Government // Mobile & Wireless
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7/30/2012
02:26 PM
Patrick Houston
Patrick Houston
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Apple-Samsung Case Hurts You, Me, The Economy

Both companies deserve our wrath as their patent trial gets under way. Why? They're propagating an intellectual property war with immense collateral damage.

Even though their federal courtroom battle is likely to continue for the next four weeks, the patent dispute between Samsung and Apple already has a loser. Three of them, in fact--you, your company, and our economy.

While they're both world-class companies, in this situation I'm booing both. Reason for my wrath: By asserting broad and specious claims over things like the look and feel of smartphones and tablets or the ability to take and send a photo--two of the central claims in the case--these two tech titans are taking advantage of the same egregious weaknesses in patent law that have resulted in an escalating intellectual property (IP) war.

It's one that's causing an immense amount of collateral damage: Its direct costs are sapping promising young companies and R&D budgets. It's frustrating the forces of innovation that are vital to economic renewal. And if that's not enough, it's also consolidating more power in the hands of a few companies already uncomfortably close to market domination in mobile--namely Apple and Google, with Microsoft and Amazon not far behind.

For a decade now, smart people have been clambering about the dangers of a patent system run amok, especially as a growing phalanx of "patent trolls" snaps up patents just to assert them for the sake of settlements and damages. One of the most clear-headed is James Bessen, an economist and Boston University law school lecturer who teamed up with colleague Michael Meurer to identify, analyze, and quantify the impacts of the IP wars.

[ Learn more. Read Apple Vs. Samsung Trial: What's At Stake. ]

In a paper they published in June, they reported these astonishing findings:

-- A total of 2,150 companies had to defend themselves 5,842 times against patent suits in 2011 alone--an amount of litigation that represents "a wholly unprecedented scale and scope."

-- Those claims accounted for $29 billion in direct costs--outside legal fees, damages, and settlement amount. And, oh yeah, it doesn't include indirect costs, like the time and resources it takes a company to defend itself and the price of product delays and market share losses.

-- The amount represents a nearly 10% hunk of the $250 billion devoted by all U.S. business to R&D. Much of the burden has fallen disproportionally on small businesses: The defendants in that universe had median revenue of just $10.8 million.

Are you getting as legitimately angry as I am yet?

Bessen discussed the causes of this outrage with me. When I asked him what created this mess, he put it succinctly enough: "In two words," he said, "the answer is fuzzy boundaries."

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It's easy to claim ownership for real property. Not so much when it involves an abstract idea or invention. It's especially tricky when it comes to software. For one thing, the U.S. Patent Office has shown a penchant for approving patents with vague and sweeping claims--doozies like "information manufacturing machinery" and "commodities on a network."

And things get even fuzzier when a patent is for a product used by millions, not just by one person reinforcing an ownership claim by living in a house built on a suburban plot.

And it doesn't help that more than 200,000 software patents alone have been filed since the 1990s. If you want to do the right thing by creating an e-commerce product that doesn't infringe on someone else's claim, you may have to slog through as many as 5,000 possibly related patents. Want to advertise, charge, or ship your product? Prepare to sift through more than double that many.

No wonder so many companies have become innocent violators.

While the number of business victims is bad enough, it gets worse. The patent wars are starting to have a chilling effect on investment markets.

Consider this dispatch from Paul Deninger, a foot soldier in the IP war. His company, Evercore Partners, is an investment banking firm that advised AOL on its way to selling a $1.5 billion hunk of its patent portfolio to Microsoft and Facebook. At the recent AlwaysOn Silicon Valley Innovation Summit, he offered this anecdote: One of his clients is being required by a buyer to prove its patents are squeaky clean. They want ironclad assurances the seller not only owns its patents but that they don't infringe on anyone else's either--a herculean, and perhaps even impossible, test to meet.

The point: The growing risk of litigation is making it that much harder for companies to cash in on their blood, sweat, and tears by attracting investments from suitors, as in this case, but also from other sources of growth capital such as venture capitalists and public shareholders, too.

What's more, the IP war has spawned an ever more active market for patents themselves. Spurred by the riches yielded by the AOL deal and others, there are, according to Deninger, 150 such packages in play right now. Because they're worth so much, only a few big players are rich enough to buy them. And those few are snapping them up for a single purpose: They want to defend and extend their competitive advantage in mobile.

Thanks in part to the IP wars, we all face an even more likely prospect that the mobile market will become more and more "closed," forcing us to pay more for fewer options, as market analyst Mike Feibus suggested in his InformationWeek column.

Can you say anti-competitive?

So enough is enough. The patent wars are imposing what is, in effect, a whopping tax on investment and innovation--a tax, by the way, shared by all of us. Here's to hoping that Samsung and Apple deliver knockout blows to each other. That would be a small victory for the rest of us who are innocent bystanders in a self-defeating system badly in need of reform.

Patrick Houston is a former SVP for a new media startup, a GM at Yahoo, and editor-in-chief at CNET.com. He is co-founder of MediaArchitechs, which offers strategic product, content and business development consulting to technology-driven media companies. He can be reached at patrick.houston@mediaarchitechs.com.

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Rhonindk
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Rhonindk,
User Rank: Apprentice
8/2/2012 | 1:52:38 AM
re: Apple-Samsung Case Hurts You, Me, The Economy
Nice thought but this still does not address the issue of patent definitions and patent office expertise (see my other post).

Take your proposal, assume that all of Apple's patents are legit and apply said reasoning. What would be the state of the smartphone market today?

It's 2012 and we would be back in 2007 era if we were really really lucky.
Rhonindk
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Rhonindk,
User Rank: Apprentice
8/2/2012 | 1:48:11 AM
re: Apple-Samsung Case Hurts You, Me, The Economy
Not entirely. They are pushed to process more patents faster than ever before (push from government and business) These patents are becoming increasingly legalistic to the point even an expert in the field will have difficulty defining them in black and white terms. Add to this the lack of expertise of the patent processors, the changing laws and law definitions as defined by trials and lawsuits.

A disaster in the making.... happening as we speak.
mzahler554
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mzahler554,
User Rank: Apprentice
8/2/2012 | 12:04:26 AM
re: Apple-Samsung Case Hurts You, Me, The Economy
totally agree
rhawkins982
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rhawkins982,
User Rank: Apprentice
8/2/2012 | 12:02:34 AM
re: Apple-Samsung Case Hurts You, Me, The Economy
Good article. But surely the US Patent Office is atfault for alowing such broad concepts to be patentable.now that they have made the mess, surely they are responsible for a cleanup solution.
espresso_luvr
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espresso_luvr,
User Rank: Apprentice
8/1/2012 | 11:04:41 PM
re: Apple-Samsung Case Hurts You, Me, The Economy
i completely agree with TRANSVALUATION ... there HAS to be protection for the real idea creators, else we kill the economy and genuine innovation from another direction (piracy!) ... too may consumers have become addicts to the cheap products regardless of source or the method/ethics by which it was developed, but it should not come at the price of discouraging those brave and brilliant inventor types from investing the incredibly hard R&D work, time and resources to develop true breakthroughs ... companies should not be able to gain undue advantage over those that pay the price for invention by crass copy/imitation ...

i further agree with TRANSVALUATION that those protections need to be fair & balanced, such that they do not lock up the market/innovation either ... these are delicate matters and equity (balance) is difficult to achieve ... while the suggestions made seem reasonable enough, formalizing those will require far greater/deeper consideration than we can give here ... but if it can be proven that SAMSUNG engaged in copying rather than engaging in original research or paying royalties to the patent holders, then they should be taken to the cleaners ... and as far as argument goes, just because something similar was demonstrated previously in another discipline (e.g., photography) that "fact" holds no water either logically or legally if it was never patented ...
akim917
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akim917,
User Rank: Apprentice
8/1/2012 | 10:44:42 PM
re: Apple-Samsung Case Hurts You, Me, The Economy
There is no Iphone without Samsung's 3G. Apple has became no more than a marketing company for other company's technology.
PatrickH
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PatrickH,
User Rank: Apprentice
8/1/2012 | 10:20:02 PM
re: Apple-Samsung Case Hurts You, Me, The Economy
Oh for heaven's sake people, or those of you who didn't read the column analytically enough to at least make a comment that enhances the discussion: I never, ever said that companies should give up their intellectual property rights. C'mon. I mean, really? Just read the piece.

Of course legitimate inventions need the protection of law for the same reason that not anyone can come in, squat on your front yard and claim it for themselves.

The point is that that the patent protection system is seriously flawed, especially in an era when so much of what we invent is abstract and is software. And the system allows the fuzziest of abstractions to stand as legitimate.

Someone put it so well here. What if Tim Berners-Lee had claimed a patent on a hyperlink as a way to link anything to everything on a digital network?

Many infringement claims are outright specious. Apple and Samsung may indeed have some legitimate ones against each other. But it's naive to think that Apple isn't using the system's propensity to legitimize broad, fuzzy claims to keep a competitor at bay.

And there's real collateral damage in terms of real dollar costs as well as social ones.
ANON1252430315558
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ANON1252430315558,
User Rank: Apprentice
8/1/2012 | 9:26:48 PM
re: Apple-Samsung Case Hurts You, Me, The Economy
Sure forget the law, forget company's intellectual property rights. Let's just think what is best for you, me, and the rest of us that do not contribute anything to innovation.
ANON1243964961984
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ANON1243964961984,
User Rank: Apprentice
8/1/2012 | 3:54:17 PM
re: Apple-Samsung Case Hurts You, Me, The Economy
Patrick,

You're righ on the money! The disingenuous and specious arguments being made on both sides are nothing but anti-competitive and anti-progress. They disenchant me as a former customer of both companies. There is room enough for all to be sure. Phones need to connect to networks and take photos etc. and touch tablets need touch interfaces and reasonable form factors and all competitors will always strive to build more in less of a package. There are common physical/ergonomic/manufacturing limitations that all players must agree to abide by. In a sufficently complex technological society rooted in the same tech evolution, it is highly probable that the identical idea can originate within an overlapping time frame of a few months and in completely different places by completely different and independent people. As for the Tab 10.1 being indistinguishable from an iPad... what a joke! What about all the other 10" tabs like the ASUS, ACER, TOSHIBA etc. Those are all so close now as to be truly indistinguishable from the Samsung from more that a few feet of viewing distance... far more so than in comparison to an iPad.
Steve Jobs must be burning in hell now because he sure was intolerant and arrogant in life and his legacy lives on in these lawsuits. He could have been a great technological philanthopist but instead he chose to vent his wrath. As for Samsungs "fill the earth with redundant and disposable cell phones" approach, they won't even support their international products with a warranty. Try and get Samsung warranty service and support for something you purchased out ot country or online such as an unlocked international phone... forget it! Now if Apple and Samsung got together and truly cooperated... and truly listened to their customers... and supported them... then you'd see some amazing engineering and truly spectacular products!
lgarey@techweb.com
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lgarey@techweb.com,
User Rank: Apprentice
8/1/2012 | 2:46:07 PM
re: Apple-Samsung Case Hurts You, Me, The Economy
Apple produces its products in Asia as well; whether the term "sweatshop" applies to Foxconn is open to debate, but if you're damning Samsung based on manufacturing outside the U.S., you have to extend that to most electronics manufacturers. That's separate from the IP debate.
<<   <   Page 2 / 4   >   >>
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