Phony Patent Wars

Anyone following technology markets cannot have missed the growing use of patent wars to cripple or extort or hamper or simply bully competitors into technology agreements or into paying high fees. Patents are a lawyer’s dream and a consumer’s nightmare, or would be if consumers had the faintest idea of what was going on.  The issue is not so much earning a proper return on IPRs versus gouging the market, but rather using patents to frustrate competition.

This has become so prevalent it is bound to attract policy makers to revisit patent laws and the way the courts use them. But it may be too late already. IPR abuse has taken on an industrial scale. At the top end of the list of direct abuse is cyber stealing. Throughout history the saying that imitation is the sincerest form of flattery has been true. Japan famously reverse-engineered everything in sight to gain technological insights and knowhow before flooding the world’s market with cheap and shoddy, and then cheap and not so shoddy, and then cheap and good quality products that knocked incumbents out of the game. In recent times China has become the new Japan, but amid accusations that it relies less on reverse engineering than reversing the flow of industrial secrets across cyber space. However, as the tragedy of the high speed train crash showed, China still has a way to go.

Further down the list, but not much less dramatic in its own way, is Google’s decision to buy Motorola Mobility for USD12.5 billion. With it come of slew of patents to help Google safeguard Android software against what it sees as a concerted attack by Apple, Microsoft and Oracle (now owner of Sun’s Java patents).  When Apple, Microsoft, RIM and others bought Nortel’s patents for USD4.5 billion with Google apparently joining up with Intel before losing out, Google recognized the nature of the game and bought over 1,000 patents from IBM and is reportedly still in the hunt.

But sometimes peace does break out. Sony and LG who failed to renew a technology sharing agreement 3 years ago involving smartphones, TVs and Blu-ray technology, finally settled on a new cross-licensing deal. But no sooner does one dispute die down then another one starts; now it is Apple and HTC keeping their lawyers in champagne, and maybe consumers waiting for their share of the bubbly.

The patents system is pretty rotten as anyone familiar with it will be aware. The first and lasting problem is the poor or uncertain quality of patents. Patent Offices simply cannot handle the vast quantity of patent applications; they certainly do not have the capacity to test their quality. A system that clogs up the courts with the need to test every argument is hugely expensive to society in terms of human resources even if the lawyers’ fees are being paid by the parties to the dispute. An economist can easily make a case for unemployed patent lawyers and a reallocation of their cleverness to more socially productive uses. At the very least it would be sensible to establish an entirely new arbitration system to run in parallel to the courts, with laws that mandate it as the dispenser of justice of the first resort.

When companies overplay their hand they bring their industries into disrepute. There may be a cultural factor involved; in some countries the idea of the “survival of the fittest”, of social Darwinism which must have poor old Charles rolling in his grave, is the touchstone of the business alchemist. Even a poor patent can be turned into gold if enough time is spent on it.

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