demands for damages. The AIA requires the Comptroller General of the US to study the consequences of litigation by NPEs. The comptroller’s report is schedule to be issued in September. The results may add greater depth to our understanding of the issue and perhaps even point toward potential solutions.

Chief Patent Counsel, IBM Corporation

The recently-released tally of US Patents awarded in 2011 gives those who are concerned about America’s global competitiveness plenty to think about. Only two US companies, IBM at No. 1 and Microsoft at No. 6, appear on the top 10 list. Hewlett-Packard and Intel have dropped off. The rest of the companies in the top 10 are headquartered in Asia.

This news reminds us that we live in a highly competitive, global economy and it is vital that we remain vigilant about preserving and fostering an environment for US companies to innovate. That includes strengthening science, technology, engineering, and math curricula at all levels, investing in fundamental scientific research, making it easier for entrepreneurs to launch and grow their companies, and strengthening our patent system.

There is another message hidden in the rankings. The results show that the United States is a magnet for global innovation. Why do foreign companies apply for so many patents here? Simple: The US has balanced intellectual property laws, a fair patent system and a strong rule of law that protects the creative work of inventors.

The recently-enacted America Invents Act (AIA) is the most significant reform to the patent system in 60 years.  The AIA improves the fairness of the system and the quality of patents by giving third parties the opportunity to submit information related to a pending application for consideration by the patent examiner and by expanding the ability to challenge existing patents. These reforms will help ensure that patents are issued  and enforced only for inventions that are truly novel and deserving of a patent. The Act also harmonizes US patent law with those of other major countries by switching to a first-inventor-to-file system from a first-to invent system. This is important for businesses that must operate in an increasingly global economy and will help speed examination by promoting work sharing between patent offices.

On the judicial front, America’s court system provides patent holders ample opportunities to enforce their patent rights while at the same time providing fairness and balance in the remedies applied. The US Supreme Court decision in eBay Inc. v. MercExchange LLC established firm guidance for the lower courts: the balance of hardships between plaintiff and the defendant—and the public interest—must be considered before issuing an injunction preventing the sale of products. In cases where the plaintiff does not use the patented invention in products, lower courts’ application of eBay has resulted in fewer injunctions.  As the Federal Trade Commission indicated in its recent Evolving IP Marketplace report, the eBay decision allows courts a more nuanced analysis that recognizes injunctions may in some situations unnecessarily raise costs and deter innovation.

Reform isn’t a one-time act. It must be continuous in response to changing circumstances. So we applaud US PTO Director David Kappos’s vow to produce what he calls a “National IP Strategy” this year. He aims to outline the Obama administration’s key IP priorities, its plan to improve patent protection for small businesses and efforts to increase engagement with China on issues of IP enforcement.

It’s a remarkable time for innovation globally. Think of IBM’s Watson data management and analytics technology, Samsung’s advances in flat-screen TVs, Apple’s iPad, and Facebook’s social media. The future will be bright, too, and the United States will continue to be a locus for innovation, if American companies and foreign firms alike get world-class protections for their inventions and fairness in resolving competing claims. Government and industries must continue to work together to preserve and strengthen U.S. innovation.

This steadfast commitment to innovation has long differentiated IBM from its competitors and positioned the company to rapidly respond to challenges and efficiently capitalize on new business opportunities.

IBM’s innovation leadership is evidenced in its 18 consecutive years of patent leadership, five Nobel prize winners, seven U.S. National Medals of Technology, five National Medals of Science and memberships in the National Academy of Sciences.

Another recognition of the company’s role and influence as an innovation leader is its ranking on the Thomson Reuters 2011 Top 100 Global Innovators list. Thomson Reuters has honored companies for their ability to invent on a significant scale; are working on developments which are acknowledged as innovative by patent offices around the world, and by their peers; and whose inventions are so important that they seek global protection for them.

According to Thomson Reuters, the Top 100 Global Innovators exemplify the essence of innovation and drive inventions for economic growth, which having established systems for vetting inventions and determining which ideas are worthy of protection.

Innovation is central to IBM’s business model and has defined the company since its founding over a century ago. Patents are an essential link between innovation and IBM’s ability to serve its clients, and thereby, enable business growth and commercial success.