On World Intellectual Property Day, an annual UN sponsored event intended to highlight the worldwide impact intellectual property (IP) has on economic advancement and cultural development as well as to promote discussions about the role that IP plays in innovation and creativity, the U.S. Patent and Trademark Organization and the Institute for Policy Innovation hosted an event in Texas. Why in Texas? To highlight the rich patent landscape across the state.
The goal of the event was to encourage, and understand, innovation and creativity statewide. When consumers consider “innovation” they likely think of physical products they can touch. Or perhaps they think of technology, such as how we rarely need to be tethered to cords to make phone calls or access the Internet. Less often do consumers consider the intellectual property that is fundamental to all innovation.
Today’s electronic devices are the result of and dependent on varying levels of intellectual property rights, the legally protected creativity and insight of innovators who own the rights to specific patents and how they are used by others, often through licensing. The U.S. patent system is designed to protect and spur this constitutionally protected innovation, but sadly some are seeking to exploit the system in an attempt to maximize profits. Such action jeopardizes innovation, creates a barrier for innovators, and heaps unnecessary financial burdens onto consumers.
One part of the U.S. patent ecosystem is the “patent pool,” which is just what it sounds like: A group of companies agreeing to cross-license patents relating to a particular technology, a sort of a co-op managing certain intellectual property.
Patent pools, by design, were intended to save innovators time by creating efficiencies, and money by establishing cross-licensing agreements for specific technologies. To avoid charges of collusion—that is, companies working together to the detriment of the consumer—the Department of Justice must approve of the pool and grant an anti-trust exemption.
This system has worked well, but of course one bad apple threatens to spoil the barrel. The for-profit patent pool MPEG LA has, since 1997 when the Department of Justice approved it, licensed the use of DVD and video streaming technology. But lately MPEG-LA has been charging excessive rates for access to technology which is no longer even protected by patent, that is, technology that is freely available to the public without any license. In fact, ninety percent of the patents within the MPEG 2 pool will expire by 2015, with one-half of them already expired, but MPEG LA locks in licensees for contractual periods that extend far beyond the life of the patents it is licensing—odd behavior for the mere custodian of the patents owned by others but contributed to the pool.
So long as this practice continues consumers are paying inflated prices and innovation is slowed.
MPEG LA’s unwillingness to adhere to the principles for pool formation laid out by the Department of Justice is even more concerning as such actions could result in regulatory intervention, harming the patent pool system as a whole. In sum, MPEG-2 is a rent seeker, an entity making money off of government granted protection that was intended to benefit innovators and consumers.
Intellectual property’s contribution to creativity should and can be appreciated, even as we work to secure the system to continue to protect IP and make sure that innovation flourishes. For the sake of the next generation of creativity in technology—and for consumers’ wallets—we must work to ensure that bad business practices are put to rest.
Bartlett D. Cleland is Policy Counsel with the Institute for Policy Innovation (IPI), an independent, nonprofit public policy think tank based in Dallas.