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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rjohn81
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rjohn81,
User Rank: Apprentice
7/31/2012 | 2:00:21 PM
re: Apple-Samsung Case Hurts You, Me, The Economy
"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."

You can't blame entirely the patent office for this. Instead, you'll have to heap plenty of blame on lawmakers who wrote the laws and the courts who interpreted them. The patent office can only work with the tools its given.

For instance, the PTO used to reject most software claims under 35 USC 101. However, a controversial federal circuit ruling, State Street v. Signature Financial Group opened the door to many questionable patents including business method patents. The supreme court further had a chance to reign in software or abstract method patents with cases such as Bilski v. Kappos and Mayo v. Prometheus, but only expanded the power of 35 USC 101 slightly. Lawmakers had a chance to rein it in with the American Invents Act (patent reform act) of 2011, but didn't. If the courts tell the office that they cannot reject these patents based on current law, there's nothing the office can do but allow them.

"Vague" patents are another example of this. The patent office is given one tool: 35 U.S.C. 112, to reject claims based on definitiveness. However, the courts have also reigned in the power of 112, so now the office usually doesn't make a rejection under 112, second paragraph, unless the claim meets the threshold of being indefinite. The language you provided as an example might not meet that threshold.

Design patents are a whole different beast altogether, and aren't subjected to the same requirements as utility patents.

So while the patent office may shoulder some of the blame for a few bad patents that slip through the cracks, I would say most of the blame is rested with congress and the courts.
ANON1252187963717
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ANON1252187963717,
User Rank: Apprentice
7/31/2012 | 1:43:45 PM
re: Apple-Samsung Case Hurts You, Me, The Economy
This article so off the mark, it's ridiculous. Total hogwash. Finally an American company is willing to stand up and do whatever it takes to stop Asian intellectual piracy, and knuckle-dragging American media take it as some sort of sport. Samsung uses mass Asian labor--aka sweat shops--to churn out poor quality copycat electronics like spewing out effuse. No one is able to stop this ripoff insanity, and so Samsung can continue with impunity. With Apple they've met their match, and Apple is willing to do anything to stop this economy based on brutal labor practices and brazen theft. Even seeing the name Samsung makes me sick, they're a despicable company worthy of global scorn.
transvaluation
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transvaluation,
User Rank: Apprentice
7/31/2012 | 1:42:13 PM
re: Apple-Samsung Case Hurts You, Me, The Economy
First, Patrick Good article.

Second, you are correct the 'bottom feeders' who buy patents not to build products but to just make money have to be stopped.

Third, we need to distinguish between a bottom feeder (big companies can be this as well) and companies/people that make legitimate strides in research and development that need to protect their investments.

If someone comes up with a method of doing something different they need to be protected <period> Otherwise why would any company spend any money on R&D just to have it knocked off with no protection to the millions they just spent? Or the small guy who invented something and someone just takes his idea and runs, he's left in the wind.

The best solution is a variable protection time frame that has a variable renewal period based on the type of patent. i.e. give the inventor 2-3 years of patent protection for software with a 1-2 year renewal allowed 1 time. Hardware would be 3-5 years, etc.

Tech moves much faster than the original patent system could have ever imagined, it needs to be modernized to match Moore's Law.</period>
JuanDK
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JuanDK,
User Rank: Apprentice
7/31/2012 | 1:17:11 PM
re: Apple-Samsung Case Hurts You, Me, The Economy
Hi Patrick,

Great article! I hope placing accountable values to a topic is generally touched under the ridiculousness of patenting common sense and linear engineering solutions is very helpful.

I also believe this trail could be an era-changing event, hopefully for the sake of innovation and development, rather than monopolistic legal persecutions.
I do believe protecting intellectual properties both both tangible and intangible products, but there must be global appraisal when something is innovation and something is just common sense for a solution. One should not be able patent common sense, or a company should be able to request to void a patent over items that hold back development and fair competitions over industries.

I think the first time I saw an iPhone was on StartTrek - TV series. Can they claim a design patent?

Or can someone sue the Patents and Trademark office for granting patents over too broad or common sense solutions?

Juan
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