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Internet Society Panel on Business Method Patents
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Vint: Even if there were not consensus, there's certainly controversy and, of course, that's why we're all here tonight. Larry, I know you have the microphone, so I'm going to ask you to respond to a question in addition to whatever else you might want to do. Bear in mind that it's 8:15. One question - the question is if you don't have some kind of patent on the technology or the process then how do you lock in shareholder value. I mean, what tangible evidence do you have for your shareholders that you have the ability to control your intellectual property and apply it and, therefore, produce revenues and we hope profits as well?

Larry: OK. Let me answer the other question first and then I'll answer this. Jay, you're right, there's a lot that has to be figured out here about what the economic consequences of this is. This is one paper. The actual evidence that I was siting there was from another set of studies that they're referring to. This is a pretty serious analysis summarizing what's going on in the field. Now, you're on my territory. We're arguing, what is the economic consequence, and let's try to figure that out.

Now, you say, "Well we can't stop building the Internet economy while you figure it out." But my point is, following what Tim was just saying, people who say that they're building the Internet economy don't say that they're building it by building patent portfolios right now. They're building the economy and the patent portfolio game is coming in and being layered on top of it. The behavior is being changed because they now have to face up to a reality imposed by the people I raise for a living - lawyers. Now this is the change, lawyers are making the change and it's not the other side that used to say, "Why do you want to change it?" I'm saying stop doing what my students do until you know what my students do are doing some good.

Now, Todd you say, well, what's the remedy? Well, I agree. You have a job to follow the law of Congress and I'm completely convinced that Congress has told you what to do and the courts have told you what to do and you've got to follow what the courts do, but as you said in the beginning and as Tim echoed, you have another role and the other role is to talk about what the policy ought to be and if you genuinely are worried about what the consequences of different patent policies would be, you could recommend what Congress can do. If Congress changes, that's fine, but here's what Congress should do at a minimum: They should continue to allow you to collect patents, to collect patent applications and to issue patents which can only be used defensively. No offensive use of patents should be permitted during a period of a moratorium.

Vint: What does that mean, by the way? How are you going to get over TRIP?

Larry: I can tell you exactly how to get over TRIPS.

Todd: TRIPS is the Trade Related Aspects of Intellectual Property. It's the treaty that I mentioned a minute ago that requires us to treat all technologies equally.

Larry:Right. First defensive versus offensive. If you get a patent, you can use that to defend against somebody else suing you on the basis of a patent violation.

Vint: So that someone can't stop you from using your own idea, is that ...

Larry: Right and many people are getting patents. Many people are playing this patent game just to be defensive, just so they know that they're not going get blocked out as opposed to offensive use of patents where you go out and you say to Barnes & Noble, "You can't use this technology unless you license it from me." So the proposal is, and I'll answer TRIPS in a second, the proposal is we have a moratorium on offensive use of patents until Congress conducts or commissions a significant and serious analysis to answer the question whether we have any reason to believe it's going to do us good to extend patents in this way.

Jay: Does that if Microsoft takes my property, I can't bring a suit against them, is that what you're suggesting?

Larry: No.

Vint: I don't know lawyers, so I - I just happen to understand the difference between offensive and defensive. Is that what it means?

Larry: That means that you can defend somebody - if somebody is suing you, you can defend it, but the whole issue is whether this should be your "property" and the answer to the question of whether it should be your "property" is if it does the economy good to be issuing monopolies to you and whether it does the economy good to issue monopolies to you is a very complicated question and we just shouldn't simplify it by raising up the American flag ...

Jay: ... in the middle of the longest peace-time economic expansion in the history of country.

Larry: Right, built by patents or built before the patents had the effect?

Jay: There's no evidence that they harm the economy.

Larry: Wait, wait, wait. We just cited evidence that there's an effect ...

Jay: ... paper that says that ...

Larry: No, no, so you've made the study and you're concluded that this isn't the effect?

Jay: I have read the study and I have not come to any conclusion on Microsoft specifically.

Todd: You made a good point that we need to continue to study it. My point is we have. You're right, we are in a policy-making role in the administration and I've indicated where the current administration policy is in this regard and I've indicated where, and the fact that, the administration is very open to continuing this debate and dialog. That's one reason I'm here tonight to hear it, but just because we don't go where you want it to go doesn't mean it's necessarily wrong. There are a lot of different takes here.

Larry: Of course not. Of course not. I don't have a conclusion either about it, but you agree there's a pretty significant change that's occurred since 1997 and State Street Bank. So, if there is an effect caused by patents it's ...

Todd: ... when Bill Clinton came into office there were about 100 web sites. That's how recent the Internet is in innovation. The first Internet patents, Internet related patents, were filed about the year and half after that. To say these two things are happening simultaneously is not correct.

Larry: Well, to say that patents have been "regulating" the Internet market prior to 1997, I don't think is correct. Patents have become a reality in effecting how people do their business modeling very, very recently, so you can't say that the Internet growth explosion is caused by patents. The Internet growth explosion happened long before patents became a significant part of the equation.

Todd: How long before? Three years, five years?

Vint: No. The commercialization of the Internet started in 1990 and the World Wide Web element of it really exploded around 1994 when Netscape Communications released its Netscape Navigator, so - that was 6 years ago - in the last six years a lot of the applications, business applications on the Internet, rode on top of the World Wide Web. Let me, because we're getting close to the end here, I wanted to ask the gentlemen on this panel, is there a process by which we could better understand whether the issues are in fact - this question of software patent - is in fact either beneficial or not? Is there some mechanism, some process by which we could figure that out? Is there any way to measure anything? One of the questions, for example, was what percentage of software patents are rejected by - I don't know whether you keep statistics like that, but ...

Todd: In this business method software area, about 43 percent are rejected. I wish that, because the current law requires us to keep them confidential, I wish I could bring examples of them here, but all these - there is somehow a public perception that we're just letting the flood gates open. On the contrary, the average allowance rate for all technologies across the board of the office is around 67 percent. In the business-method software, Internet area, class 705, it's 57 percent. That was last year's number. That was before we instituted the second look and I'm willing to bet that with the second look, it will be probably closer to 50 percent.

Vint: OK. Here's another very basic question that was asked. Regardless of how you define Internet property, when does it become property? In other words, for example, in the copyright world, which we said we weren't going to go into, when you write something it becomes your property when you write it so ...

Todd: Patents are only enforceable upon issue in the United States, so it does not become defensible property until it issues. One change will come, though, later this year when we move to 18-month publication. Once a patent application will be published, the applicant has what are called provisional rights, meaning they can enforce it against an actual infringer to the extent there are actual damages having given actual notice to that infringer and it has to be, once the patent eventually issues, then it has to be a claim that survives that process. So, actually, we're expecting a fairly large number of, we're planning at least, for a fairly large number of early publications, people filing - particularly in emerging technologies, particularly in software - where people will file that application and request publication immediately so that they can trigger that provisional right and then go after protection.

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