Apple vs. Nokia vs. Google vs. HTC

Lanxon writes "Wired has published a lengthy investigation into the litigation underway among some of the world's biggest cell phone manufacturers, and what it means for the industry of patent lawsuits and patent squatting. 'According to a 2009 report by PricewaterhouseCoopers, from 1995 to 2008 non-practising entities [patent trolls] have been awarded damages that are, on average, more than double those for practising entities. Consider Research In Motion's 2006 payout of over $612 million to Virginia-based patent-holding company NTP, to avoid its BlackBerry network being shut down in the US. As part of the settlement, NTP granted RIM a licence to use its patented technology; it has subsequently filed lawsuits against AT&T, Sprint Nextel, T-Mobile, and Verizon.'"

Comments

So...

[fuzzyfuzzyfungus]

How long before "Non-Practicing Entity" goes from harmless-sounding euphemism to sinister dysphemism, the way terms like "Ethnic Cleansing" have?

Re:Hardly a mexican standoff

[FlorianMueller]

I agree that Nokia vs. Apple/Apple vs. Nokia isn't a Mexican standoff but that Nokia probably owns the far more fundamental mobile patents. However, the problem that Nokia has in this is that its most fundamental patents in the mobile space are part of GSM and other standards. That fact doesn't expropriate Nokia but at some point they could come under pressure that those are patents that should be made available on RAND (reasonable and non-discriminatory) terms. Then Nokia could argue that it is, in Nokia's view, not at all unreasonable to ask Apple for a cross-licensing deal because otherwise Apple could exclusively control some of the more recent technologies (multitouch etc.) while Nokia (and similar vendors) would be expected to grant licenses to their patents only because they're part of older standards definitions.

Apple faces the typical problem of a late entrant: even if you obtain some patents on new technologies, you still need the underlying old technologies and those patents are generaly still valid, given that patents expire only after 20 years (except for a failure to pay renewal fees, which won't happen if the patent holder is Nokia and the patents are valuable). That's why in an area of incremental innovations patents may not be even remotely as helpful to innovative late entrants as many people are led to believe.

In terms of waster pistol vs. aiming a cannon, I think this also applies to the Apple/HTC situation and HTC's announcement of yesterday that it's now (counter-)"suing" Apple.

Re:Patent trolling should be outlawed

[lorenlal]

I'm 100% with you. Of course, I'm wondering what the standard for demonstrating active development would be? Also, who would be checking to see that they're actually doing something with it?

Clearly, we couldn't take the company's word for it. If they did decide to waste money by pretending to do development, it would at least introduce some risk to the trolling company in terms of cost. Also, faking records would be quite interesting to the SEC.

If we can answer these questions, we could finally stop bitching about patent trolls and try to do something about it... Like getting in the ear of our lawmakers, and trying to get them to realize how bad this is for the economy. The finishing move would be: Bad economy -> The more likely you'll not see the other side of the next election.

Re:Patent trolling should be outlawed

[rpresser]

That's insane. That would remove all protection from the traditional lone inventor who comes up with something useful and wants to sell it to the big companies. In effect you'd be saying that you can't invent anything unless you plan to sell it yourself.

Um, not quite.

[__aagbwg300]

non-practising entities [patent trolls]

While all patent trolls may be non-practicing entities (NPEs), not all NPEs are patent trolls. Individual inventors, the kind that don't have the spare four or five billion dollars necessary to build a processor lab, are NPEs and often unfairly get labelled trolls. Also, don't forget universities and government laboratories. Under the parent's definition of troll, anyone who invents something but doesn't follow through with marketing a product must necessarily be a troll. The intellectual property world is more complicated than that. Real trolls can be NPEs or companies trying to squeeze their competitors - in fact, the latter is much more common than the former.

Re:Patent trolling should be outlawed

[chrb]

must be producing something that uses it or actively developing something that uses it

Two problems:

• Does the item that uses the patent have to actually do anything? I can take a patent, and then implement some product that I have absolutely no intention of ever selling or releasing to the public. And if I did sell it, would there be a minimum sales threshold for the patent to be valid? If I make a single item, put it on ebay, does that then make the patent valid?
• What about companies that produce intellectual property, such as patents, and then license those patents to third parties? The patents involved in this model are now no longer valid, because the inventor does not directly produce items for sale?

The patent system relies on the ability to discriminate between entities with valid patents, and entities without valid patents. This is the fundamental issue - whether this is even possible. Even assuming that it is possible, there are still problems.

• Who decides whether or not a patent is valid. How is a jury qualified to decide on patent validity? Should there be some alternative? What?
• The cost. Will the state continue to finance the patent system, through patent offices, examiners, courts? Fixing the patent system will require a greater investment than is currently being made by any nation - who is going to pay for this? The inventor? That would favour rich over the poor. Should it continue to be paid for through taxation? That will require increasing taxes.
• The current system favours large corporations that can afford to keep patent lawyers on the payroll. Small inventors can not afford court cases that run for years.
• Geographical scope of patents in a globalised economy. What if a company in China violates your U.S/E.U. patents, running software on servers that are accessible globally? This kind of scenario requires a global patent framework, with some kind of oversight body (WIPO? United Nations?). Do you really want that? If you say that corporations in other countries can willfully violate patents, then corporations will favour locating subsidiaries in countries that have no patent enforcement. We are already seeing this - hardware companies moving to China, which has one of the lowest rates of patent enforcement in the world, and biotech companies opening R&D subsidiaries in India.
• Where is the evidence that the patent system actually does what it is supposed to - that is, enable real inventors to fairly profit from their inventions, whilst maintaining the right of others to compete fairly by manufacturing their own inventions. When was the last time you heard a positive patent story? Ever?

The #1 question: What Will Google Do?

[FlorianMueller]

The Wired article and most of the media reports and the comments here are focused on patent disputes between the hardware companies involved. But according to a recent announcement, Android is now a high-volume mobile phone operating system and everyone knows that it's a Google project.

Those vendors who, like HTC, decided to build smartphones running on Android had access to the program code on open-source terms. They may not have a formal contract in place with Google at all, or if there is one, it will be more focused on trademark rights because the software itself is under a free license. Still they probably all took a great deal of confidence from Google's backing of Android.

I don't mean to criticize Google for what it has (not) done yet: to step into the ring and bail out companies who took major business decisions based on their reliance upon a Google open-source project. But at some point in time, of which one can certainly argue that it hasn't come yet, there will be industry concern and also concern in the wider Free and Open Source Software community over the extent to which Google stands behind the open-source software it puts out. Google has a significant patent portfolio (small compared to the portfolios of IBM, Microsoft and even Apple, but still much bigger than that of HTC). Google could also pay royalties to patent holders given the important role that Android plays in its overall corporate strategy (Google could become a master licensee of the required patents and then grant sublicenses to vendors selling Android-based phones).

There are rumors that Google plans to open-source the VP8 video codec and it might happen very soon. Multimedia codecs are also a terrible patent minefield. Similarly as mobile phone operating software, they are an OEM component, meaning others incorporate them into their commercial products. Again, it's too early to blame Google for anything here, but the fact that Google doesn't try to bail out the vendors that propagate its Android software raises questions and if Google indeed does open-source VP8, industry will probably want to know about the patent situation. I believe that Google should then at the very least publish an analysis of the patent situation surrounding VP8, including the reasons why Google believes it doesn't infringe on any of the patents held by the MPEG LA pool. That's just one way to look at it. Commercial vendors may, based on the Android experience, actually ask Google for the possibility of an agreement under which Google would hold them harmless of patent infringement suits.

Again, the jury is still out on Google and patent problems with its open-source software, but I believe it's in Google's own best interest to counter an impression that Google puts out open-source projects it effectively controls and lets others take not only the risk that is connected with hardware manufacturing but also, even worse in my view, the risk related to possible patent infringement. It would come down to a game of "if Google wins, it wins; if Google loses (due to patents), its hardware partners lose."

I will be following those future developments closely on my FOSS Patents blog covering open-source patent issues. Now it's still too early to claim Google isn't committed to protecting its open-source initiatives.

Big patent holders are still the bigger problem

[FlorianMueller]

I don't mean to downplay the problem that patent trolls / non-producing entites represent, but they're a feature not a bug of the patent system, as Carlo Piana, a European lawyer specialized on Free and Open Source Software matters, recently said on Twitter. The proponents of this kind of patent system simply want trolls to exist, even though they will from time to time have problems with them themselves.

But a troll just wants to make the money. It's a hold-up situation if you face a troll, but if you cough up the money, he'll leave you alone and focus on the next victim. Even though $600 million is a huge amount, RIM (the BlackBerry maker) not only survived but actually generated huge levels of profits ever since.

By contrast, if Apple decides that no one else should use certain multitouch and other functionality, then only those with a really massive patent arsenal ("mutually assured destruction"), which is what Nokia may indeed have, will be able to solve the problem through cross-licensing. But it's economically practically impossible to solve the problem by offering Apple a check because the strategic value of maintaining a certain competitive advantage is so valuable to the market leader that smaller players can't solve the problem by paying. So if Apple insists on its rights, it can tell vendors such as HTC to stop providing certain functionality, period. Unconditionally. No negotiation. Cease and desist. The only chance then may be that if you can prove a dominant position, antitrust law could be used to achieve compulsory licensing. In Apple's case, that would be very difficult to say the least...

Again, I don't mean to downplay the problem with patent trolls, but in order to ensure that incremental innovation can take place for the benefit of consumers, it's key to watch what the large patent holders are doing, starting with the biggest patent bully on the block, IBM, but also looking at everything else that's going on.

Re:Big patent holders are still the bigger problem

[FlorianMueller]

Now I understand what you mean in general but I still can't see how one could make this work. There can be great ideas from a perspective of what would be fair and desirable but transforming them into a workable rule that works under the law is not always possible.

Assuming a patent relates to something that's new (which is the way it should be but patent offices often fail to find prior art), then it's logically inevitable that at the beginning (after the grant of the patent) there won't be anyone from whom the patent holder could collect royalties. Then it takes time for a new market entrant (such as RIM in the BlackBerry case) to build a business. You can't expect a patent holder to be aware of every little guy out there potentially infringing on his patent. It won't even be possible for the patent holder to monitor the entire market at all times, but even if the patent holder identifies an infringement, there's no alternative to letting the patent holder decide when the time has come to assert the patent. Given the cost of legal work (even before you go to court, but especially if you do), the patent holder may indeed determine that an identified infringer is (at least for the time being) too small to justify the enormous cost of enforcing the patent.

What would be possible (and has been more or less proposed as part of a patent reform initiative) is to do away with the right of patent holders to obtain injunctive relief. That would amount to what you say about a right to collect royalties.

I believe this would indeed be an improvement, but only if it's also ensured that damages are calculated on a reasonable basis, considering that a complex information technology product (such as a BlackBerry) consists of a very large number of potentially patentable elements.

What the critics of this idea not to allow injunctions say is that in the event of a patent dispute with a very large patent holder and a small one suing each other, the ability to obtain an injunction may be the only major leverage that the little guy can have because it would obviously hurt the big company if it has to stop (or has to fear a potential obligation to stop) selling an important product. I just wanted to mention that argument for the sake of completeness. I still think it would be better to do away with injunctions in the IT sector. In the pharma sector, injunctions are very much required, however, based on what I have read. That's often the problem with patent reform: different industries have different need. In IT, it's about incremental innovation and potentially many patents that are relevant to a single product. In pharma, the number of relevant patents per product is very low.