Time for a Smartphone Patent Pool

on August 11, 2011
Reading Time: 3 minutes

Most of the creative energy in the smartphone industry seems to be going into lawsuits, with just about everyone claiming that everyone else is violating their patents. In addition to keeping a lot of lawyers in work, the disputes are having real world consequences, with, for example, Apple blocking the sale of Samsung Galaxy Tab 10.1 in the European Union. It’s time to stop the madness, but any solution is going to have to come from the industry itself, not from Congress or the courts.

A patent shingleIf you are seriously interested in the issue, however, stop right now and read “The patent system isn’t broken, we are,” Nilay Patel’s detailed and incisive analysis of the issues surrounding software patents. In addition to analyzing where we are and how we got here, Patel offers some helpful suggestions for reform.

The problem is that serious changes in the patent system require legislation, a tall order from a Congress that would probably have to break a filibuster to pass a Mother’s Day resolution. (a useful but relatively minor reform bill may pass this fall, but it does not address the fundamental issues.) Courts can impose some sanity, but they are slow moving and constrained by existing legislation.

It seems to me that the best way out of the smartphone mess would be for all the the folks now beating each other up in court and before the International Trade Commission to get together and form a patent pool. Everyone owning relevant patents contributes their intellectual property. Members and others wishing to use the patents pay a reasonable fee for a license and the proceeds are divided among the contributors.

This is hardly a novel idea. Philips and Sony, which each owned key technology behind the compact disk, set up a patent pool that helped launch the enormous success of the CD format. Six companies that owned key DVD technology (later joined by three others) created the DVD6C Licensing Group. The numerous patents behind MPEG video compression technology are pooled into MPEG LA, which licenses their use.

A pooling of smartphone patents would make life a lot simpler for everyone in the business. There are so many patents covering so many aspects of the hardware and software that it appears to be all but impossible to build a phone that doesn’t infringe on something. And right now, it looks like the big long-term winners will be the lawyers. In theory, the issues could be resolved by a series of pair-by-pair patent cross-licensing agreements, but a single patent pool seems simpler and more efficient.

Not that creating such a pool is going to be simple. First, any arrangement would probably need the blessing of U.S. and European antitrust regulators, who tend to see such cooperation as potential collusion. The other pools I referred to were easier because they were created at the onset, before an industry existed to be divvied up. A tremendously difficult issue would be determining how to share the license fees among the contributors, a problem that would probably call for a complex arbitration. The position of Google, a major smartphone player with a relatively puny patent portfolio is particularly difficult, although in fairness, Google also stands to be the big loser if the industry proceeds down its present litigious path.

A key step any patent pool would have to take to be successful is to indemnify its licensees against attacks by non-member patent holders. In effect, the pool would have to say: “A license from us gives you access to all the intellectual property needed to build a modern smartphone. If a third party claims otherwise, we will defend you.” This sort of insurance can be expensive, but certainly within the means of a pool that included Apple, Microsoft, HP, Samsung, and other giants.

One serious concern is that the existence of a pool could cripple innovation. If inventors have to share their creations with competitors. will they have any incentive to innovate? One solution would be to limit the pool to current patents–often the most troublesome because their existence and extent is unknown–and leave companies free to claim exclusive rights to future inventions.  That might set up more problems for the future, but could still deal with the difficulties of today.