Tech Patent Fights: What’s at Stake

Steve Wildstrom / June 20th, 2011

Recent days have been filled with news about patent disputes. Lodsys, a company that claims fundamental patents on in-application purchases, fired off another batch of suits against alleged infringers. Apple and Nokia resolved a complex legal fight over smartphone patents. Dolby Labs sued Research In Motion. And the U.S. Supreme Court told Microsoft to pay up on a judgment that technology in Office infringed on a patent held by tiny i4i LP.

Should we be alarmed at what seems to be a tsunami of patent litigation? Maybe, but only a little.

To make sense of these fights, you have to divide them into two broad classes. Suits such as the ones that pit nearly every maker of smartphones against nearly everyone else in the industry are of relatively little interest to anyone but the parties and the lawyers involved. They can go on for a long time and cost the shareholders of the companies involved a great deal of money, but they always end the same way, with a deal in which the parties agree to cross-license their patents. Sometimes, as in the Nokia-Apple case, money changes hands; Apple agreed to pay a lump-sum settlement plus a royalty on future phones. Sometimes it doesn’t.

There are two unfortunate aspects to these cases. First, we’d all almost certainly be better off if the money and energy that goes into these very expensive fights went instead into product development and innovation. Second, because nearly all the devices containing the patented software are manufactured abroad, plaintiffs have taken to trying to speed up the painfully slow patent litigation process by asking the U.S. International Trade Commission to use its power to ban the importation of infringing products. Many such injunctions have been issued, but somehow they never seem to happen. There’s nothing like the threat of having your product seized in Customs to get you to pay up quickly, producing a very rough sort of justice.

The cases that are much more disturbing are those brought by what patent lawyers call “non-practicing entities” and most of us call patent trolls. Lodsys is a very obscure company whose only business seems to be bringing patent infringement suits in the plaintiff-friendly U.S. District Court in Marshall, Tex. The patents have a tangled history. They were originally awarded to an inventor named Daniel Abelow. Abelow apparently sold the rights to Intellectual Ventures, a company started by former Microsoft research chief Nathan Myhrvold, to amass and license patents. A number of  companies, including Apple and Microsoft, have licensed the patents, apparently as part of a large portfolio of rights acquired from Intellectual Ventures. But Intellectual Ventures then sold the Abelow patents to Lodsys. (This is typical of how things work in patent-land.)

Lodsys makes sweeping claims for its patents; it basically says they cover any purchase made from within an application. And it has fired off threats or lawsuits against a long list of companies large and small. Many intellectual property experts feel that the Lodsys tents have little chance of surviving a challenge to their  validity, at least in Lodsys’s broad interpretation. but from the point of view of a small application developer, it may not matter. As FOSS patents blogger Florian Miller points out, small companies simply cannot afford the extravagant cost of a patent suit. Without help, their choice may be to accept Lodsys’s licensing terms or abandon their apps.

Ideally, since Apple forces developers who want to sell from within their apps to use Apple’s software to do so, Apple would indemnify the developers against damages claimed for such use. Apple has taken a step in that direction by petitioning to intervene as a defendant in Lodsys suits against seven app developers. Apple claims that its blanket license of the Abelow patents covers the developers; Lodsys disagrees and a court will have to decide. This stops well short of full indemnification, but it should mean that the developers won;t have to bear the full financial brunt of the litigation. Google so far has said nothing.

This sort of patent trolling is unlikely to stop anytime soon. Inventors have the right to sell their patents and the buyers, whether practicing entities or not,  have the right to enforce them. Courts and the U.S. Patent & Trademark Office itself have shown considerable willingness to overturn dubious software patents, but it is a slow and tedious process. And in its decision in the i4i case, the Supreme Court rejected an argument by Microsoft that would have made it somewhat easier to challenge the validity of patents.

The best hope for protecting small developers–and badly needed innovation–in the near term is for the big boys–the Apples, Googles, and Microsofts–to bear the cost of defending against these challenges. It is the small developers who have created such a vital app ecosystem around the iHone and iPad, and the small developers who will be needed if Android and Windows Phone are to succeed. The costs for the big players are relatively small, but the stakes are very big.

Steve Wildstrom

Steve Wildstrom is veteran technology reporter, writer, and analyst based in the Washington, D.C. area. He created and wrote BusinessWeek’s Technology & You column for 15 years. Since leaving BusinessWeek in the fall of 2009, he has written his own blog, Wildstrom on Tech and has contributed to corporate blogs, including those of Cisco and AMD and also consults for major technology companies.
  • Anonymous

    Great thoughts, Steve. I wonder how much more messy this whole issue is going to be. Especially with Apple getting several new patents related to touch screens granted recently.

Protected by Gerben Law