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Are the Smartphone Patent Wars Giving Patents a Bad Rap?

Written by: Raymond Millien
Senior IP Counsel, GE Healtcare
Posted: March 7, 2012 @ 11:17 am
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I have often stated that the lifeblood of any high-tech enterprise is the intellectual property (IP) rights that it controls or potentially controls.  This is especially true for my small- and medium-sized enterprise (SME) clients with respect to their short-term salability, long-term profitability, and eventual ability to undertake an IPO or sale exit.  It seemed that public sentiment and the popular press were in accord with this view no more so than when President Obama signed the America Invents Act into law on September 16, 2011.  The law, which received bi-partisan support by passing the U.S. House of Representatives 304-117, and the U.S. Senate 89-9, was widely-praised as the first major overhaul to the U.S. patent system in almost 60 years.  The recent (and mostly negative) headlines concerning the “Smart Phone Patent Wars,” however, has made me wonder if IP rights – and more specifically, patents – are once again getting a bad rap?

The smart phone wars began in 2011 as mobile industry giants either gained or lost profits due to the growth of alternative mobile platforms.  As the wars heated up, Google, Inc. acquired Motorola Mobility Holdings, Inc. – and its 17,000 patents – for US$12.5B on August 15, 2011. (After netting out other assets and liabilities, the price per patent was US$510,204.08!)  This led to the increased headlines.  A nice graphical summary of the wars – whose battlegrounds have been the U.S. International Trade Commission (ITC) in Washington, D.C., the European Commission in Belgium and federal trial courts all over the U.S., Europe and Asia – can be found here.

Why are these patent wars being waged over smart phones?  Well, in 2010, people sent more emails per day (294 billion), than the number of letters the U.S. Postal Service processes in a year (approximately 171 billion).  U.S. customers also send more text messages (over 4 billion per day in 2011) than letters.  And, with more than 30% of U.S. households choosing a wireless device in lieu of a land-line telephone, the number of minutes we spend talking over mobile networks is increasing rapidly.  These factors drove U.S. mobile telephone usage to a staggering 2.7 trillion minutes in 2010, with the global mobile phone industry reaching a value of US$1.18T in 2011.  (These statistics are even more staggering when you consider that the U.S. Postal Service reported a record loss of US$5.1B in FY2010.)  So, that was a long-winded way of just saying “money.”

Given the foregoing, most would have you believe that these wars are really a battle for consumers’ palms between the Android™, BlackBerry®, iOS™, Symbian® and Windows® Phone mobile operating systems.  Yet, with different handset manufactures, operating systems and wireless carries, there has to be a set of standards – promulgated by various standard setting organizations (SSOs) –  so that consumers can talk, text and email each other, as well as surf the Internet to retrieve information and download music and picture files from virtually any website.  After all, as New Yorker staff writer James Surowiecki once famously observed, “without standardization there wouldn’t be a modern economy.”  Nearly all SSOs, however, have regulations requiring participants to not only disclose the patents they own that relate to a proposed standard, but to eventually grant licenses to industry participants on “reasonable and nondiscriminatory” (RAND) terms.

So who is the villain in all of these wars responsible for again giving patents a bad rap?  Well, the villain in not the ITC, USPTO or any U.S. government agency.  Nor it is any country’s protectionist trade regime, or an “irreparably broken” U.S. or global patent system.  No, the real villains here may very well be a handful of companies that willingly contributed patented technologies to various SSOs, championing their adoption and encouraging their use in a host of consumer electronics, and now claim (years later) that the very producers they encouraged to implement these standards should be barred from making, using or importing their products into the U.S. market.

Despite all the talk of smart phones, there is more at stake.  A wide variety of popular consumer electronics products, including video game consoles, routers, computers, GPS navigation devices and video players, use the same standards that are at issue in the smart phone wars.  Given that today’s complex products often incorporate dozens (or even hundreds) of standardized technologies, and that the patent holders in these current cases are demanding significant royalties, some manufacturers could find themselves facing aggregate royalties that exceed the final selling price of their products.  If allowed to occur, it may turn some of the most popular consumer electronics into a one-way ticket to bankruptcy for their manufacturers.

So what should be done to prevent this?  Well, the answer is at least two-fold.  First, patent owners who attempt to renege on their SSO commitments should be held to such commitments made prior to adoption of any applicable standard.  As such, a quiver of private lawsuits including patent misuse, estoppel, laches, breach of contract, and fraud claims may follow.  Second, regulators in all affected markets should take action to deter future renouncements of this type that have anticompetitive effects.  In fact, EU regulators have already signaled their intention to do just that.

In sum, I return to my original query: “Are the smart phone patent wars giving patents a bad rap?”  The answer is very likely “yes.”  This is unfortunate.  Since the days of our founding fathers, the patent laws were seen as a reward system for those who brought innovative products to market in the hopes of improving (and prolonging) our lives.  Now is the time for those private market participants who are affected and the relevant government regulators to be vigilant in fighting such patent-based anticompetitive behavior.  Otherwise, the bad actions of a few will undoubtedly be used as a justification to erode the patent system for all.

I will further discuss such answers in the future as this is the first in a series of six articles exploring the smart phone wars, RAND patent licensing schemes, standard setting organizations and their affects on not only the consumer electronics marketplace, but the entire IP ecosystem.  Please stay tuned!

About the Author

Raymond Millien, a member of the IAM Strategy 300, is Senior IP Counsel at GE Healthcare where he leads global IP strategy for its $6.1B software, consulting and services businesses.  Mr. Millien received a B.S. from Columbia University, and a J.D. from The George Washington University Law School. Mr. Millien may be reached by at raymond.millien@ge.com.

PLEASE NOTE: This article reflects Mr. Millien's personal views as of the date the article was published and should not be necessarily attributed to his former, current or future employers, or their clients.

14 comments
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  1. One thing you do not mention is what seems to be many overly broad, obvious, and prior-art based patents being issued and then used by companies to sue others in attempts to block products. This does seem to be in part a problem created by the patent offices of the world in granting these patents. For example, the biggest one in the news has been Apple’s “slide to unlock” patent. What is more obvious than using a graphical representation of what has been done on electronic devices for years with physical switches. It is the first thing any developer thinks of when trying to transition from physical to software or screen based models. It is inherently obvious. Yet, Apple and others have been bombarding the patent office with such patents – more of a race on who has the money to patent every obvious idea possible than true development or innovation.

  2. Reggie-

    Can you please give an example of “overly broad, obvious, and prior-art based patents being issued”? It is nice to say, but in the real world facts are necessary to back up these types of allegations.

    I doubt you will be able to provide any, or many, examples. The reality is that when these patents are litigated the claims are overwhelmingly found to be valid and infringed. That means that the companies that are infringing are not innovators, but rather are copyists.

    Looking forward to learning your factual basis for your statement so we can address specifics rather than generalizations.

    -Gene

  3. Gene:

    http://www.androidcentral.com/apple-granted-patent-slide-unlock-even-though-it-existed-2-years-they-invented-it

    I know the apple patent is much more specific especially about the designated “path” to guide the option, but it seems prior arts as such should have some consideration on the patent granting process. Otherwise, there might be some problem to our system then.

    Brrrr

  4. Brrr-

    You say: “prior arts as such should have some consideration on the patent granting process.”

    Are you familiar with the patent process? I’m not sure how anyone could say what you said and be familiar with the patent process. Your statement suggests that the Patent Office does not care about prior art and is handing out patents like candy. That is simply not the reality of the situation.

    The article you cite is laughably incomplete to the point where no one could seriously take this as a fact based report. The article doesn’t even mention the patent granted to Apple by patent number, so we just have to take the author’s word for it. Come on… that is even ridiculous for Internet discussion, isn’t it? Without the patent number we can’t look to see what the priority dates are that Apple had in the application. The fact that Apple recently received a patent doesn’t mean anything in terms of when the patent application was filed or what priority date Apple might have relied upon. It is not uncommon for Apple patents like this to remain pending for 6, 8, 10 years or even more.

    I’m happy to respond to any particular, fact-based matter raised. But naked conclusions that cannot be fact-checked against reality are hardly evidence in the real world.

    -Gene

  5. “The article you cite is laughably incomplete to the point where no one could seriously take this as a fact based report. The article doesn’t even mention the patent granted to Apple by patent number, so we just have to take the author’s word for it. Come on… that is even ridiculous for Internet discussion, isn’t it?”

    I wish, but you just described most of the tech blogs and mainstream op eds on patent issues that I see. I’m sure you see many similar/equally bad offenders. I read an article in the San Francisco Chronicle about US patent reform where the author claimed that a person received a patent on a “circular transportation facilitation device.” The patent system must be out of control because, if this author is to be believed, because “using nothing more than his thesaurus, he managed to reinvent the wheel.”

    Of course, no patent numbers were cited, and most people would just assume the writer to be telling the truth. Call me a skeptic; after literally 15 minutes of google searching, I learned what the author neglected to tell his readers: (1) there is no such patent issued in the US; (2) there is an Australian “Innovation Patent” bearing such a title; and (3) Australian Innovation Patents are roughly equivalent to Japanese utility models, are issued WITHOUT examination (except for formalities), and must be submitted for examination prior to enforcement.

  6. “It is inherently obvious.”

    Inherently obvious? What does that mean?

  7. For more on this topic have a look at:
    http://blog.patentology.com.au/2012/02/fraught-issue-of-frand-i-frand-primer.html
    and
    http://blog.patentology.com.au/2012/02/fraught-issue-of-frand-ii-politics-of.html
    and
    http://blog.patentology.com.au/2012/02/fraught-issue-of-frand-iii-antitrust.html.

  8. Large scale patent battles are not at all unusual in new and commercially important technologies providing very valuable competitive products containing numerous different new features [like smart phones and tablets] covered by numerous unexpired patents. [Historically, many were settled by industry-wide agreements that could now raise antitrust concerns.]
    Plus, some of the major currrent smart phone patent litigation participants have very deep pockets and have developed a reputation for playing litigation hardball rather than taking licenses. Eventually they will have to, as the litigation cannot last forever, especially at the ITC, and eBay will not prevent product injunctions from issuing against product competitiors. [Also, more basic patents will start to expire.]
    Of course the author has a partial point in that the public will not be happy if features they want in their products have to be removed to avoid injunctions or high royalites. But that is what competitive patent owners are entitled to.

  9. For a more detailed discussion of the potential effects of the participation in standards-settings by companies involved in the smart phone patent wars, see this March 6 Patently-O article:
    http://www.patentlyo.com/patent/2012/03/february-of-frand.html

  10. [...] my last article, I posed the question whether the “Smart Phone Patent Wars” were giving IP rights – and more [...]

  11. [...] my first article, I posed the question whether the “Smart Phone Patent Wars” were giving IP rights – and more [...]

  12. I agree that the smartphone wars are doing damage to the reputation of patents and patent laws. Many now see patents being used more as a tool to hinder competition than as a reward for innovation. The prevalence of the “patent troll” business model has contributed to this public image problem, as well.
    http://www.aminn.org/patent-legislation

  13. [...] my first article, I posed the question whether the “Smart Phone Patent Wars” were giving IP rights – and more [...]

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