Patent lawsuits and quarrels are not new, nor uncommon. It seems as of late that more and more lawsuits have surfaced, especially in big name companies. Is this a trend or are the big household names significantly overlapping in services and customers, leaving patent lawsuits as a last-ditch effort?
An eight-week jury trial began a few weeks ago to decide whether Google infringed an Oracle Java patent for technology incorporated into its Android software. The jury is in the midst of researching the claim and whether or not Google’s actions might be considered “fair use.” Were Java’s APIs copyrighted? U.S. District Court Judge William Alsup might make that notion – in which case, all APIs will be copyrighted, leaving Google in violation with its Android creation. This isn’t really a case for the jury though, the decision rests on the judge.
Before that, a lawsuit was filed against Apple, RIM and Samsung by a small company over alleged infringements of a touchscreen patent. This stirred up all kinds of investor advice and customer loyalty.
In March, Yahoo filed a huge patent infringement lawsuit against Facebook over alleged infringement of 10 patents ranging from advertising to messaging and everything in between. The burning question in this particular case was whether or not Facebook should just purchase the patents from Yahoo – mere pocket change in the grand scheme of things.
It seems that nearly every week some sort of massive lawsuit involving at least one technology juggernaut is filed or decided, whether a new web titan like Google, an older technology leviathan like IBM, or mobile technology powers like Motorola or Verizon. But what is the driving factor behind this litigious trend in the technology industry?
The technology industry evolves at an incredible pace. Giants can rise remarkably quickly. But unlike in many other industries, technology Goliaths can quickly be slayed by upstart Davids.
The key to the industry’s blistering pace is intellectual property (IP), particularly patents. To survive and thrive, technology companies must constantly innovate and try to stay one step ahead of the competition. A key ingredient in this process is the acquisition of patents. Patents allow companies to prevent others from free-riding off of their innovations while also protecting patent holders from infringement lawsuits. Patents are worth their weight in gold to technology companies.
Technology patents have helped generate staggering wealth for both companies and individuals. In fact IP has created great wealth for the United States as a whole. The country has shifted over the last two or three decades from a manufacturing-driven economy to an IP-driven economy. In 2010, industries that relied heavily on IP accounted for 34.8 percent of U.S. gross domestic profit.
But how exactly do patents do all of these wonderful things for companies? Unlike trademarks and copyrights, patents are incredibly difficult to acquire. But a patent, once acquired, grants the holder a fairly long monopoly over their creation. No other individual or corporation can use the patent holder’s creation without negotiating a license (or some other arrangement). Thus, patent holders have a huge advantage over the competition via exclusive use or a profit from licensing. Because, the technology companies heavily market new and cutting-edge products, there is a constant need to acquire new patents to stay ahead of competitors.
But often times, especially in such a fast-paced and competitive industry, simply having the patents is not enough. Other companies also want to remain competitive and provide their customers with newest and greatest industry innovations but without paying licensing fees or developing alternatives.
Similarly, patent-holders want to retain their competitive advantage by preventing competitors from using their technologies or even similar technologies without receiving just compensation. The only way for a patent-holder to enforce their patents is by litigation. And with so much money at stake, we see a multitude of patent litigation.
Many companies risk infringing other companies’ patents in order to close a competition gap. The idea is that they would rather run the risk of being sued rather than take the sure path of missing out on a new innovation and falling behind with consumers. Then there’s the idea that the already more-profitable company can just purchase the patents from the underdog, furthering the gap between the competition and driving customers away because the funds can no longer go to pursing innovative ideas.
There have been so many studies on why companies go bankrupt and the number one reason is because of customer flow – or in this case, lack thereof. Competing companies with newer, faster, sexier gadgets win and leave the others behind. Of course there is an ebb and flow to the process. One company may not always have the lead, or it holds that coveted first place in the customer’s eyes for a short period of time while another company gears up to take the lead.
Just because Company A has a big time hit in product, service or technology doesn’t mean Company B doesn’t have something up its sleeve as well. It’s when Company B doesn’t come up with something to draw the customers back in that they need to start calling a bankruptcy attorney or take drastic measures to keep finances in order.
Of course with the danger of bankruptcy comes a whole slew of negative situations. Patent lawsuits are not inexpensive and the damages to a company could have detrimental effects, increasing tensions. Lawyer fees, penalties and time definitely don’t contribute to overall company profits and might push them into the red zone. Fees and additional charges continue to stack up, of course, when the initial charges cannot be paid.
In the end, as long as consumers continue to want the newest and coolest tech gadgets and services, profit potentials will remain high and so will the temptation for companies to push the limits on what they may borrow from their competitors. Technology companies will seek to preserve their competitive advantage (profit margins) via patent litigation.
Until consumers stop purchasing products from the Apples and Microsofts or using services from the Googles and Facebooks, the trend of litigation in the technology industry will continue. After all, what company does not want to have Apple’s conundrum of what to do with nearly a billion dollars in cash reserves?