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    US Perspectives
    Innovation And The Law: Some Lessons From The Patent Wars

    Published on 27 July 2012 @ 9:34 pm

    By for Intellectual Property Watch

    They’ve been at each other’s throats for three years, and there’s no end in sight. Over two dozen businesses involved with smartphones and tablet computers are suing one another for patent infringement in numerous lawsuits around the world. These patent wars have cost the companies billions of dollars, clogged the courts, and prevented consumers from buying some devices they want with features they prefer. Is this really the best way to promote innovation and competition?

    Businesses caught in the patent wars have been paying a high price. They’ve spent $600-700 million in legal fees so far, estimated Prof. Mark Lemley of Stanford Law School. But that’s just for starters. The companies have forked over $15-20 billion to buy patents which they hope to use defensively and/or offensively, Lemley calculates. And the companies have had to pull many of their executives, software designers, and other staffers away from their usual tasks in order to handle the ongoing lawsuits.

    All this has siphoned money and man-hours away from the companies’ R&D efforts. If the businesses weren’t involved in these patent wars, “they would probably compete in a more socially productive way, by making their products better,” said Prof. Katherine Strandburg of New York University Law School. (Companies in this sector are now spending significantly more buying patents than on R&D, notes Prof. Colleen Chien of Santa Clara University Law School.)

    The courts, also, are paying a price for the patent wars. Judges with already-crowded dockets are struggling to find the time and resources to handle these complicated and time-consuming lawsuits.

    Lucy Koh, a federal judge in California who is presiding over a patent infringement lawsuit between Apple and Samsung, expressed her concerns publicly. She warned the litigants that “I just don’t have the human bandwidth” to deal with the rapidly escalating aspects of the firms’ smartphone and tablet lawsuit. Noting that she has many other cases to attend to, Judge Koh said “I cannot be [only] an Apple v. Samsung judge.”

    The patent wars have hurt consumers, too. Consumers’ ability to buy the devices they want, with the features they would like, has been restricted, as courts and administrative agencies have found various smartphones and tablets to be infringing. US consumers who would like to buy a Samsung Galaxy 10.1 tablet, for instance, are out of luck because Apple obtained an injunction against the product. EU consumers who would like to buy a Samsung Galaxy Tab 7.7 cannot do so because of another injunction Apple recently obtained from an appeals court in Dusseldorf.

    Consumers also are taking a hit in their wallets. Makers of smartphones and tablets need to pay for the high cost of their patent wars, so they are passing along these costs to consumers, according to many experts. “Lawyers and financiers often get a lion’s share [of the money spent on the patent wars], but the consumer pays the price,” Chien said.

    Still, the patent wars are good for society, according to some experts. Although these disputes impose some short-term costs, they promote innovation over the long term.

    “Patent wars can be healthy,” said Paul Schneck, chairman of Rembrandt IP Management. “They reward inventors/creators and provide a continuing incentive for the next generation of inventions and for the next generation of inventors.”

    Other experts dispute this, asserting that protecting patents does not promote innovation in smartphones and tablets. “Patents are intended to stimulate innovation, but a lot of these patent battles are going on independent of the innovation going on. First the companies innovate, then they buy patents and litigate,” said Prof. Richard Gilbert, who teaches economics at the Graduate School of the University of California at Berkeley.

    For many companies – particularly those in the high tech sector – patents and innovation have little to do with one another. These businesses innovate in order to succeed in the marketplace, and they obtain patents merely to fend off rivals. As a result, said Gilbert, much of “the patenting that goes on today is almost completely independent of innovation. Innovative companies have very bright, creative engineers who go off and create advanced, useful products. These same companies have other folks whose job is to create patents. And the two groups often don’t talk to each other.”

    Moreover, patents impose unusually large costs in an field like the high tech sector, “when the embodiment of the technology is extremely complex, involving large numbers of patents and lots of overlapping claims,” Standburg said. As a result, “many [licensing] transactions, with the attendant transaction costs, would need to be made in order to resolve disputes over patent rights.” And determining what to licence is often an arduous task. Because of the proliferation of patents in this field, it is extremely difficult for manufacturers to uncover relevant patents that need to be licensed, Standburg added.

    She concluded, “I’m skeptical about applying patents in the IT area. Patents can do good things, but in an area like this, where there are a lot of short term gains to be obtained from innovation, patents are not necessary. And where patent costs are so great, as they are here, patents may do more harm than good.”

    Patents do little to promote innovation in the tech sector, but they impose large costs on everyone in this field, according to Gilbert. He said, “In this industry, there are legitimate concerns that the innovation from patents are marginal at best, and yet there are very large costs for fighting the patent battles.”

    Richard Posner, a judge on the 7th Circuit Court of Appeals and one of the USA’s most prominent and respected jurists, takes this reasoning further, applying it far beyond the tech sector. In a recent article in The Atlantic magazine, Posner wrote that “the need for patent protection in order to provide incentives for innovation varies greatly across industries. …Most industries could get along fine without patent protection.” For such industries, “[t]he cost of patenting and the cost of resolving disputes that may arise when competitors have patents are a social waste.”

    The patent wars may thus provide some lessons for policymakers: Not all useful inventions need patent protection. And granting unnecessary patent protection can have harmful consequences for businesses, consumers, the courts, and innovation.

    Says Standburg, “Initially, the technology industry had a lot of resistance to software patents. Maybe we should pay more attention to that in the future. If an industry is opposed to patents, maybe we should take heed. Because this [patent war] is exactly what the tech industry was worried about.”

    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.

     

    Comments

    1. US And UN Consider New Limits On Patent Wars | Intellectual Property Watch says:

      [...] that make and sell smartphones and tablet computers, courts, consumers and the economy – all have suffered, according to many [...]

    2. IP Osgoode » Can Capitalism and Collaboration Co-exist? Tech Sector Cross-licensing and the Emergence of ‘Cooperative Competition’ says:

      […] Obama was alluding to a recent and growing problem where patent litigation is becoming more frequent and expensive, especially in the high-tech industries. A recent report […]


    Leave a Reply

    We welcome your participation in article and blog comment threads, and other discussion forums, where we encourage you to analyse and react to the content available on the Intellectual Property Watch website. By participating in discussions or reader forums, or by submitting opinion pieces or comments to articles, blogs, reviews or multimedia features, you are consenting to these rules.

    We welcome your participation in article and blog comment threads, and other discussion forums, where we encourage you to analyse and react to the content available on the Intellectual Property Watch website.

    By participating in discussions or reader forums, or by submitting opinion pieces or comments to articles, blogs, reviews or multimedia features, you are consenting to these rules.

    1. You agree that you are fully responsible for the content that you post. You will not knowingly post content that violates the copyright, trademark, patent or other intellectual property right of any third party or which you know is under a confidentiality obligation preventing its publication and that you will request removal of the same should you discover that you have violated this provision. Likewise, you may not post content that is libelous, defamatory, obscene, abusive, that violates a third party's right to privacy, that otherwise violates any applicable local, state, national or international law, that amounts to spamming or that is otherwise inappropriate. You may not post content that degrades others on the basis of gender, race, class, ethnicity, national origin, religion, sexual preference, disability or other classification. Epithets and other language intended to intimidate or to incite violence are also prohibited. Furthermore, you may not impersonate others.

    2. You understand and agree that Intellectual Property Watch is not responsible for any content posted by you or third parties. You further understand that IP Watch does not monitor the content posted. Nevertheless, IP Watch may monitor the any user-generated content as it chooses and reserves the right to remove, edit or otherwise alter content that it deems inappropriate for any reason whatever without consent nor notice. We further reserve the right, in our sole discretion, to remove a user's privilege to post content on our site. IP Watch is not in any manner endorsing the content of the discussion forums and cannot and will not vouch for its reliability or otherwise accept liability for it.

    3. By submitting any contribution to IP Watch, you warrant that your contribution is your own original work and that you have the right to make it available to IP Watch for all purposes and you agree to indemnify IP Watch, its directors, employees and agents against all damages, legal fees and others expenses that may be incurred by IP Watch as a result of your breach of warranty or of these terms.

    4. You further agree not to publish any personal information about yourself or anyone else (for example telephone number or home address). If you add a comment to a blog, be aware that your email address will be apparent.

    5. IP Watch will not be liable for any loss including but not limited to the following (whether such losses are foreseen, known or otherwise): loss of data, loss of revenue or anticipated profit, loss of business, loss of opportunity, loss of goodwill or injury to reputation, losses suffered by third parties, any indirect, consequential or exemplary damages.

    6. You understand and agree that the discussion forums are to be used only for non-commercial purposes. You may not solicit funds, promote commercial entities or otherwise engage in commercial activity in our discussion forums.

    7. You acknowledge and agree that you use and/or rely on any information obtained through the discussion forums at your own risk.

    8. For any content that you post, you hereby grant to IP Watch the royalty-free, irrevocable, perpetual, exclusive and fully sub-licensable license to use, reproduce, modify, adapt, publish, translate, create derivative works from, distribute, perform and display such content in whole or in part, world-wide and to incorporate it in other works, in any form, media or technology now known or later developed.

    9. These terms and your posts and contributions shall be governed and interpreted in accordance with the laws of Switzerland (without giving effect to conflict of laws principles thereof) and any dispute exclusively settled by the Courts of the Canton of Geneva.

     

     
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