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Innovation Wars - a patent system "working as intended" or "run amok"?

 

A lot of controversy has boiled up in light of Apple’s recent patent for the IPAD - famously dubbed the “rectangle with rounded edges” patent: http://www.freepatentsonline.com/D669069.html

Whatever the opinions on the merits of this particular patent or other individual patents, it is hard to ignore the fact that patents, and in particular lawsuits around patents have become a core part of the mobile communications business - in a massive way.

On June 23, 2011, US lawmakers passed a major bill to overhaul the patent system for the first time in 60 years. It was a rare bipartisan victory for lawmakers and pointed to the loopholes and inefficiencies in the current system.

As the recent smartphone patent wars have shown (in the opinion of some), the patent system is far from perfect. Technology patents are hot commodities for tech firms, who regularly shell out billions of dollars for patents for minor innovations. In July last year, arch-rivals Apple and Microsoft teamed together with RIM, Sony and EMC to purchase 6,000 Nortel patents for $4.5B. Kodak expects to get at least $2.6B from 1,100 patents at an upcoming auction which has already generated major interest from industry majors, Apple and Samsung.

The huge premium for patents and Apple's recent $1B patent victory over Samsung prove one thing: the next technology wars will be fought as much on asserting patents as defensive and offensive “weapons” as on innovation. Patents are traditionally designed to be defensive measures, intended to safeguard an invention against exploitation by competitors. What has become evident to some in the tech patent war is that patents are being deployed to aggressively discourage competition and stifle innovation. After Apple's victory over Samsung in a California court, even Apple co-founder Steve Wozniak said, "I hate it, and I don't agree with it".

The statistics are startling:

  • Stanford University estimates that $20 billion was spent on patent litigation and patent purchase in the smartphone industry alone over the last two years.
  • Google's purchase of Motorola Mobility for $12.5B in August 2011 was largely for its patents.
  • Google was virtually forced to reinforce its patent portfolio with the Motorola Mobility purchase after it lost auctions to Microsoft, Apple, RIM for Nortel's patents.
  • Companies are spending more  and more on patent litigation as compared to corporate R&D.

The High Cost of Innovation

Patent wars are nothing new, especially in the technology sector. A 1929 TIME article points to a patent war for radio patents in the early half of the 20th century. The difference today is the sheer scale and aggressiveness with which tech firms defend their intellectual property, often colluding with competitors to safeguard virtually every possible innovation. Flush with cash (Apple: $110B, Google: $49.2B, Microsoft: $66B), these tech firms have been able to aggressively protect and litigate against competitors both big and small on ‘innovations’ as minor as rounded corners on mobile icons. 

Despite last year’s reset, the current patent system is criticized by many as woefully inadequate to protect the interests of smaller innovators and inventors. The US patent system, in its current incarnation, was designed for a mechanical world. In a digital world, this system has been found to be wanting and confusing and fraught with massive delays and risk (imagine a company moving forward with confidence on the basis of an app and investing hundreds of millions, only to find years later that it won’t be granted without its claims being gutted).  

Excessive patent litigation has come at the cost of corporate R&D, with major tech firms fighting their battles in courtrooms rather than the marketplace and the research laboratory. The plight of small inventors can easily be imagined in such a scenario.

The increasing cost of innovation can throttle development in technology and deter small inventors from competing.  It is good to see that the US is starting to recognize some of these issues and act on it, but what is also needed is a more strategic recognition of the costs/benefits of a poorly performing system (again, let’s just take the metric of pendency as an example) and action to fix some fundamental operational considerations - that should be easy in comparison to tackling the complex issues of an evolving technological marketplace and its needs with respect to patent rules.