Innovation And The Law: Some Lessons From The Patent Wars

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.”