New research and rulings by the U.S. Supreme Court might make companies and inventors wonder if patents are worth the trouble to file. The debate is fueled by an upcoming book from former Boston University Law School professors, James Bessen and Michael Meurer. The two compiled data about the money behind patents and patent litigation. They found that, excluding the pharmaceutical industry, since the 1990's companies spend more on litigation than they make in profits.

The authors note that “patents do provide profits for their owners, but taking the effect of other owners' patents into account, including the risk of litigation, the average public firm outside the chemical and pharmaceutical industries would be better off if patents did not exist.”

They believe the problem exists because patents today often fail to grant well-defined property rights. “Over the last two decades, the courts have made patent boundaries less certain, permitting increasingly abstract patent claims and tolerating patents on a growing number of obvious inventions. As a result, innovators cannot easily and reliably determine whether their technology infringes on other patents.”

Because dismantling the patent system is not an option, the authors call for reform. They would make patent claims transparent, changing the way claims are defined, published, and recorded so there are clear boundaries on what the patent covers. They would add a department to the Patent Office that, for a fee, offers innovators a chance to see if their technology infringes a patent. They'd reduce the number of patents by raising renewal fees and not allowing patents on obvious inventions.

The concept of “obviousness” is a buzzword in patent litigation. A recent decision by the Supreme Court ruled against a patent-holding company claiming their concept was obvious to a “person having ordinary skill in the art.” For example, the case of KSR v. Teleflex involves an automobile accelerator pedal made by KSR that includes an electronic sensor that adjusts pedal position to the height of the driver. Teleflex claimed the pedal infringed on a patent it held. But KSR argued back, and the Court agreed, that combining a sensor and gas pedal was a logical progression. The concept didn't pass the obviousness test. Justice Anthony Kennedy wrote for the Court, “The results of ordinary innovation are not the subject of exclusive rights under the patent laws.”

Because this ruling gives courts wider discretion in determining obviousness, you may need more proof when filing patent applications for seemingly simple concepts. And patents that are just incremental changes to an existing product will be particularly scrutinized. To ensure patents pass the obviousness test, R. Polk Wagner, law professor at the University of Pennsylvania, suggests keeping detailed notes and documents that show why your idea is unique. Even better are letters from colleagues or detractors that question the validity of your innovation. Surprising and unexpected results are also evidence of non-obviousness.

As for reducing patent litigations, there may be hope. In mid-July a House of Representatives committee approved the Patent Reform Act of 2007, a bill which will set up a process to reevaluate patents after they are granted. The process filters out bad patents by letting companies challenge them without having to go through lengthy litigation. The bill also eliminates a provision that allows open-ended challenges to a patent's validity. The proposed bill limits such challenges to the first 12 months. Another change to the patent system includes a shift from a “first to invent” system to the “first to file” system used in other countries.

Companies with products that include hundreds of patented components support the bill. Pharmaceutical companies are not happy with the bill, saying it will weaken the IP protection offered by their patents. Previous reform bills failed to make it out of committee and if this bill passes, it will be the first reform in decades. And just maybe it will be enough to keep litigation costs down and make patents profitable again.