Two of the technology world’s biggest companies – Apple and Samsung – have been in and out of the headlines recently due to their prolific legal battles.
The two smart phone manufacturers have been at war over the rights to technology used in their hardware, leading many in the technology world to claim that patents are hurting creativity.
From engineers to legal commentators, the idea that patent wars have stymied tech industry progress is certainly popular. Investment and technology magazines alike have commented on the immense sums spent by Apple and Samsung to attack their competitors over perceived intellectual property violations.
Those sums – often in the hundreds of millions of dollars – could be better spent on research and development, claim many in the tech industry. The August 12 edition of Money Morning, a digital finance journal, claimed that the patent war between the two technology companies was producing a massive amount of waste.
The journal discussed the wasteful consequences of the litigation, where money was taken from Apple and Samsung’s corporate accounts and spent on litigation instead of innovation and progress. The patent wars also have chilling effects, namely that a large number of technology companies are fearful of innovating due to the potential for a patent holder to sue them.
Many patent holders have spent the last two decades acquiring odd, overly broad, or simply vague patents. Microsoft has its own history of patent warfare dating back to the 1980s, while leading search and online publishing companies like Google and Yahoo have their own messy patent history.
However, the prior patent wars of leading technology companies have been mostly defensive in nature. Companies attacked when they saw their intellectual property under attack by others, and focused on research and development when the coast was clear.
Today’s patent wars, in contrast, are offensive. With profit margins falling and the level of competition in the technology industry growing, companies are using their patents offensively. What was once a tool to protect against aggression is now used for aggression, particularly by companies like Apple and Samsung.
Just like the United States and the Soviet Union rushed to acquire large arsenals of nuclear weapons during the Cold War, today’s leading technology companies are involved in a scramble to acquire as many patents as possible.
Experts estimate that leading smart phone manufacturers spent over $20 billion on patent acquisition from 2010 to 2012, and that many still maintain billion-dollar IP protection budgets. Google alone has spent an estimated $12 billion on patents in its operational history, with rival Microsoft purchasing over 21,000 patents since the 1980s.
Patent-related lawsuits increased by 70 per cent from 2004 to 2009, causing many in the legal community to express concerns that technological innovation could be overtaken by aggressive litigation. Each patent – or each patent lawsuit – reduces the amount that technology firms can spend on research and development.
For many companies, patent acquisition and patent infringement litigation is now a greater expense than research and development. The average patent infringement claim costs $2.5 million to fight – money that reduces each company’s ability to bring new products and technologies to market. Many of the companies most heavily involved in patent litigation have histories of innovation and creativity – histories that are now used as justifications for their aggressive patent warfare. Apple, for example, states: “Apple has always stood for innovation. To protect our inventions, we have patented many of the new technologies in these ground-breaking and category-defining products.”
The Cupertino-based company claims that if competitors could copy its products and innovations, it wouldn’t “spend millions of dollars creating products like the iPhone.”
The iPhone itself is an interesting example of the unusual patents used by many technology companies in litigation. The tiny smart phone contains thousands of patented technologies, many of which are vague and hard to define.
On average, smart phones contain an incredible 200,000 patented parts. Many of these patents are somewhat vague and dubious, covering technology that allows them to be used aggressively rather than defensively in protecting the intellectual property of their creators.
US patent lawyers recently criticised a software patent for online price calculation on shopping websites, claiming that it was too loose and flexible. Financial services companies are also taking issue with the rush to acquire patents. St Louis Federal Reserve Bank claims that there is “no empirical evidence” linking patent laws to an increase in productivity.
Leading legal researchers, universities, and businesses have spoken up on the rush to attack competitors for perceived patent infringements, noting that the massive dependence on patents makes it difficult for startups to flourish. In response to the criticism, the world’s leading technology companies have turned a blind eye and continued their efforts to acquire more loosely worded, incredibly vague patents. They’ve also increased the amount they spend on legal services to arm themselves against threats from competitors.
The surge in patent warfare threatens the unique balance that’s allowed the world’s top technology companies to innovate for so long. Innovators and risk-takers need to be protected, but not at the expense of further development and innovation.
An executive vice president at Samsung offered an amazingly honest statement on the ongoing patent disputes, stating that the cost of patent warfare ultimately hurts consumers as well as businesses: “Legal battles with Apple have been a loss for both the industry and innovation as a whole.”
While companies like Apple, Microsoft, and Samsung may be winning their battles against each other, it’s consumers that are suffering the most from the technology industry’s destructive and costly patent warfare.
This article was written by Vannin Capital. Visit their website to learn more about how litigation funding works: litigationfunding.com.