Do Patent Wars Cause Creativity to Decline?

Brought to you by our friends at Vannin Capital

With Apple and Samsung’s ongoing patent war featuring prominently in business news, commentators from both the engineering and legal communities have been asking an interesting question: do patent wars hurt creativity?

Both communities, interestingly, answer in the affirmative. High-tech patent wars have switched from being a unique rarity into one of the central topics of business reporting, making headlines in technology and investment magazines alike.

Online finance journal Money Morning weighed in on the debate over the long-term consequences of patent wars on August 12, 2013, noting that the legal war between Samsung and Apple had numerous wasteful consequences.

Among its concerns were a loss of money from corporate accounts, which is spent largely on endless legal battles. Other worries included a stifling of growth due to fears of litigation, often from holders of unusual or overly broad patents.

Apple and Samsung’s patent war has grown so large – and so much of a story that it’s overshadowed the companies’ latest products – that President Obama entered the fray. The President publicly sided with Apple in the dispute after sanctions from the International Trade Commission were aimed at the American tech firm.

While Apple and Samsung’s patent war may be the most visible of the tech industry patent squabbles, it’s by no means the only one. Companies like Google and Yahoo have been at war over patents for years, or in the case of industry giant Microsoft, even for decades.

Facing stiff competition and dwindling profit margins, a number of major high tech firms are turning to patents as an offensive weapon to be used against their major competitors, rather than a defensive solution to intellectual property theft.

The end result is predictable – an industry where companies attempt to amass an incredible arsenal of patents in what has become a technology industry arms race not unlike that observed during the post-détente Cold War period of the 1980s.

Just like the arms race, the patent war has cost some of the technology industry’s biggest companies a great deal of money. From 2010 to 2012, rival smart phone companies spent an estimated $20 billion on patent purchases and litigation.

Google, one of the industry’s biggest names, has spent an estimated $12 billion on patents over the course of its existence, and software giant Microsoft has bought over 21,000 patents to protect its technology.

The arms race, it seems, hasn’t been as successful as many would have hoped. The number of paten infringement lawsuits affecting the technology industry has been on the rise for the last decade – from 2004 to 2009, it increased by 70 per cent.

In an industry renowned for its unique ability to develop amazing products out of thin air, you’d think that research and development was a leading expense. It isn’t, particularly when it’s compared to the immense amount spent on patents.

The average cost of defending against a patent infringement claim: $2.5 million. For each patent purchase, and particularly for each patent-related lawsuit, companies lost money that could have been spent on important research and development.

In purely financial terms, the patent wars that have become synonymous with the technology industry certainly do affect innovation. In strategic terms, they do even greater damage to the innovative ability of the world’s top technology companies.

Technology companies have justified their relentless pursuit of patents by pointing to their record of innovation. Apple, a company that’s synonymous with innovative and unique designs, has stated:

“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 company claims that if it can’t protect its intellectual property, it won’t “spend millions of dollars creating products like the iPhone.”

Think of the insides of a smart phone and you’ll probably picture thousands of tiny, powerful electronic parts. What the average smart phone contains, far more so than technology, is patents.

The average smart phone has over 200,000 patents inside its body, a fact that many technology industry commentators have used to highlight the tendency for dubious patents to be granted to leading technology companies.

What’s far more worrying is the nature of these patents. Many aren’t clear about the technology that they relate to, using vague terminology that allows them to be used as a legal weapon in even the flimsiest of cases.

A great example is a software patent for technology that calculates online prices for websites. Such loose wording has attracted criticism from US patent lawyers, who have claimed that patents are granted using overly loose and flexible standards.

Criticism of patents has also come from financial institutions. The Federal Reserve Bank of St. Louis has stated that there is “no empirical evidence that more patent laws or stronger patent laws contribute to productivity.”

Academic research from some of the world’s top business and legal universities is much the same, indicating that patents stifle start-up businesses and strengthen entrenched patent holders far more often than they protect intellectual property.

As the arms race intensifies and the world’s top technology companies gear up for a seemingly endless patent war, suggestions for reform have largely been ignored in favour of more patents, looser wording, and more legal aggression.

What’s required is a balance between aggressive patent acquisition strategies and innovation – a system where inventors are rewarded for taking risks and making new products, yet aren’t given permanent protection that discourages innovation.

Just like any other war, it’s those on the front lines that feel the negative effects first hand. Commenting on the patent dispute with Apple, an executive vide president of Samsung stated:

“Legal battles with Apple have been a loss for both the industry and innovation as a whole.”

For all the small victories achieved by Samsung and Apple, Yahoo of Microsoft, it’s the innovators, the customers, and ultimately the industry itself that pays the price for patent warfare.

This article was written by Vannin Capital. Visit their website to learn more about how patents affect business litigation

September 24, 2013 · Tim Kevan · Comments Closed
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