Managing Essentials

International Friends and Foes: Information Information Technology Patent Wars

Both parties were fighting angrily over their concepts and the judge became impatient. Is a "tap" just a very short "swipe" or something completely different? It would not really be convincing to call a point the shortest form of a line, argued the judge, and the case was dismissed. He dismissed it "with prejudice" making it more difficult for them to return to his bench soon. This certainly appears very funny, however, it was a serious matter, as the parties in the case were the companies Apple and Motorola. They were fighting over the applicability of a patent about unlocking a phone by swiping or tapping its screen. Judge Richard Posner is a prolific jurist who has written several books, including one about economic and intellectual property law. Normally he sits at the 7th US Circuit Court of Appeals in Chicago, but took the case over from a lower district court. He wrote after the trial in The Atlantic that there are just too many patents in America. This patent war between Apple and Motorola is just one of many currently going on. In fact it is difficult to have a full overview as the companies involved like Apple, HTC, Nokia, Motorola, and Samsung sue each other in several different countries making their legal wrangles difficult to follow. Apple and Samsung alone seem to be engaged in more than 30 legal disputes distributed over 10 countries. There are not only several countries in which to wage legal fights as institutions like the International Trade Commission also offer a place for haggling. The basic problem is that technological gadgets nowadays often comprise tens of thousands of patents making it almost impossible to keep track from a legal perspective. These patents refer not only to the hardware but also to its look and feel especially relating to the user interface. In hardware issues often fair use agreements of patents need to be found otherwise communication between devices and over networks would become a critical issue and lack of interoperability would be a disadvantage for all. However, the look and feel of a device, be it the order and position of menus on the screen, the ability to stream movies or the activation of the device by swiping or tapping, have become a major terrain of competition. Consequently the company most famed for its brilliance in design is involved regularly when a patent war comes up. Steve Jobs remark to go thermonuclear against Android as a stolen product was thrown out of court as an argument, but the statement indicates the temper with which intellectual property is defended. The purpose of a patent is to shield the holder against a competitor copying innovative ideas and developments. A patent confers a monopoly which in the USA is for a period of twenty years if the innovation is novel, useful, and not obvious. Judge Posner sees the most controversial feature of US patent law being the non-discriminative between types of inventions and industries. In consequence for every innovative feature relating to a product a

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International
patent application can be filed. The hurdle to get the patent is fairly low since there is no indepth examination of applications. Every year the US patent office issues about 80,000 patents in the area of information technologies alone. The granted patent is presumed valid until it is declared invalid in court proceedings. The number of patents has swelled to a mass which makes it very difficult to know beforehand if a patent is infringed and in most cases it needs a challenger, usually a competing company, to take a patent down. Robert Black, president of the US Computer and Communication Industries Association speaks of a patent pollution. This proliferation of patents has led to two new phenomena in their use. The first is defensive patenting; companies buy patents en masse not to fend of possible copies of a product but to make sure they are not infringing existing ones of which they may be not aware . Secondly, so called patent trolls buy patents not to secure their products but to trap companies who might infringe them. Patent trolls cost US companies about US$ 29 bn last year and while the big companies make headlines, this burden is mainly felt by the smaller ones. Over 80% of the companies sued for patent infringement had revenues of less than US$ 100 mn. The perfunctory examination of patent applications also takes its toll on customers and producers. Since patents are issued on a first come, first serve basis a company with a better but similar innovation might lose the race and be afraid or disabled to market its product for possible patent infringement. This can result in customers suffering by being provided with the fastest product available which is not necessarily the best. At least in the USA two ways to solve these problems emerge. The first is for a stricter regime relating to the patents issued. Judge Posner argued that some industries could manage successfully without patents and therefore patents should be restricted to those industries, like the pharmaceutical industry, in which considerable money and research has to be invested until a patent can really be exploited. Complementary, in the court cases parties should be forced to make a really solid case for the damage that is incurred by the infringement of the very few patents which actually form the basis for legal action aimed at completely banning a competitors product. Finally, this is a field in which international courts could be of considerable help. Only local legal traditions can explain why a device is banned on infringement accusations in some countries but not in others. In the end, are the companies suing each other actually foes? Not really, as a forthcoming case of Apple vs. Samsung indicates. In the preliminaries the judge rejected several requests from both parties to keep documents out of the public eye and ironically Samsung also manufactures important parts for Apple products. "The Economist" described their relationship as "symbiotic". Maybe some explanation for these wars may lie in a competition between legal departments and law firms which has got out of hand. Certainly the money is

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better invested in research and development for new innovative products which can convince customers of their worth and desirability without a patent wrangle.
Why There Are Too Many Patents in America (Richard A. Posner) www.managing-essentials.com/2gy Patent Trolls and the Growing Toll On Innovation (Edward J. Black) www.managing-essentials.com/2gz Slicing an Apple: Apple and Samsung's symbiotic relationship (The Economist) www.managing-essentials.com/2g1