Instead of battling it out in the marketplace with their products, many technology companies are duking it out in the courts with patent-infringement suits. Will the intellectual property cold war reach ‘mutually assured destruction’? And how are small Irish firms coping with the situation?
IN A 1991 MEMO to senior executives in Microsoft, then chief executive Bill Gates warned that patents had the potential to bring the technology industry to a standstill. With companies now spending billions to secure portfolios of patents – and expensive litigation lurking close behind – many fear that Gates’s warning is finally coming true.
When Gates wrote to his executives about patents, Microsoft held just eight of their own. His concern was that larger companies, who had massive patent portfolios behind them, might “patent some obvious thing” and use them to “take as much of our profits as they want”.
Today Microsoft has a patent stockpile in the thousands, with anything between 30 and 60 new ones being granted on a weekly basis, and is seen by some to be just the kind of predatory player Gates feared becoming a victim of 20 years ago.
Of course Microsoft is not alone in its pursuit of patents; recent buyouts and lawsuits have shown just how much interest there is across a number of industries.
In recent weeks Google offered $12.5 billion to buy the mobile arm of Motorola, a company with at least 17,000 patents supporting its technology. Never one with much time for hardware, Google’s chief executive Larry Page made it clear that a central part of the deal was the intellectual property protection it gave the company’s Android operating system.
“Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio,” he said in a statement on the company’s blog. “ will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.”
Google’s move is part of what was seen as a wider, if perhaps unintended, move towards a “Mutually Assured Destruction” (MAD) patent situation. The theory supporting this idea suggests that one company will not use its arsenal of patents to sue another for fear of being counter-sued for its own infringements.
As a relative newcomer to the mobile scene Google does not have much of a defence against litigation in the area and so the balance of risk may have previously been in favour of those taking litigation against it. By comparison Motorola has a rich legacy there and, as one patent expert put it, by buying them Google is trying to buy its way into history.
“What you have to remember is a patent is a negative right,” says Cathal Lane, patent and trademark attorney with Tomkins. “It’s not a right to practise yourself as a lot of people think about it, it’s a right to stop other people from practising the invention.”
In other words Google’s acquisition of Motorola’s patents is more about having the power to stop other companies from operating freely than about giving them the room to do so themselves. It is about them acquiring the nuclear option they have lacked up until now.
The reference Larry Page made to Microsoft and Apple in his statement also shows that Google’s move was to some degree a response to the recent auction of 6,000 patents formerly owned by the now-bankrupt telecoms company Nortel Networks.
The search giant was a bidder in this but the patents were ultimately snapped up for $4.5 billion by an unlikely alliance involving Apple, Microsoft, Research In Motion and others.
The activity around mobile patents is even creating a gold-rush in the markets. InterDigital, which owns 1,300 mobile patents, saw its valuation spike following the Google/Motorola announcement. The company is now said to be considering potential suitors, with a price tag of $5 billion being mooted in some quarters.
These events highlight a wider ratcheting up of interest around patents, and despite the MAD theory this has been coupled with a slew of high-stakes, high-value lawsuits too.
In some cases these suits are taken to extract lucrative licensing fees – others are an attempt to stop organisations from using patented ideas full stop, potentially killing products and even companies as a result.
What has complicated the matter even further is the growth of the so-called “patent troll”, a company that builds a warehouse of patents with more intention of using them in court than the laboratory.
One high-profile company that has been tarred with this brush is Intellectual Ventures, one of the biggest patent holders in the US with a war-chest reported to be in the billions.
On a recent episode of This American Life called “When Patents Attack” on US radio network NPR, the complex structure of Intellectual Ventures was highlighted.
The company has a relatively small team of engineers and scientists working on developing their own patents but has bought in more than 30,000 from others, many of which are held within various shell companies.
Other companies are approached about licensing these patents, often as a way of defending against litigation from others. This arguably gives smaller companies the kind of coverage Google and Microsoft enjoy through ownership of their own vast patent portfolios at a fraction of the cost. Some, however, see the offer as little more than an old-fashioned protection racket with a tech twist.
In its defence Intellectual Ventures says it is actually a force for good, allowing smaller patent holders to profit from their work without having to take big players to court.
The firm has an office in Dublin too, however when contacted the company’s general manager was abroad and so unavailable to comment.
Dr Diarmuid O’Brien, executive director of Trinity College’s Centre for Research on Adaptive Nanostructures and Nanodevices (Crann) says he can see some value in what companies such as Intellectual Ventures do.
“I don’t see that as a threat, in fact one of the challenges facing universities is to have the expertise to really exploit intellectual property to the full extent of its ability,” he says. “These companies can actually be vehicles to help you do that and they can actually accelerate the intellectual property to the marketplace.”
Regardless of their merits, companies such as Intellectual Ventures show how the patent game is changing to become about ownership rather than creation.
Patents are now tools that can be used as offensive or defensive weapons. They can also serve as leverage in boardroom deals and can create revenue streams; they are assets with the potential to increase a company’s value in and of themselves.
“Particularly in the US, patents are often mere leverage for negotiation purposes between companies,” says Alan Duggan, chief executive of Galway-based games developer Tribal City Interactive. “You would have to question whether or not the current system actually achieves what’s intended – provide incentive for otherwise cost-prohibitive R&D.”
Ireland has a favourable tax regime for revenues generated from patents and intellectual property, something that is sure to make it all the more attractive to companies such as Intellectual Ventures.
As there is no substantive investigation done by the Patent Office into the validity of an idea, getting a patent granted is also relatively easy, assuming the application ticks the required boxes.
While this may be beneficial to some it also means that a granted patent does not automatically mean the possessor truly owns the idea – it just shifts the burden of proof to those who might say otherwise.
“If you file the right papers and pay the right fees you could get a patent granted for the wheel if you wanted to,” says Cathal Lane. “Once you get it granted it’s somebody else’s problem. They then have to go and get the patent knocked out by proving it to be invalid, now that might be relatively easy or that might be extremely difficult. It’s not always easy to knock out a patent.”
In theory an organisation could threaten litigation against a company for a patent that they do not have any valid case for holding. It would then be up to the company on the receiving end to undertake a potentially expensive court-case to defend itself; or to take the safer option and settle out of court.
“In a lot of cases in Ireland it’s a game of chicken to see who blinks first,” says Lane.
He says to some degree it is the job of the Patent Office to protect vulnerable players by not allowing invalid patents through in the first place, though he accepts that others have a wildly different take on things.
Such a loose patent-approval process is not exclusive to Ireland – it is also a major part of the growing patent problem in the US.
This American Life identified one example, issued in 2000, which patented the process for making toast.
“If someone threatens your small business with a patent lawsuit, it doesn’t matter whether the patent is valid . . . for you to prove that it’s invalid would take far more time and money than you probably have,” said Marco Arment, the developer behind Instapaper and Tumblr, in a blog post titled “Why Software patents are not fixable”.
“The only sensible course of action, the path taken by almost everyone threatened by patent litigation, is to settle with the patent-holder as quickly as possible for whatever amount of money they demand.”
The threat of such patent-based brinkmanship or sabotage is sure to make many uneasy, especially those that may not have the experience or money to defend themselves.
However the fact remains that patents are a vital piece of the puzzle for any company that wants to take an idea to market.
“If you don’t have a couple of foundational pieces of intellectual property you’re going to find it very hard to raise venture capital funding,” says Diarmuid O’Brien of Crann. “A venture capitalist might think you have a good idea but they’re going to ask what will stop others from coming in and copying the idea. Intellectual property is critical in giving that protection.”
Investors’ insistence on a patent portfolio is based on legitimate concerns – after all if an idea is good enough there will always be someone willing and able to steal it.
Patents are more than just a part of the process, though. As big players are continually proving, a good patent can prove to be an extremely lucrative revenue stream in its own right, assuming it is used properly.
Small companies with good patents have also proven to be prime targets for big players – after all it is often cheaper or easier for them to acquire innovation than to try to do it themselves.
Part of the reason why this kind of thinking is not prevalent in Ireland is because of poor education in the area of intellectual property rights, according to both Diarmuid O’Brien and Cathal Lane.
“Intellectual property is still a thing people think about whether they need or not as opposed to being seen as something you had to have like companies in the US and Japan see it,” says Lane.
“I think a lot of Irish people think of Edison or Bell when they think about inventors, they don’t see their friend the engineer as one. People seem to think an invention is a whole new creation when in reality innovation is often really about small and gradual changes.”
A HISTORY OF PATENT LITIGATION
1854 - Singer vs Howe
Isaac Singer was taken to court for infringing upon the patent of Elias Howe in the creation of his line of sewing machines. Singer tried to show the patent was invalid but lost. However, his name is synonymous with sewing machines to this day
1876 - Gray vs Bell
The battle over the origin of the telephone focuses on whether Elisha Gray or Alexander Bell patented the invention first, or whether Bell bribed an alcoholic patent examiner to steal his rival's idea. Bell was ultimately deemed to be the rightful owner of the patent, but doubts remain
1904 - Henry Ford vs George Selden
Selden's "road engine" patent let him collect royalties from car manufacturers rather than build a car himself. When Ford refused to pay, Selden sued but this backfired when he failed to prove his concept by building a working car at the judge's request
1906-1917 - The Wright Brothers' Patent War
The famous flying brothers spent a decade fiercely defending their invention, setting back the aviation industry in the process. Government pressure ultimately forced them to pool patents so the US could build planes to fight in the first World War
1922-1934 - Edwin Armstrong vs Lee De Forest:
Armstrong was behind many of the core components that made AM and FM radio possible but got caught in, and eventually lost, a long patent battle with de Long. This was despite the fact that Armstrong had clearly patented the disputed idea first
1930 - Henry J Gaisman vs Gillette:
Threatened with litigation over safety razor patents, Gillette chose to buy Gaisman's AutoStrop instead. It's said that when asked why they should pay $20 million for a company with assets worth $9 million, an AutoStrop spokesman replied "but, gentlemen, I have a patent on your product!"
1936 - Park-In vs Weymouth
Richard Hollingshead secured a patent for the drive-in cinema in 1933 and set about suing the numerous copy-cats in the years that followed. His litigation against Weymouth in 1936 saw the company take control of the unauthorised drive-in's gate until the case was settled
1960-1987 - Gordon Gould vs the US Patent Office
Widely credited as the creator of the laser, Gould spent decades trying to obtain patents that would be strong enough to defend in court. He was ultimately successful when he patented vital aspects of his creation rather than the invention in its entirety
A HISTORY OF INNOVATION LITIGATION
1994 - Apple vs Microsoft
Following the release of Windows 3.0 Apple took Microsoft to court for allegedly copying the "look and feel" of its graphical user interface (GUI). Apple lost as the court decided most of its GUI had already been licensed to Microsoft for Windows 1.0.
1997 - Integraph vs Intel
The chipmaker was taken to court for stealing features of Integraph's "Chipper" chip. In the end it handed out $525 million, more than anyone had made in bringing the technology to market at that time and the largest set of damages ever won against Intel.
1999 - Amazon's One Click patent
Amazon's patent let it keep customer details on file so they could buy products with one click. They successfully sued many rivals including Barnes Noble until the filing was deemed invalid in 2007 due to the fact that a similar e-commerce patent already existed.
2002 - Lucent vs Microsoft
Relating to a now-expired patent about entering data via an on-screen keyboard, aspects of this case are still ongoing nearly a decade later. Most of it was settled in late 2008, however, with Lucent (now called Alcatel-Lucent) getting $512 million in damages.
