Patents have been a lucrative source of highly profitable income for the technology companies that have accumulated sizable portfolios over the years. Companies earn income by licensing their patents to other companies or by prosecuting others who are felt to infringe a patent. At the same time, a patent portfolio is a wonderful way to gain access to the technology owned by another company through a cross-patent licensing agreement. And a counter-suit based on one or more patents in a portfolio is an excellent defensive mechanism when other companies attempt to sue for infringement. It’s easy to understand why technology companies like to have extensive patent portfolios gained through innovation by employees or acquisition from other companies. Much of the value in Google’s recent acquisition of Motorola Mobility, for instance, comes from the patents owned by Motorola Mobility, even if some of those patents are reasonably antiquated in the context of current technology. It’s also interesting to see how Amazon’s purported plan to create an Android-based smartphone is accompanied by an effort to assemble sufficient patents to ward off future lawsuits, much like those who ventured into the realm of vampires wore garlic.
Patents are much beloved by lawyers too. First, patents are written in a strange form that might not be readily understood by the man in the street and therefore requires the service of lawyers to write patent applications and interpret the text in the final form of the patents. Convoluted and complex sentences are a specialty. The lawyers would say that their text is constructed in such a way that the invention described in the patent is clear. However, the output is often difficult to read and understand if you’re not familiar with patents, which means that businesses engage lawyers to understand these documents. And of course, when infringements are considered, lawyers are needed to detect, prosecute, and defend the allegations. The result is a veritable torrent of professional fees from a multitude of cases taken by different technology companies against their peers. The number of cases has been steadily growing too as companies like Apple become more aggressive in using their patent portfolio to defend market segments like smartphones against rivals.
I’m not a lawyer, but my awareness and knowledge of patents was gained as a member of Alpine Engineering and Design, Inc. corporate Intellectual Property committee over a seven year period as well as enjoying the responsibility for managing patents for a large business unit for six years. As such, you could say that the patent lawyers who supported businesses educated me over that time. In addition, I am the co-inventor of a patent granted in the U.S. and Europe and have been involved as an expert witness or consultant in a number of recent cases, so I’ve been able to observe how patent lawsuits evolve from initial allegation of infringement onwards to prosecution and trial.
Observing the rush to the courts by companies who seek to preserve and uphold their rights is interesting, but a recent judgment by Richard Posner in the U.S. might encourage some common sense to the cut and thrust of the lawsuits filed by technology companies. Posner, a judge of the U.S. court of appeals for the 7th circuit (and co-author of an interesting blog) set a high bar for companies to prove and specify damages in a case argued between Apple and Motorola Mobility (now owned by Google) by finding that neither side proved a good case for damages to be awarded. The judge said that a declaratory judgment “would have no practical effect” and dismissed both claims with prejudice, which stops the claims being refiled in future. Posner noted that Apple failed in this case “despite its vast resources and superb legal team, to do so (quantify the benefits of infringement) in a minimally acceptable manner—failed whether because of mistakes in trial preparation (which even the best lawyers can make), or because too many cooks spoil the stew (Apple is represented by three law firms in this litigation), or maybe because the infringements did not deprive Apple of any profits…” Wow! Mind you, the lawyers might have known what was coming as Posner had derided some claims during the hearing, including an Apple claim that their patent covering unlocking a phone with a swipe had been infringed if a user tapped instead saying “Apple’s argument that a tap is a zero-length swipe is silly. It’s like saying that a point is a zero-length line.”
Posner subsequently threw some additional cats into the proverbial pigeons by questioning whether software should be covered by patents at all. Cue panic in the offices of companies who have assembled substantial patent portfolios, including the patent trolls (or more charmingly, as they were called in a recent WSJ article, non-practicising entities or NPEs).
Another example of common sense occurred in the U.K. High Court when Mr. Justice Lloyd ruled against Apple in a suit brought against HTC alleging infringement of four patents relating to iPhone, including a “slide-to-unlock” patent that’s deemed to be pretty fundamental to the operation of modern smartphones. In this case, a patent to protect sliding to unlock a smartphone was deemed partly invalid because it was “too obvious” and the judge ruled that HTC did not infringe the remaining part of the patent. Applying the test of obviousness sounds like eminent good sense to me. It would be nice if some of the patent examiners applied the same test when they accepted patent applications. However, in saying this, I admit that the examiners are under terrific pressure caused by much work, possibly too little resources, and maybe just some stress from the lawyers who file the claims.
Apple ran into another problem in the U.K. High Court on July 9 when their case against Samsung that alleged the Galaxy Tab copied the iPad was thrown out by Judge Birss, who said: “They do not have the same understated and extreme simplicity which is possessed by the Apple design,” and “They are not as cool. The overall impression produced is different.” The judge noted that the Galaxy Tab was substantially thinner than the iPad and that the Samsung devices had “unusual designs” on the tab. All-in-all, another bad defeat for Apple’s lawyers.
Update (July 18): According to some reports, Apple is being forced by Judge Birss to publish a notice on their website and in several British newspapers to correct the “damaging impression [that] the South Korean-based company [Samsung] was copying Apple’s [iPad] product.” Apparently the report has to stay on Apple’s site for six months – I can’t find any trace of the notice on Apple’s UK site, but I’m sure that it will only be a matter of time before it shows up.
Update (July 26): Apple won a stay on having to post the notice about Samsung not copying the iPad. The legal games continue.
One or two rulings do not bring the whole edifice of suit and counter-suit tumbling down. However, it should create some doubt in the minds of patent lawyers and the companies that they serve when the time comes to decide whether to press ahead with cases that could cost an awful lot of money and result in the same kind of outcome that Apple has recently experienced in the U.S. and U.K. I think that this would be a very good thing because many patents are pretty obvious or can be easily worked around if they are inadvertently infringed. In fact, many patent infringements aren’t really serious and are hardly worth prosecuting, so lawyers and companies alike might start to focus on the really important or fundamental patents that describe and protect obvious innovation. For example, I think Apple’s patent covering the use of sensors to indicate obvious water damage to electronic devices is worthy of protection because it addresses a real-life problem in an innovative manner.
The old adage that a patent portfolio is composed of 1-2% fundamental patents, up to 10% of commercially interesting patents (that can be used for cross-licensing or defensive purposes) and 90% of patents that don’t really add much except numerical weight (or rather tomes of obscure text) seems to be getting truer. Perhaps we’ll see more of the type of agreement reached by Facebook and Yahoo! last Friday to settle differences in what seemed to be a pretty crazy attempt by the previous Yahoo! CEO to extract a ton of money from Facebook. The agreement settles the case and lets the two companies engage in a more productive form of intellectual property sharing. It would be nice if a similar conclusion was reached more often.
I doubt that companies will cease suing each other for patent infringement as other judges will probably be more open to the pleading of those who think their patents have been infringed, but it’s nice to see some element of sanity being restored to the debate.
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Although the Googles and the Doctorows of the world will attempt to convince you otherwise, there is no information economy without intellectual property.
One question out of a multitude raised. Do you know of anybody who has seriously analysed and hypothesised a life without patents?
Nope, I don’t know if anyone has figured out how the commercial world would function without patents. One issue is that the notion of protection of intellectual capital is firmly embedded into business processes and assumptions. Introducing a new way to create, share, protect, and use innovation would be a huge upheaval that I don’t think we have a good answer for today. The question being posed by Judge Posner is interesting, however, because it might be the start of a debate about what can be protected through patent and eliminate some of the obvious claims being pursued today.
Health and safety springs to mind for any developments using DNA, which I do not think should be sold on to the general public.
Leaving the rest of the patents with academic rights of the relevant local universities.
Finding some other description for the moving of large quantities of money between firms.