By Dennis D. McDonald

Reading IBM’s Building a New IP Marketplace report, based on a wiki developed by several dozen international patent and technology experts during the Spring of 2006, helps explain why IBM recently announced it will be going public with its patent filings.

According to the report, the worldwide patent system is broken. The report defines the intellectual property (IP) problem this way:

Patents have become an important currency and a principal means to establish value for creators and users of knowledge-based assets. A fully functioning IP marketplace infrastructure has yet to emerge, however, placing an undue burden on patent systems. This void creates uncertainty that leads to a number of problems including increased litigation and speculative behaviors that inhibit the innovation patent systems were designed to protect. Because of such problems, there is an increasing concern that the IP marketplace system may not meet its economic and societal objectives: stimulating innovation-based competition; facilitating spill-over and expansion of knowledge-based ideas and creative expressions of ideas; rewarding inventiveness and creativity throughout the economic system and enabling sustainable development of firms and industries.

The report follows this with a series of comments and recommendations related to the following areas:

• Patent Quality

• Transparency

• Integrity

• Valuation

• Flexibility

According to the report the key to improving the quality of patents while reducing the negative impacts of frivolous lawsuits or lawsuits initiated for purely business reasons is openness:

• openness in the patent review process itself

• openness in the manner in which patents are bought and sold

• openness about the nature of the patents themselves and their owners

For anyone who has been tracking the progress of the Peer to Patent project, much in the report will be familiar. The essence of the Peer to Patent project and its coming experiment at the US Patent & Trademark Office is to open up the “front end” of the patent review process – research for examples of “prior art” -- to more public scrutiny. The IBM report extends this concept to other areas of patent review and use, even to the point of suggesting, in the Valuation section of the report, the establishment of processes for setting, assessing, and taxing patents, based on examples provided by the financial industry:

Valuation: Actions

Establish new tools, indices and metrics to provide an infrastructure for valuing IP assets. Explore the possibility of “Market Enforced Self Assessment,” in combination with the establishment of a Patent Property Tax. Use the valuation mechanism as an input to current maintenance fees.

The rationale for valuation and taxing patents – other than assisting in the payment for the administration of the patent system itself – is not discussed in any detail in the report, but the concept is intriguing. Creating a financial valuation and payment infrastructure around patents would certainly force more openness in the availability for information about patents and how they might be used.

On the other hand, such a system might replace the current problems associated with expensive litigation with problems associated with creation of a new class of expensive specialists who know how to “play” new financial instruments and systems surrounding patents, at the expense of the “little guy.”

The report also points out the need for better compatibility among the various patent administration systems in use around the world now. I can’t argue with that, but that does bring up a topic that is not really addressed in this report, which is whether or not individual governments would view greater compatibility and transparency as working to their own nationalistic advantage.

It’s one thing for multinational corporations to argue for measure that would tend to benefit them by simplifying, standardizing, and de-politicizing processes. Will individual governments necessarily view such improvements in the same way if a concern arises that national economic interests might be threatened?

Copyright (c) 2006 by Dennis D. McDonald