ITC Case 337-TA-796 Patent laws in the United States have always been grounded in a utilitarian appeal

to encourage innovation. This principle is illustrated by Article I, Section 8 of the U.S. Constitution, which lists as one of the enumerated powers of the Congress the following: “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” But while patents were originally intended promote economic growth and foster the development of new ideas, patent laws have greatly deviated from their original purpose and are actually achieving the very opposite of what the framers of the Constitution envisioned. The case of Apple, Inc’s claim of ownership over what is basically, when stripped of the technical complications, nothing more than a common geometric shape, is a perfect example of the profound depths to which the nation’s patent wars have sunk. The shape of corners of the iPad is not the reason people buy it, nor will allowing other companies to utilize the same shape harm Apple in any way other than via the ordinary rigors of competition. It amounts to one of an untold number of necessary decisions the company had to make on its way to producing its product. On the other hand, if this patent is upheld, it will result in the blockage of Samsung tablets from entering U.S. markets, an outcome that would be indisputably detrimental to American consumers. Faced with a lower quantity of phones and fewer brands to choose from, consumers will be forced to pay higher prices, while simultaneously finding their buying options more limited than they might otherwise be. In any case, the patent under consideration is one which violates not only the laws of common sense, but which should never have been permitted under current patent laws, given that the thing being patented does not possess the quality of non-obviousness required as a condition of patentability. Books, paper, magazines and other print media have always used the rectangle shape, and it makes sense that newer devices that serve a similar purpose would follow the same model, while the rounded corners are an obvious adaptation to the shape of the hand and to avoid the potential for injury on sharp corners. Before the iPad other devices already employed a similar, albeit not identical, shape, so that Apple’s design can hardly be considered a true innovation. Furthermore, there is a considerable cost to the economy resulting from the frequency and duration of patent lawsuits of this nature, whose sole purpose is to capture economic rents from potential and actual competitors. The amount of due diligence required for a new business to ensure that it will not be the target of a financially devastating patent suit has become excessive to the point of deterring entry in many markets. A 2011 study by the Boston University School of Law found an annual cost to society of dubious patent fights amounting to $80 billion and rising. Most of these costs can be attributed to so-called “Patent Trolls,” agencies whose sole purpose is to amass thousands of random patents from a variety of sources and prosecute lawsuits alleging patent infringement solely for the financial gain--that

is, separate from any allegation of a competitive disadvantage, since these companies do nothing but buy patents and prosecute patent infringement lawsuits. Besides the cost of defending against patent lawsuits, the practice of awarding patents for minor or negligible innovations means that companies spend resources trying to devise and then patent as many of these innovations as possible, to use in any future patent battles. The two companies in the dispute, Apple and Samsung, have clashed a total of fifty times over similar charges of patent infringement, with these lawsuits spanning the globe, lasting years and racking up hundreds of millions of dollars in legal fees. These costs are ultimately passed on to the consumer, not to mention the opportunity cost of these companies not using their scarce capital in productive ways, such as in the area of research and development. If the ITC finds in favor of Apple, Inc. in Case 337-TA-796, the U.S. economy will undoubtedly suffer, not only by reducing consumer choice and competition in the tablet market in the short term, but also in the future, as the precedent set by this case will hasten the filing of even more absurd patents with the sole intention of prosecuting others and attempting to collect economic rents when no significant innovation has in fact been made. The long-term solution to this problem is to reform patent laws to ensure that the Patent and Trademark Office only awards patents for genuine innovations. But in the short run, disallowing frivolous patents such as the one granted for a rounded rectangle is best path for policy.

J. Ike Brannon /s/James I. Brannon President, Capital Policy Analytics

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