The borrow-a-patent, rent-a-patent, buy-a-patent industry is growing by the day. Google (NASDAQ: GOOG) just bought 1,023 patents from IBM (NYSE: IBM). The big hardware company will hardly miss them. It files more than 5,000 patents in most years.And from Knowledge@Wharton:
Google will need these patents as it fights off Apple’s (NASDAQ: AAPL) intellectual property claims and positions itself for the growth of court battles over who had such properties first and what they are worth. Most observers believe that Google’s buyout of Motorola Mobility (NASDAQ: MMI) was primarily for access to the handset company’s patent pool....MORE
In July, a consortium led by Microsoft, Apple and wireless industry players such as Research in Motion paid $4.5 billion for 6,000 patents from the now liquidated networking company Nortel. Last month, Google purchased Motorola Mobility for $12.5 billion, in part to gain access to the company's 17,000 patents. And Eastman Kodak, a company struggling to navigate the digital era, has multiple parties bidding to buy its patent portfolio.
Welcome to the patent bull market. "There is clearly a patent-hoarding mentality in technology -- and in mobile communications, specifically," says Andrea Matwyshyn, a professor of legal studies and business ethics at Wharton. "The game is to amass as many patents as you can."
Part of the reason for the run on patents is the surge in lawsuits among key industry players. Oracle is suing Google for Android royalties, alleging that the search giant's mobile operating system infringes on the patents for its Java programming language. Microsoft is suing Motorola, claiming that the cell phone manufacturer has violated its software patents. Meanwhile, Apple and mobile phone manufacturer HTC have also filed suits against each other. Pick any company in the wireless industry, and you are likely to find a patent lawsuit associated with it, say experts at Wharton.
The most recent high-profile court battle is between Apple and Samsung. Apple alleges that Samsung's tablet device and smartphones have copied the iPad and iPhone, respectively. Samsung asserts that the concept behind the iPad and similar technologies originated in science fiction film and television productions which featured computing tablets decades ago -- including 2001: A Space Odyssey and "Star Trek." The company also claims that Apple's iPhone infringes on its wireless networking patents. Last month, Apple sought -- and won -- an injunction on sales of Samsung's Galaxy Tab tablet device in Europe. What makes the Apple-Samsung patent lawsuit particularly notable is that Apple is Samsung's largest customer for memory, screens and other tablet components.
"There's a state of open warfare around patents," notes Wharton legal studies and business ethics professor Kevin Werbach. "If you want to play in this space, you need to bring some assets to the table." According to Werbach, patent accumulation is largely a defensive strategy. Given the prevalence of lawsuits, companies are gobbling up intellectual property so they have an arsenal to use in countersuits. Two companies with large patent portfolios will often settle a lawsuit with a cross-licensing pact.
"In valuable segments, companies are using the legal system to threaten rivals and extract concessions," says David Hsu, a management professor at Wharton.
"A patent is really just a right to sue another party for infringement," notes Karl Ulrich, a professor of operations and information management at Wharton. "Often, an infringement suit legitimizes what is essentially bullying of a poor company by a rich company. In these cases, the party with the deeper pockets can intimidate the other into licensing a patent, or into ceasing sales of the allegedly infringing product."
From Trolls to Combatants
Several years ago, the rise of so-called "patent trolls" -- entities that acquire intellectual property solely to launch lawsuits -- was seen by many as a sign that reform of the patent system was needed.
Today, patent litigation is frequently more about mutually assured destruction between combatants in competitive industries, says Werbach. According to this line of thinking, the company with the most patents can win. A common strategy is to acquire multiple patents that feature "foundational" technologies -- basic innovations that all subsequent similar devices would have to rely on, such as digital imaging, wireless networking and corporate email interfaces -- to secure market position, he notes. "For the last 10 to 15 years, major technology vendors have had the most patents awarded. For those companies, patents have always been defensive."...MORE