There was a lot riding on Alice v. CLS Bank, and the Supreme Court got it wrong. There is no point in sugar-coating it, or pretending that everything will be alright. The Supreme Court is openly hostile to patents, and increasingly so is the Federal Circuit. Simply stated, strong patent rights are an absolute prerequisite for a high tech economy.
It is a sad realization, but we are indeed at a point were commercially viable claims worth litigating are virtually assured to be invalid claims. Until this changes the economy suffer in due course. After all, it isn’t the copycats who create new things. Copycats copy and innovators innovate. You cannot infringe patents owned by an innovator and claim that because the product is new to you it is an innovation. NO! It is merely new to you and a rip-off from the true innovator.
When innovators cannot get protection they cannot get funding, they do not form companies, jobs are not created and pretty soon there won’t be anything left for the copycats to copy. Increasingly trade secret protection will be the way forward, and some 235 years ago we made the correct choice that we wanted to discourage trade secrets and encourage public disclosure. That experiment lead to the United States being the most innovative country in the world.
To those who cheer the demise of software patents and think that open source will win the day and the world will be a better place, I can only say WAKE UP! The reality is that open source software is a cesspool of vulnerability and a nightmare to maintain. As Sun Microsystems proved, the quickest way to turn a $5 billion company into a $600 million company is to go open source. So be careful what you wish for! Open source is no panacea, and after nearly a generation of trying to make it a profitable business model companies struggle mightily because an open source business model is a service model. That means selling your time, but with only so many hours in a day earnings are sharply limited. Hardly a business model that will lift the U.S. economy that largely creates only low paying service jobs already.
With a steep and significant erosion of patent rights and a horribly uncompetitive corporate tax structure the future for high tech companies in the United States is bleak. By some estimates trillions of dollars earned by U.S. companies sit off shore because unlike other nations the U.S. taxes corporate earnings no matter where they are made. The world’s best and strongest patent system combined with good tax policies made the U.S. the dominant force in the world. Now we have an antiquated tax system that ranks us at or near the bottom and many biotechnology and software innovations aren’t patentable, while others are declared obvious de novo. Say it out loud. It makes even less sense when you speak the words. The Supreme Court has struck a significant blow against innovators in two critical sectors that employ millions of U.S. workers.
Appointed jurists are destroying the United States economy by systematically dismantling the patent system piece by piece. Our elected leaders in Washington, DC, have done nothing helpful, although they always tout patent legislation as a jobs bill, which is laughable. How does changing to a first to file system create a single additional job? It doesn’t. We are watching the complete destruction of a once highly favorable business climate in the United States, and that is as unforgivable as it is tragic. Even Warren Buffett, the man who demanded to be taxed more, is helping finance companies moving offshore to escape the U.S. business tax structure. And still our leaders watch and do nothing useful for fear that they might be seen as cooperating with the enemy and face a primary challenge, which for most Representatives is the only real challenge they have to worry about.
In a blog post from March 2104, Marian Underweiser, IBM’s Counsel for IP Law Strategy & Policy, wrote:
Computer implemented inventions, particularly in software, form the basis for innovation not only in the technology products we use every day, such as laptops and smartphones, but in everything from cars to surgical techniques to innovations that increase efficiency and production in factories. Strong and effective patent protection for these innovations in the U.S. has fostered a fertile environment for research and development and, as a result, the US is the undisputed leader in the software industry.
Many won’t believe IBM though because as the most innovative company in the world, a company that spends $6 billion year after year on research and development, they have a vested interest. The Government Accountability Office, however, does not have a vested interest and in a 2013 report they concluded that between 50% and 60% of all patent applications filed seek protection for innovation relate to software in one way or another. That means that at least half of all innovations could potentially be lost due to the Supreme Court’s failure to follow the enacted patent statutes and instead act as a super Legislature that despises all things patent.
Numerous companies each individually collect in excess of $1 billion a year for licensing their patent portfolios, including companies like IBM, Microsoft, Apple, Texas Instruments and many others. With a decision that makes software patent ineligible entire patent portfolios will be severely compromised if not virtually erased, which means many billions of dollars of corporate value will be lost, which means corporate valuations (and stock prices) should substantially be revised downward because the primary assets many companies have will be worthless, or at least worth less.
The real problem is that none of this will be obvious to those outside the industry until it is too late to do anything about it. Without the protection of a strong and vibrant patent portfolio anyone could simply enter the marketplace despite status as a free-rider. Once well funded foreign corporations start marching into the U.S. and high-tech corporations can’t stop them because they don’t have any valid patents the problem will be readily apparent. By then, however, many high paying research and development jobs will be lost.
The Alice decision, like the Myriad and Mayo decisions, will be good for those who don’t innovate and simply copy, but innovation that relies on software and genetics will largely cease because it simply will not make sense to invest anything other than modest sums into development. You cannot invest modest sums and expect to come up with anything worthwhile in the biotechnology sector, and while less cost sensitive the software industry will be squeezed as well given the lingering and lengthy credit crunch that makes it extremely difficult for people even with pristine credit ratings to get loans.
This Supreme Court will have profound and negative impact on many industries and the U.S. economy as a whole. These isolated, Ivy League educated, aristocrats are out of touch and in over their head. But expecting Congress to come to the rescue, which they should, is about as foolish as thinking that this Supreme Court might eventually see a patent with valid claims.