A Bigger, Meaner Patent War

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Why today’s patent war is worse than past wars – and what this heralds for the future.

It’s been called a patent war, and it’s raging over much of the globe. In at least ten countries – including the United States, Germany, the Netherlands, Australia and South Korea – Apple is locked in ferocious legal battles against Google, Samsung and HTC over whose smartphones and tablets infringe whose patents.

There’s a lot a stake: Damages could run into billions of dollars. Even worse, the loser could wind up being forbidden to sell its products in various markets.

This costly, high-stakes global patent war may seem unprecedented. But according to many experts, that’s only partly true. In many ways, this patent war is similar to major patent disputes in the past. And it is likely a foretaste of more patent wars in the future.

Major patent battles are nothing new. “While the smartphone wars are in the news and are very dramatic, they repeat on a larger scale what has happened many times before,” said Prof. Richard Gilbert, who teaches economics at the University of California at Berkeley. “Since the beginning of patent law, virtually every new industry has gone through some kind of patent battles.”

In the mid-1800s, for instance, there were huge patent battles over sewing machines and agricultural inventions. These were followed by major patent fights in many other breakthrough industries, including aviation (involving the Wright Brothers), radio, telephone, automobile, television, and computer.

Such battles routinely occur whenever a breakthrough technology enables the creation of exciting new products. Competing providers of these products, in order to boost (or protect) their market share, claim some exclusive rights to the new technology. “This situation sets up the circumstances for a patent war,” said Paul Schneck, chairman of Rembrandt IP Management. “Sometimes a [market] dominant company has the patents and sues; sometimes a ‘wanna be’ company has the patents and sues; sometimes a bystander realizes that its patents are on point and, thus, sues.”

The current patent war fits this pattern. However, the ongoing war is much bigger than its predecessors. The participants are more numerous and more powerful. They are fighting over many more patents and in many more venues. They are far more eager to fight about patents, and they have far more at risk if they lose.

More to Fight About

Traditionally, a patent war has been fought between one business and a rival, noted Stan Gibson, a partner in the law firm of Jeffer Mangels. By contrast, today’s patent war involves four major players.

All four are huge businesses with deep pockets. They all have significant stakes in a lucrative and quickly growing industry. Contestants in prior patent battles were far smaller (in absolute terms), and they were fighting over a smaller industry. In short, more companies are now fighting, and they have more financial resources to support their fights.

Participants in the current patent war also have far more to fight about. “Instead of battling over a few patents, they now are battling over thousands of patents,” Gilbert said. This is largely because smartphone technology is so complicated, a product could easily touch on tens of thousands of patents.

This proliferation of patents not only expands the scope of conflict, it almost guarantees conflict will occur. There are so many relevant patents, it is extremely difficult for any business to locate and design around the potentially infringing ones. “When there are a lot of patents being issued, it is hard to obtain good notice [of applicable patents]. The notice problem is big,” said Prof. Katherine Strandburg of New York University Law School.

This notice problem is compounded by the dubious quality of many software patents – particularly older patents that issued before the US Patent and Trademark Office (USPTO) became familiar with relevant prior art. Some of these patents should never have issued, according to experts. And many other software patents are woefully unclear. “Even if you find a [relevant] patent, the patent claims may be so vague that you don’t know if your proposed product is infringing,” Strandburg said.

The uncertainty over patent rights is exacerbated by the unsettled state of US patent law. “It is probably undergoing more change than any other area of [US] law,” Gibson said. “The US Supreme Court is taking two to three patent cases a year. The Federal Circuit [often called the nation’s patent court] is issuing a lot of significant rulings, too. And Congress recently enacted a major revision in the patent statute. Whenever you have that much change in an area, you will have more litigation. Especially in an industry that has lots of technological change and lots of money at stake.”

More Venues for Fighting

The current patent war rages in far more venues than past wars. This is partly the result of globalisation. Companies now make and sell their products all over the world, so their patent fights are similarly international. Instead of suing in just one or two countries, as was commonly done in the past, participants in the current patent war are filing actions in multiple countries.

Even within just the United States, the patent war is being fought in more venues than in the past. Participants are litigating in different courts. They are battling before the International Trade Commission (an administrative agency that can exclude infringing imports from the US). And they are participating in USPTO reexaminations, where the agency is taking another look at the validity of some smartphone patents.

Two of these venues saw little use in earlier patent wars. The ITC can exclude infringing imports; it can do nothing about purely domestic infringement. Thus, during the many years when US companies routinely made their products domestically (prior to globalisation), patentees had scant reason to use the ITC.

PTO reexaminations used to be relatively rare. The review process was so feeble, many saw it as just rubber-stamping existing patents, according to Jon Wright, a partner in the law firm of Sterne Kessler Goldstein & Fox. Thus, fairly few patent challengers bothered to seek a PTO reexamination. Then, in 2005, the PTO overhauled its reexamination process and gave it teeth. Those challenging patents took note, and since 2005, the number of reexaminations has steadily and significantly increased.

More Eager to Fight

Patents used to be fairly esoteric. They were of interest, by and large, to just a relatively small circle of researchers and attorneys.

Not any more. In the last few decades, patents have taken center stage as key business assets. Companies such as IBM, Qualcomm, and Texas Instruments have raked in billions of dollars annually from licensing their patents. Patent sales also generated large returns. AOL, for instance, sold some of its patents for over $1 billion. Nortel sold a group of its patents for $4.5 billion. With such well-publicised deals, it’s no wonder that most people now appreciate the financial power that can be obtained from patents. And it’s no surprise that many people – including top corporate officials – have become determined to exploit their patents to the fullest.

Such exploitation is not limited to licensing and selling patents. Corporate executives now see patents as weapons that can be used to drive competitors from the marketplace.

“The old model of keeping patents basically for defensive purposes is breaking down. Now, C-level executives are saying ‘we won’t let competitors violate our patents and steal our market share,’’’ said Erich Spangenberg, chairman of IP Navigation Group, a company that helps others monetize their patents.

Companies have become far more eager to sue for infringement. They are happy to use their patents offensively against business rivals and have become “comfortable with competing in the courtroom rather than just in the marketplace,” says Prof. Colleen Chien of Santa Clara University Law School. The result is that patent litigation has become more frequent.

A Different Future?

Past patent wars often ended with the participants settling their disagreements and licensing their patents to one another. The current patent war is likely to end the same way, some experts predict.

Apple, however, might not be willing to settle anytime soon. “As a practical matter, you’d think there would be a settlement that would get these suits resolved. But so long as Apple feels it can hurt competitors, it will continue to do what it is doing,” Gibson said.

Eventually, the patent war over smartphones and tablet computers will end. That, however, will not bring an end to patent wars. Whenever a technological breakthrough opens up a profitable new market, and companies jostle for a piece of that market, the result is likely to be yet another patent war. “We’ll see it all start up again. It’s a cycle,” said David W. Long, a member of the Dow Lohnes law firm.

Future patent wars could be smaller than the current one. They could involve fewer participants and fewer patents. There could be less uncertainty about the patents involved; the patent law may be more settled, and the USPTO and other patent offices may have good prior art records for the new technology, so fewer dubious patent claims may issue.

In other ways, however, the current patent war is likely to be a foretaste of the future. Future patent wars are likely to be fought in many venues across the globe. The participants will be keenly aware of the value of patents, and they probably will be ready – and maybe eager – to use patents as weapons against their rivals.

Steven Seidenberg is a freelance reporter and attorney who has been covering intellectual property developments in the US for more than 15 years. He is based in the greater New York City area and may be reached at info@ip-watch.ch.

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