CNet reports that the US Senate Judiciary Committee will be looking at patent system reform. The home page for the hearing on 23 May contains links to some interesting testimony. I have set out some extracts from the two most striking witnesses.

From Mark Chandler, Senior Vice President and General Counsel of Cisco Systems:

So why would a company like Cisco favor rules changes that some charge would decrease the value of patents? And why would a company like RIM, creator of the Blackberry that so many depend on today for daily commerce, pay more than $600 million to license patents that the Patent Office has said are likely invalid?

The answer to these questions is that our patent litigation system is broken.

Increasingly, companies like Cisco and RIM that manufacture products or offer services are being named as defendants in a new type of patent infringement litigation. These actions, often brought in obscure jurisdictions, virtually never involve situations in which a patentee or an exclusive licensee of the patentee seek to preclude anyone else from practicing the invention in order to retain for themselves all of the economic benefit associated with commercializing the patent. Rather, the patentee in these cases is willing to enter into licenses broadly; indeed, the patentee often sends letters to fifty or one hundred companies at a time offering to license its patent, and threatening an infringement action against any recipient that refuses to enter into a licensing agreement; one plaintiff sent such letters to 75,000 companies.

Chandler refers to the comments of Justice Kennedy in eBay v MercExchange that I noted the other week.

Nathan Myhrvold, now CEO of Intellectual Ventures, but formerly of Microsoft has much to say in very engagingly-written piece in support of the current system. It’s worth reading in whole, because it’s hard to quote it fairly in isolation, but some excerpts are:

Like any other part of the free enterprise system, the patent system offers economic incentive by enabling and protecting private ownership. Simply put, the patent system enables inventions to be a part of capitalism.

In some industries, patents are vital to the business model of the company – it is how they stay in business. This is true in industries like pharmaceuticals, biotechnology, medical devices and many others. In these industries the culture of patents is embedded deeply. While companies may argue (or even litigate) over a specific patent, they all respect the patent system because it is vital to them.

The “tech industry,” by which I mean computer software and hardware, networking, ecommerce and semiconductors, has a very different cultural attitude toward patents. Simply put, for most tech companies, patents have never been important; they have not been a way to make money.

Instead, the path to riches in the tech world is to fiercely compete for dominant market share, making your products become a de-facto standard. The typical situation is that one or two companies own 90% or more of the market. This position of dominance – some would call it monopoly – is how big tech companies got big in the first place, and it is also why they remain some of the most profitable companies on earth.

Very young firms, such as most of the “dot com” Internet companies, were too busy scrambling for dominance. So in their early years they did not even bother to file any patents. Even today, most Internet companies have tiny patent portfolios. Their strategy is simple – “get big fast,” own the market and, if there is a patent problem, sort it out later.

Older and larger tech firms have large portfolios of their own patents, which they use in what’s called “defensive” use. …

“Defensive” use may sound like a benign use of patents, but, in reality, it is just another way to play corporate hardball in the pursuit of making lots of money. While the use of the patents in a suit is purely defensive, the infringement that precedes it isn’t. Defensive use is another way to say: if you have enough patents, then you can steal any other product company’s ideas with impunity. If they push back, you can threaten them with your “defensive” portfolio. A company with a strong defensive portfolio has little to worry about in lawsuits from its competitors. Often such a company will tell its engineers not to worry about using other people’s patents. Go ahead and infringe because our defensive portfolio will buy us a compromise with the property owner.

These diverging interests are behind the great schism in patent reform. Companies that see patents as their life blood are largely on one side. I’m the first to admit that I’m in this camp, along with other small inventors.

Companies that make deliberate decisions to infringe – or at least to take huge infringement risks – are on the other side. That includes a set of large and powerful tech companies. They know that they infringe thousands of valid patents. They may not know exactly which patents they infringe – but they know they have a problem. This gives them a powerful motive to attack the patent system, with a particular focus on the rights of small inventors who are immune to their defensive portfolios.

It’s impossible to talk about patent litigation without tripping over the colorful term “patent trolls.” Part of the strategy of complaining about patents is to blame the “problem” on this sinister sounding group. The trouble is, nobody knows what a “troll” is. The definitions vary, and you can’t seem to pin anybody down. For example, trolls are usually described as litigious. My company is sometimes called a “troll,” yet we have never filed a patent lawsuit. If I’m a troll, I must be the dumbest and least effective one of all!