Antitrust Laws Are Not Enough to Kill Big Tech Monopolies

By Paul Morinville
July 16, 2019

“Breaking up big tech with antitrust laws simply duplicates megamarkets into more big tech monopolies. Megamarkets remain fully controlled by big tech and that control is the secret to perpetuating their monopolies.”

https://depositphotos.com/113417210/stock-photo-hercules-fighting-a-hydra-greek.html

Hercules fighting a hydra.

The United States is looking to antitrust law to break up big tech. Later today, for example, the House Subcommittee on Antitrust, Commercial, and Administrative Law will be meeting for a hearing on Online Platforms and Market Power, Part 2: Innovation and Entrepreneurship.” Unfortunately, this may have become necessary, but it will not solve the problem of big tech monopolies. That can only be solved by understanding how big tech creates megamarkets and how they use shadow patent systems to regulate and perpetuate their monopolies—a power traditionally reserved for sovereigns.

A patent is nothing but an exclusive right. All it can do is remove an infringer from the market. That incredible power enables startups to attract investment, commercialize new technologies, and challenge incumbents.

The value of a patent is dependent on demand and market size. Since national borders establish the market size, the larger the country, the larger the market, and the more valuable a patent can become.

But big tech markets are not restricted to national borders, so they get larger. Apple has 1.4 billion active devices reaching four times the 327 million population of the United States.

Apps are software programs running on devices. Most are business methods designed to sell goods and services, provide information or perform some other service.

Apps are sold in app stores. App stores are also business methods. For example, Apple restricts its operating system to only run apps made for Apple devices. This gives Apple’s App Store exclusive control of the app market for all Apple devices, including iPhone, iWatch, iPad, etc.

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Apple’s Shadow Patent System

Apple has created a megamarket that Apple solely and completely controls, but it does not stop there. Apple’s market control is manifested in a shadow patent system protecting business methods. Apple restricts apps that appear to be “copying” another app by requiring apps to be “useful” and “unique”.

These requirements are the same requirements of any patent system, and specifically the same as the statutory requirements of patentability under U.S. patent law. Sections 102 and 103 determine if an invention is “unique”. Section 112 determines if an invention is “useful”.

Therefore, Apple’s shadow patent system displaces the U.S. patent system, which grants Apple sovereign power over its megamarket that is four times larger than the entire U.S. population. In effect, the U.S. has ceded its sovereignty to Apple.

But there are important and harmful differences between the two systems. A U.S. patent is examined by an unbiased patent examiner in a public process following due process of law, including access to a U.S. court, a jury and appeals. A U.S. patent lasts only 20 years and it transferred to the public when it expires. Only a U.S. court can remove an infringer from the U.S. market, and U.S. markets are regulated under due process of law.

Apple has none of those protections and applies its rules for its own exclusive benefit. Apple grants a shadow patent to all apps on their megamarket. A shadow patent does not expire; it is perpetual. Apple denies “apps for any content or behavior that we [Apple] believe is over the line”. The “line” is defined as “I’ll know it when I see it”, which is arbitrary market regulation controlled for the benefit of Apple. Non-disclosure agreements forbid app providers from disclosing any information about Apple’s shadow patent process and the decisions they make.

Google, Amazon and other big tech monopolies have their own megamarkets with similar market controls designed to benefit themselves only.

Big tech operates on the thin outer edge of technology: the browser. Their core businesses are built on business methods like app stores (Apple and Google); page ranking algorithms (Google); “like” or “friend” buttons (Facebook); shopping carts (Amazon); and more.

Because big tech and apps are built on business methods, the only way to challenge them is with a patented business method. But U.S. patent law denies patent protection for business methods.

It is not surprising that big tech, app companies, and their investors resist efforts to fix the U.S. patent system and fight to keep business methods unpatentable. After all, that sovereign power has effectively been ceded to them and they use it to preserve their monopolies. For example, Josh Kushner, Jared Kushner’s brother, runs a venture capital firm called Thrive Capital. Thrive investments include Oscar, Slack, Robinhood, Stripe, Spotify, Mapbox, Twitch, and GitHub, all of which have apps sold on the Apple App Store. Mapbox testified to Congress supporting legislation to weaken business method patents.

Kill the Hydra

Big tech monopolies are like the mythical Hydra—if you cut off a head, two more will grow. Breaking up big tech with antitrust laws simply duplicates megamarkets into more big tech monopolies. Megamarkets remain fully controlled by big tech and that control is the secret to perpetuating their monopolies.

The Herculean task is to break up the shadow patent systems that big tech uses to control and regulate their own captured megamarkets. That requires making business methods patentable under U.S. law and strengthening the U.S. patent system by making it faster, cheaper and easier for the real innovators to win patent infringement suits. This is not the case under today’s patent system.

If patentability of business methods is restored, startups with better business methods can challenge big tech monopolies and their apps. This not only restores U.S. sovereign power, but it slays shadow patent systems so that creative destruction can naturally break up megamarkets and keep big tech from monopolizing again.

Image Source: Deposit photos
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Copyright: vukkostic91 

The Author

Paul Morinville

Paul Morinville is Founder and former President of US Inventor, Inc., which is an inventor organization working in Washington DC and around the US to advocate for strong patent protection for inventors and startups. US Inventor has been walking the halls of Congress knocking on doors and sitting down with hundreds of offices to explain the damage suffered by inventors due to patent reforms. Paul is President of SemiComm HK, a Hong Kong company licensing patents in China, and an independent inventor with dozens of U.S. patents and pending patents in enterprise middleware.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 16 Comments comments. Join the discussion.

  1. Jam July 16, 2019 10:55 am

    Interesting perspective. One positive for the shadow patent system is that developers who write apps on “abstract ideas” (e.g., intermediated settlement, i.e., any payment app) can still get a return. In contrast with the USPTO where claims to “abstract ideas” can be a financial black hole, especially for under capitalized developers.

    Concur that a strong patent system can be used to prevent overly capitalized businesses from pompously and selfishly manipulating free markets. A strong patent system allows innovators to be rewarded instead of mere capital hoarders by allowing capital to flow to inventors (including small ones that may not otherwise have had the ability to market their invention). In contrast, the monopolistic/trade secret system has capital flowing to those with the most capital.

  2. Pro Say July 16, 2019 12:27 pm

    Thanks Paul.

    One powerful, eye-opening treatise indeed.

    One which Congress will hopefully appreciate and embrace; including by restoring 101 and abrogating Alice / Mayo.

    For the good of America.

  3. concerned July 17, 2019 6:54 am

    The more I learn about the current patent system, the more it looks the the sub prime mortgage fraud of the early 2000s.

    A few people learned a cute trick to “game” mortgage originations. Using straw people, as applicants, who could no way service their monthly mortgage payments, mortgage originators drew huge transaction fees while sticking the secondary mortgage market with bad loan debt. At first, the scam was tiny and under the radar, thus not extremely harmful and it continued. However, when the professionals at large saw how easy it was to scam the mortgage process and the scam became en masse, the country almost collapsed financially. 40% of the mortgages originated in 2006 and 2007 did not make their first payment on a 360 month note!

    Efficient infringers have also learn a few cute tricks with the blessings of the courts. And at first, the only ones scammed are the early inventors at the beginning of these cute new tricks. However, once these cute new tricks become widespread and well known, inventors, like the secondary mortgage market people, realize not play their silly game any longer. Note how close the word “investor” is to “inventor” as an irony.

    When this whole patent thing blows up in the country’s face, like the sub prime mortgage mess, people who had “everything” to do with this perverted patent situation will be shaving in front of a mirror in the morning swearing they had “nothing” to do with this patent mess. And life goes on.

    Mr. Morinville: Keep up the good fight!

  4. Andrew Berks July 17, 2019 8:40 am

    Thank you for this insight. I can add that Congressional action will be required to implement a new business method patent paradigm. The existing 101/102/103/112 framework is not up to the task. I wonder if this should be a new type of patent, analagous to a utility model, with a shorter term, maybe 10 years.

  5. Anon July 17, 2019 9:39 am

    Mr. Berks,

    I see a very mixed message in your post. Why in the world would not standard patent protection work for ALL of the items that 101 – per the words of Congress – provide?

    I see NO basis then for your wanting some other mechanism for business method patents.

    Those assailing the “business method patents” are NOT correct. Your message subtly indicates that they are.

  6. Paul Morinville July 17, 2019 10:47 am

    Andrew @4. “The existing 101/102/103/112 framework is not up to the task.” That is quite a radical statement. Even more radical is “implement a new business method patent paradigm”

    Perhaps you have some underlying information, facts, cases, etc., in which you base your statement that the current framework is not up to task. I don’t know of any, so please share this information. Alternatively, perhaps your task is different that what others might consider the task of a patent. Please define your view of a patent’s task.

    If you do not have anything to back your assertion up, you may have specific experience in tech that provides a basis for your assertion. Your background appears focused on ANDA litigation and pharma, but while that may be an impediment to forming a well-reasoned opinion on tech, it is not necessarily a disqualifier; your experience may still have merit. Please share some specific examples from your experience that would back up your assertion.

    Also, since you believe that the law should peel business methods from patent law and set up its own patent system, a solid and repeatable definition of what constitutes a business method would be valuable. You are a lawyer, so you know what chaos ensues when the words of law are not defined. I assume you have thought this through and can provide a definition. Please share it.

  7. Jam July 17, 2019 11:52 am

    concerned @3, yes, concur that there are some parallels. A distinction is that the largest infringers are not at risk of insolvency (unlike the largest financial institutions). Hypothetically, if 101 were immediately fixed and courts immediately started enforcing business method patents, then there would likely be hundreds to thousands of new lawsuits from hibernating patentees against just about any business using software and cloud services. 1000 lawsuits times 10 million dollars to get a final judgment for each lawsuit yields a risk of 10 billion dollars (plus additional damages), i.e., 2 months of income for Facebook. Hence, the issue is more with small and mid-sized businesses that are unable to afford the legal bill of defending against hibernating patentees. Oddly, it may create situation where small inventors can get and enforce patents, but are unable to start their own businesses and marketing their own innovations due to the risk of litigation from other patentees.

    Berks @3, the current statutes are great for defining what is or is not patentable (especially if they were enforced as written). However, the patent system does not provide a convenient framework for after patents are granted. You can get an injunction against anyone else making, using, or selling the patented invention, that’s it. This is in contrast with copyrights, which have a fair use exception to allow educational use and have compulsory licensing to allow for distribution of copyrighted works without explicit permission of the owner. The patent system does not have these exceptions, which the courts like to use to justify the 101 mess (e.g., patenting natural laws prevents the [educational] use of those natural laws, therefore patents on natural laws are not eligible; also, the “patent holdup” argument that patentees can choose to stop the progress of field of research by not licensing and not marketing a patented invention). Updating the patent system framework to ditch the Courts’ 101 doublespeak and add in exceptions for fair use and compulsory licensing may help with these issues.

  8. Paul Morinville July 17, 2019 1:07 pm

    Jam @7. “Oddly, it may create situation where small inventors can get and enforce patents, but are unable to start their own businesses and marketing their own innovations due to the risk of litigation from other patentees”

    I don’t understand your argument. I do not know of a single case where patent holders sued small companies for patent infringement. There are cases of demand letters, but not litigation. It is a false argument designed to strike sympathy for small businesses that is then used to change law in favor of big tech. And it doesn’t make sense to sue small companies. Patent litigation costs millions of dollars. Going after a small company will never return the investment. You can send a demand letter, (or you could have years ago but no longer) but filing suit is not practical and not done.

    Also “Updating the patent system framework to ditch the Courts’ 101 doublespeak and add in exceptions for fair use and compulsory licensing may help with these issues”

    I think that the fair use argument is bunk. There is nothing to gain by suing someone for patent infringement unless the damages are high enough to warrant the cost of litigation. Using technology in research to improve it would not generate any damages because it brings in no revenue. Do you have a real world examples? I doubt it.

    Compulsory licensing is just another way of saying if they steal it they keep it. While an invention may make a market and that ascribes a value to the invention, it is not where the value is. The value is the market, especially in tech. New tech creates new real estate. Once that real estate is plotted and filled by the new tech, for all practical purposes nobody else can take it. The now entrenched tech can then be expanded to include more new tech, which eliminates huge costs of customer acquisition and integration. A compulsory licensing system lets big tech take full advantage of their installed customer base to massively drive adoption of new tech and take the market away from the inventor. The only way to level the field and to determine the true value of the invention is by enjoining the infringer. Take it away and a free market for the invention is created where the parties can arrive at a market value for the invention. A compulsory license forces the inventor to accept an arbitrary value determined by a liberal arts major in a robe who has never invented anything, started up a company or marketed a product.

  9. Benny July 18, 2019 3:08 am

    ” But U.S. patent law denies patent protection for business methods.”

    That being said, since the big data tech companies operate internationally, you could always protect your business tech invention in a jurisdiction that does grant patents for business methods.

    Oh. There isn’t one.

    Let me reverse the question. Paul essentially asks, why can’t the US patent system be different to everyone else’s, and I ask, why should it be ?

  10. Paul Morinville July 18, 2019 8:40 am

    Oh Benny, you are so silly. And unfortunately uninformed with a keyboard.

    http://www.georgemasonlawreview.org/wp-content/uploads/…/24_4_Madigan_Mossoff_2.pdf

  11. Anon July 18, 2019 1:38 pm

    Paul @ 10,

    Your link pointed me to a 404 page.

    Can you update the link?

    Thanks,

  12. Paul Morinville July 18, 2019 5:35 pm

    Anon, You have probably read it. The link is to a pdf document entitled “TURNING GOLD INTO LEAD: HOW PATENT ELIGIBILITY DOCTRINE IS UNDERMINING U.S. LEADERSHIP IN INNOVATION” by Kevin Madigan* & Adam Mossoff** You can find it by searching for the title.

    It shows that business method and software patents are being invalidated here, but stand in China. Benny has not read it or he is not capable of understanding it.

  13. Anon July 18, 2019 10:09 pm

    Thanks Paul.

    I believe this link leads to a non-SSRN version of a fully accessible and updated story:

    https://cpip.gmu.edu/2018/06/28/the-value-of-public-data-update-to-turning-gold-to-lead/

  14. Anon July 18, 2019 10:17 pm

    Oops – turns out the link I presented was just an update to correct an error – one may need to go through SSRN to get the story.

  15. Joachim Martillo July 20, 2019 11:41 am

    I am surprised that Twitter Inc. misbehavior is not an issue. Twitter manipulates public and political discussion at unprecedented levels. I am currently suing Twitter.

    Invention is a form of expression. The culture of invention requires complete freedom of expression. Twitter is an enemy of free expression.

    The Judge is currently studying the issues of the case. If we get past the Communications Decency Act (CDA), which should be completely irrelevant, I will file an amended complaint, which can be perused here.

    While Twitter is completely evil and is degrading political discourse in the USA, Twitter can be tamed via application of common carrier law. Anti-monopoly legal proceedings are not necessary.

  16. Anon July 20, 2019 1:14 pm

    Joachim,

    Points for novelty, but is Twitter truly a “common carrier” as that term is to be understood legally?

    See https://definitions.uslegal.com/c/common-carrier/

    I believe that it may be wise for you to seek actual counsel as opposed to taking this on pro se (not legal advice – merely as one blogger to another).

    I “get” that this is an extremely emotional issue for you – but I have engaged in discourse with you on the “Palestine/Israel/Semitism” topic, and quite frankly, I do not think that you can objectively tell the difference on the merits of what is or what is not “H@ te” speech and how the PRIVATE entity known as Twitter may set up and govern its own system.

    You just do NOT have a “Freedom of Speech” case here, let alone a libel case.

    You are of course, free to disagree and pursue all legal avenues open to you. Just do not expect success on this matter.

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