Runaway IP

UPDATE: Alcatel-Lucent GC Steve Reynolds submitted a letter to the editor in response to this column. You can read it here.

One of our lawyers stopped me in the hallway, asking, "Have you heard about the verdict from San Diego?" I hadn't, although I'd been following closely the patent case Alcatel-Lucent had filed against us there. The case involved two patents that were less relevant to our products than a much broader patent pool Microsoft had previously licensed for $16 million.

My natural question was what the outcome had been. When I was told the jury had returned a verdict of $1.52 billion, I thought I had misheard something: "I think you must have meant million, right?" Unfortunately, I had heard the news correctly.

My second reaction was to remind myself that one of the traits in-house counsel need is the ability to remain unflappable, especially when the news is bad. But it's often hard to

know how best to react to extraordinary developments.

It's easy to overreact, and it's also possible to underreact. The monster verdict from San Diego is but one of many recent challenges and controversies for the U.S. patent system. In an important sense, the question for in-house lawyers is similar to the one I confronted in the hallway: How should we react to the IP issues that a globalizing economy and rapid changes in technology have ?? 1/2 created?

On the one hand, I believe it would be easy to overreact. When we read about runaway juries or patents that don't make sense, it's easy to forget the fundamental role the patent system has played for generations in moving innovation and our economy forward.

When people suggest the system can't keep pace with new technology that is so different from the past, it's easy to forget the resilience our patent system has shown for more than two centuries. The country's third patent application--approved in 1790--was for an improved candle.

Technological developments have always created new legal challenges, but the system has proven its ability to adapt repeatedly to meet these new needs. Even runaway verdicts are curbed through the reviews that district and appellate courts exercise, as we'll pursue in the Alcatel-Lucent case.

On the other hand, it's important to recognize that the patent system has adapted by changing over time, not by standing still. Just as in prior eras, it's important for the system to continue to evolve. The Supreme Court is helping, taking cert in a record six patent cases over the past two years. Congress needs to help as well. We need to ensure that the PTO has sufficient resources and that the law sustains high standards.

We also need to curb litigation abuses, whether in the form of weak willfulness claims or inappropriate forum shopping. And we need to ensure we have a patent system that works globally through greater international patent harmonization and that courts refrain from applying their patent laws beyond their borders. The latter is an issue we've taken to the Supreme Court in the hope that the country will get this formula right.

Amid all the calls for legal innovation by courts and legislators, it's easy to forget that in-house counsel in companies have important roles to play as well. As technologies converge and business models collide, one of the most important innovations will come in the form of new IP licensing models between companies and industries.

Indeed, creative approaches to IP licensing may do more than anything else to ensure that technology and IP move forward together. Microsoft's recent agreement with Novell, building a bridge between proprietary and open-source software, is but one example of the opportunities for legal innovation.

As the verdict from San Diego portends, we will continue to see some unexpected legal developments, and not all of them will be pleasant. We'll all need to be unflappable, maintain a broad perspective and act with determination to make needed improvements.

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Brad Smith is the senior vice president, general counsel and corporate secretary of ?? 1/2 Microsoft Corp.

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