THE FINANCIAL PAGE BLACKBERRY PICKING by James Surowiecki Issue of 2005-12-26 and 2006-01-02 Posted 2005-12-19

Since it was introduced, in 1999, the BlackBerry, a handheld device that provides wireless e-mail access, has become not only an enormous financial success—nearly three million Americans now use one—but also the quintessential symbol of today’s connected world. Last month, though, it became clear that a patent-infringement case could force the BlackBerry’s manufacturers, a Canadian company called Research in Motion, to kill the service in the United States by the end of the year. Then the BlackBerry will become the quintessential symbol of something else: a patent system that is out of control.

The trouble for R.I.M. started in 2001, when it was sued by a small Virginia company called N.T.P. for infringing on five patents that described the design and operation of a primitive wireless e-mail network. In 2003, a judge granted an injunction saying that R.I.M. needed to cut a deal with N.T.P. or shut down the BlackBerry service. R.I.M. appealed, but to no avail. The injunction is still in place, and R.I.M.’s only chance of keeping the BlackBerry alive is to pay N.T.P. an enormous ransom—informed estimates run as high as a billion dollars. What’s more, there’s speculation that, once R.I.M. settles, N.T.P. could go after the cellular companies—Cingular, T-Mobile, and so on—that offer the BlackBerry.

Fair enough, you might say. After all, we want to reward innovation and protect people from having their ideas stolen. Unfortunately, the real innovations in this case are not technological but legal. N.T.P. is a company without employees or products. It never tried to build a real business around its patents, and it never licensed them to others, until R.I.M. demonstrated just how lucrative wireless e-mail could be. No one alleges that R.I.M. used N.T.P.’s patents to build the BlackBerry; it invented its system from scratch. N.T.P., holding the patent on an idea and a crude design, waited until another company created a successful business based on similar ideas, and then headed to court. It is not alone in such endeavors. There are many companies, known unaffectionately as “patent trolls,” that thrive by suing other companies. Close to three thousand multimillion-dollar patent lawsuits (some valid, some questionable) are now filed annually—a number that has more than doubled in the past fifteen years—and many of them rely on what a federal judge termed “a combination of blitzkrieg and Shermanesque tactics.”

Over the past two decades, the U.S. has taken the view that the stronger patents are, the better. But patents, by their nature, are imperfect. They may encourage innovation, but, by allowing the patent holder complete control of an invention, they also limit it. Patents reward some inventors at the expense of others: more than one person can have an idea, but only one can patent it. That may be why, in a study of a hundred and fifty years of patent protection, Josh Lerner, of the Harvard Business School, found that countries that introduced stronger protections for patents saw no increase in innovation by their citizens. Similarly, in a study of nineteenth-century innovation based on data from two World’s Fairs, Petra Moser, an economist then at Berkeley, found that countries with patent laws (like Britain) did not innovate more than those without them (like the Netherlands and Denmark).

Protecting patent holders’ rights is important, of course, but the system needs to be rigorous in the way it hands out patents—careful not to grant patents for ideas that are obvious, already well established, or too broad. And it needs to be nuanced in matters of enforcement, weighing the interests of society alongside those of the patent holder. The U.S. fails on all counts. In the first place, too many patents are granted. According to a recent National Academy of Sciences report, ninety-five per cent of all patent applications in the U.S. are approved, compared with just sixty-five per cent in Europe and Japan. Understaffing at the United States Patent and Trademark Office—there are thirty-four hundred examiners and three hundred and fifty thousand applications a year—means that patent examiners don’t have enough time to properly research an idea’s originality. And since the office is funded by patent fees, as opposed to getting its budget from Washington, it has a financial incentive to process applications as quickly, rather than as diligently, as possible. (Generally, examiners spend somewhere between eleven and twenty-two hours per patent, and no extra time is allocated for commercially significant applications.) The appellate court responsible for patent cases also tends to be patent-holder-friendly. Injunctions of the kind that N.T.P. got against R.I.M., for instance, are usually employed only to prevent “irreparable harm,” but in patent cases they are now routine.

Patents, then, have never been easier to get or more lucrative to hold. Unsurprisingly, people have been patenting everything in sight. Since 1980, the number of applications has tripled, and the number of patents granted has nearly quadrupled, effectively allowing patent holders to rope off more and more of the economy, even though the quality of patents has been steadily declining. (A recent Federal Trade Commission report warned that “questionable patents are a significant competitive concern and can harm innovation.”) The BlackBerry mess is a case in point: in the past year, the Patent Office has reëxamined N.T.P.’s eight patents, and issued preliminary rulings declaring them, and the nineteen hundred claims they contain, invalid. Until those patents are formally invalidated, however, R.I.M. is still on the hook, so it may end up paying for infringements that it never committed. Now, that’s innovative.