Printer has a thriving business. One large customer, Home Improvement Retailer, loves the inkjet-printed doors that Printer produces for Retailer stores. Business is so good that Printer needs another printer from Flatbed Manufacturer.

Retailer gets a letter one day from Doormaker. “You can’t sell those inkjet-printed doors anymore because we have a patent on it.” Doormaker says Retailer is infringing and must cease and desist or face litigation. Retailer sends Doormaker’s letter to Printer. Printer stops inkjet printing of doors for Retailer.

NOT SO STRAIGHT STORY
That’s the end of the story. Everybody lives happily ever after, right? Doormaker protected its intellectual property. That’s a good thing, right?
What if a patent exists that covers your key product? What if your largest customer hears from this new patent owner about infringing on that patent, and you’re forced to stop producing your key product? That’s not such a good thing, is it?
What I want digital graphics printers to start thinking about is the inherent tension in our American system between patent law (intellectual property) and anti-trust law (free competition).
Both sides in this tension have legal standing in the United States. Just as our Printer and his doors and his lost customer illustrate, intellectual property and free competition (which both lead to product innovation) may come into conflict.
Two U.S. government agencies have central roles in patrolling patent rights and enforcing anti-trust laws and regulations. The first is the Federal Trade Commission (FTC). The second is the U.S. Department of Justice. Accompanying the illustrations used in this article are Web site bookmarks for PDF documents of two recent studies from the two agencies on promoting and balancing innovation achieved through patents with innovation achieved through competition. I will quote portions from each of the reports and then pose some questions for deliberation.

FTC FILES

To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy. A report by the Federal Trade Commission/October 2003

Executive Summary:
“Competition can stimulate innovation. Competition among firms can spur the invention of new or better products or more efficient processes… Companies may invent lower-cost manufacturing processes, thereby increasing their profits and enhancing their ability to compete. Competition can prompt firms to identify consumers’ unmet needs and develop new products or services to satisfy them.
“Patent policy also can stimulate innovation… To obtain a patent, an invention (that is, a product, process, machine, or composition of matter) must be novel, non-obvious, and useful. Moreover, a patentee must clearly disclose the invention. A patent confers a right to exclude others from making, using, or selling in the United States the invention claimed by the patent for twenty years from the date of filing the patent application.

… if patent law were to allow patents on ‘obvious’ inventions, it could thwart competition that might have developed on the obvious technology.”

Summary of Conclusions:

“Questionable patents are a significant competitive concern and can harm innovation.”

“A poor quality or questionable patent is one that is likely invalid or contains claims that are likely overly broad…One firm’s questionable patent may lead its competitor to forgo R&D in the areas that the patent improperly covers.

“If a competitor chooses to pursue R&D in the area improperly covered by the questionable patent without a license to that patent, it risks expensive and time-consuming litigation with the patent holder.

“Another option is to find a legal means to invalidate the patent. PTO (U.S. Patent and Trademark Office) procedures allow very limited participation by third parties. A lawsuit in federal court may not be an alternative, because a competitor may not sue to challenge patent validity unless the patent holder has threatened the competitor with litigation.

“If the competitor is not on the verge of marketing an infringing product, the patent holder may have no reason to threaten litigation… If litigation does take place, it typically costs millions of dollars and takes years to resolve. This wastes resources.”

Summary of Recommendations:

“Tighten certain legal standards used to evaluate whether a patent is ‘obvious’.”

“‘Prior art’ consists of materials – often patents and publications, although affidavits and testimony also may present prior art – that reflect one or more of the features or elements of the claimed invention. An invention is ‘obvious if it does not represent a sufficient step beyond the prior art.’

“Patent law precludes patenting if the differences between the claimed invention and the prior art are such that ‘the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art.’

“‘Non-obviousness asks whether a development is a significant technical advance to merit the award of a patent.’ A proper application of this statutory requirement is crucial to prevent the issuance of questionable patents, including trivial patents and patents on inventions essentially already in the public domain…”

DEPARTMENT OF JUSTICE/FTC REPORT

Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition. A report by the U.S. Department of Justice and Federal Trade Commission/April 2007

Introduction:
“Intellectual property laws create exclusive rights that provide incentives for innovation by ‘establishing enforceable property rights for the creators of new and useful products, more efficient processes, and original works of expression’.
“Antitrust laws, in turn, ensure that new proprietary technologies, products, and services are bought, sold, traded, and licensed in a competitive environment… Antitrust laws foster competition by prohibiting anti-competitive mergers, collusion, and exclusionary uses of monopoly power…
“… the Agencies must apply antitrust principles to identify illegal collusive or exclusionary conduct while at the same time supporting the incentives to innovate created by intellectual property rights.”

ANOTHER LOOK
Let’s return to our story of the Printer, the Retailer and the Doormaker. Some questions:

Suppose the Doormaker filed its U.S. patent application in October, 2005. The law provides certain protection one year prior to the application. Were any doors anywhere in the world being inkjet-printed before October, 2004?

If you have examples of this “prior art,” what’s your incentive to make it public? Are you willing to ask for a “re-examination” of the Doormaker’s patent as a third party?

Does the impact of our story depend on your point of view, where your company sits in the market? Is your company a digital graphics print provider, a flatbed printer manufacturer, or a competitor to the Retailer that has legal permission to inkjet-print onto doors?

Is any of this fair? If not, what person or company or organization or association gets to carry the fight forward?

The tension between questionable patents and anti-competitive impact is unlikely to be reduced in the near future. Knowing this, what do you do as a company, pro-actively, to be assured that you don’t suffer the fate of our Printer example?

Comments, additional questions, ideas for helping fight questionable patents? My e-mail address is at the start of this column. I’d like to hear from you.

The Fine Print: This column is meant to explore issues of importance to your business. I am not offering legal advice. You will always need to consult with your attorney and other business advisor before considering any of the ideas discussed in this column.