Jack Ellis

Microsoft general counsel Brad Smith announced at an event held in Washington DC last week that the company would be making details of it patent holdings publicly available online. The pledge – intended to demonstrate Microsoft’s commitment to greater transparency– came as part of a raft of proposals for improving the patent system outlined by Smith at a Capitol Hill briefing held by BSA | The Software Alliance and the US National Association of Manufacturers. But while the suggestions made by Smith may be good for Microsoft, they could put smaller players at a disadvantage.

In a blog post repeating his comments from the event, Smith writes that “by April 1 of this year, we will publish on the web information that enables anyone to determine which patents we own. We hope other industry leaders will follow suit”. There has been much debate of late on the issue of transparency with regards to patent ownership. In November last year, David Kappos spoke about its importance not long before news broke that he was stepping down as Director of the USPTO; while last month, the agency held a workshop to discuss the possible introduction of requirements to record patents’ ‘real-party-in-interest’. A joint US Department of Justice and Federal Trade Commission workshop on the possible anti-competitive effects of NPE activity also asked questions about the lack of clarity surrounding the ownership of patent assets. Additionally, analytics firm IP CheckUps plans to create a public database of the patent portfolios of NPEs and the shell companies that many use to hold their IP.

Beyond Smith’s announcement, there aren’t any details yet on what form Microsoft’s online patent catalogue may take, and what level of detail it will go into. While providing the titles and numbers of all its patents is certainly a step on the road to greater transparency, there is plenty of information that the company could choose to withhold while sticking to its promise.

As Smith points out, transparency of ownership helps to facilitate licensing – something which generates a lot of revenue for Microsoft. Last week, camera manufacturer Nikon was added to the long list of companies which have signed up as licensees to Microsoft patents which apparently read on the Android operating system. However, the rest of us (including any other potential licensees) remain in the dark as to precisely which patents are involved. Furthermore, there has never been any mention of the sums involved in the various deals Microsoft has done with Android users. When it publishes its online list, the chances that Microsoft will reveal anything about licensing price points are probably around zero.

It is also worth noting that a party can have an interest in a patent without actually owning it. A public list of patents that a company owns could exclude many of those which are most valuable to it (and, potentially, to its competitors) but have been assigned to someone else to manage under contractual terms known only to those involved in the deal. There is no suggestion that Microsoft does this, or has done so in the past, but there is nothing to stop the company from doing so. And we know that others, such as Nokia, Micron and BT certainly have.

If they were implemented, the suggestions made by Smith – including the call for companies to be more transparent regarding their patent ownership, and the suggestion that a ‘loser pays’ rule for patent litigation be introduced to “force companies to internalize the strength of their case [before filing suit]” to deter “frivolous litigation” – would not represent a huge sacrifice on the part of Microsoft. However, they could cause some very real problems for other patent owners with less sophisticated IP operations. As suggested above, a fuzzy notion of transparency would allow Microsoft to maintain a certain level of licensing leverage. Others, however, might find that disclosing which patents they own would lead to challenges through re-exams and declaratory actions; while smaller enterprises that lack Microsoft’s deep pockets would consider it even more risky to assert their rights if there was the potential that they might have to pay the other side’s costs were they to lose. As a result, the effect of Smith’s suggestions may actually be an increased likelihood that companies would choose to work with third parties that could offer themselves as both portfolio managers and assertion agents; it would just be a matter of framing the contracts correctly. Were that to happen, all we would end up with is just another kind of NPE.

It is fair enough for Smith to say that we should “fix what’s broken” with the patent system and not “break what’s working”. The problem is that not everyone agrees on what is broken – or even if anything really is broken. What is good for Microsoft – or for any other specific company or group of companies, for that matter – is not necessarily what is good for the patent-owning community and the patent system as a whole.