America's patent system is a linchpin of current asset values and, in the global economy, perhaps the key to growth for the future. Abraham Lincoln credited common law protection of new inventions as a primary cause of the industrial surge of the 18th and 19th centuries. It may be more vital today.
Indeed, in 1970, less than 30% of the assets of publicly listed companies resided in intangible assets. Today, the figure exceeds 80% and is higher for the new ventures that drive job growth.
Since 2000, the cost of processing a successful patent application has risen by more than 50%. The time it takes to successfully process has risen commensurately. It's not uncommon to talk to patent attorneys or patent-driven businessmen who are working on an application that is six to seven years old. Once a patent is granted, any dispute to protect the inventor's rights today — compared to two to three years ago — is more doubtful in light of some case rulings.
At the same time, there have been high-profile cases in which individual inventors and small firms have won judgments against or received settlements from Research in Motion, eBay, Microsoft, and other technology companies. Perhaps these were frivolous suits, but the courts did not think so; they seemed to agree that wealthy corporations were appropriating ideas from little guys, and should pay for them.
Enter "patent reform" via Howard Berman in the House, and Patrick Leahy in the Senate. Patent reform, one would think, would protect small firms and individuals against major corporate theft and dishonesty, as Congress sought to do in the wake of the Enron and Tyco scandals. Or it might address administrative efficiency and bogus claims.
Instead, the Berman bill, passed by the House and ready for a Senate vote as early as April 2, is the opposite — it protects large firms from small inventors. And it does little to provide the patent office with the resources it needs to keep America in its position as the world's central banker for intellectual property.
The bill, S.B. 1145, would change the federal rules for determining a venue in an effort to force many complaints into a defendant's court of choice. It would add a six-month opposition review layer to an approval process that already has lengthened, and give well-financed litigants another means of frustrating or delaying patents. At the same time, the bill does not include substantial increases in resources for the patent office.
In evaluating the Leahy proposal, it's important to understand that the genius of the patent system, as Lincoln recognized, is that it provides an incentive for inventors to make their ideas part of the public domain — by protecting them against industrialists who could otherwise simply appropriate their ideas.
Today, we all recognize the value of sharing information on networks — the patent system was one of the first. But Edison, Bell, Teslar, and others all had to devote most of their business life to prosecuting dozens of suits against large corporate infringement. Just as the growth of music sales, medical care, and news depends on effective copyright and trademark protection, our tech "ideas market" depends on patent fairness.
What should be done? Protection for small firms and inventors should be strengthened by increasing patent office resources. The time to process a patent should be reduced significantly, not increased.
There are innovative, market-based ideas for patent reform as well. Jim Malackowski, the founder of Ocean Tomo, a kind of stock market for patents, suggests forming patent trusts as a hedge for American and foreign firms.
That such a bill could advance to the brink of passage with so little debate is a tribute to the hardball lobbying effort waged by the anti-patent cartel financing Messrs. Leahy and Berman's effort along with a select few Washington firms. No significant representation of the vast coalition of opponents was present in hearings on the bill. Instead, small tech firms were "represented" by eBay.
Interestingly, in a year when economic concerns predominate, none of the three major presidential candidates has taken a position on the bill. Senator Obama has written a sound proposal, calling for stronger copyright and trademark protection and more patent office resources, but he hasn't commented on the bill. Senators McCain and Clinton have been silent, though one hopes they too will understand the damage to economic growth that would take place under their presidency if the patent system is significantly damaged.
It is understandable that Congress wants to "do something" to maintain and improve the patent system, especially at a time of crisis in the financial markets and a sagging economy. In 1929, seeking to help protect some American firms from imports, and thus promote growth, Congress rammed through the Smoot-Hawley tariff bill in a similar daze, mindless of its real world economic consequences. The proximate result was a stock market crash and, in combination with deflationary monetary policy, the Great Depression.
The patent bill, Smoot-Leahy, as some of us concerned about the tech stocks call it, has been advanced in a similar spirit of indifference. Here's hoping the Senate will pay some heed to the warnings of those in the investment and venture capital community such as Mr. Malackowski and Steve Perlman, a QuickTime and WebTV inventor and entrepreneur.
Smoot-Leahy does have a certain historic ring, but we should prevent it from making it into the history books as an example of a disastrous bill.
Mr. Fossedal, the co-founder and chief executive officer of Freedman's Financial, is the author of "Direct Democracy in Switzerland."