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Patent Wars. It sounds like a movie by George Lucas. Something which happened a long time ago in a galaxy far, far away. An epic struggle between good and evil. Pure science fiction.

There is no better way to describe the mania that has swept through the wireless industry over the past year or two. Last week, Microsoft paid AOL $1 billion for 800 patents (and a license to approximately 300 patents that AOL is keeping). Microsoft was also part of the Rockstar Consortium (with Apple, EMC, Ericsson, RIM and Sony) that paid $4.5 billion for the patent portfolio from bankrupt Nortel Networks in an auction last year. Last month, the waiting period for completion of the Nortel deal expired, so Rockstar is now looking to monetize its patent portfolio; in legal jargon, “monetize” means “sue the pants off people”. And of course, Google (which lost out in the Nortel patent auction) is buying Motorola Mobility for $12.5 billion, primarily for Motorola’s wireless intellectual property. Despite being a big part of the Internet innovations that have changed our lives over the past few years, Google has relatively few patents to its name, due to the nave idealism which motivated the company’s founders to share everything in the public domain. Instead of “Do No Evil”, perhaps the company’s motto should have been “File Patent Applications Early”.

How did this all happen?

Perhaps it was inevitable. With astronomical amounts of money flying around in the technological stratosphere, the stakes are high. A shark can smell blood in the water 400 meters away, and lawyers (who are closely related to sharks in the big scheme of evolution) could smell the money floating around in the wireless industry. And, as far as the big companies are concerned, what is a few million in legal fees when billions are at stake?

I remember just a few years ago, when the high-tech companies each had an IP department consisting of one or two lawyers, and these lawyers would meet with the competition one-by-one to negotiate cross-licensing agreements. Both sides would put their patents on the table, pull out the figurative scales of justice to weigh the two piles of patents, and whichever side had less patents would agree to pay some money to the other side. Shake hands, like gentlemen. Going to court over the patents was rare, a last resort only when every avenue of negotiation had been exhausted, and it was seen as a failing if the corporate lawyers were unable to reach an amicable agreement and ended up in expensive litigation.
Not anymore. The news these days is full of suits and counter-suits. Losing market share? Sue your competitor. Meanwhile, patent trolls buy and sell intellectual property like real estate, with no intention of developing any products, just using the patents to threaten lawsuits and extort royalties from legitimate companies that are actually trying to develop and sell new products.
Something is seriously wrong with the patent system today. The high-tech companies that have revolutionized our world today are now spending more time and money worrying about IP (Intellectual Property) legality instead of IP (Internet Protocol) technology. Gives a whole new meaning to the phrase “IP networks”.
With billions being spent on patents, and tens of millions on legal fees, is anybody still investing any money on good, old-fashioned R&D?
There is certainly a temptation for companies to compensate for declining sales by seeking patent royalties, especially companies that may have grown too big and fat and lost touch with the market, companies that are finding it difficult to replicate previous successes. It is easier to simply cash in on a patent portfolio, instead of spending time and effort on R&D with no guarantee of success. The royalty dollars go straight to the bottom line. But, as Jonathan Schwartz (the former CEO of Sun Microsystems) said a few years ago, real companies “innovate, not litigate.”
Personally, I have no objections to inventors being compensated for their creations. The whole purpose is to encourage new ideas and innovation. However, the legal battles going on now over patent rights seem to be having the opposite effect, stifling innovation for fear of being sued. Litigation instead of innovation.
At the moment, the most fiercely fought battles in the Patent Wars are the suits and counter-suits filed by Apple and the competition from Planet Android – Samsung, Motorola, HTC and (by proxy) Google. In my next blog post, I will look at Apple versus Android, and share some insights about the relevant patent laws. Hopefully the information will help everyone to better understand all of the lawsuits in the courts (and the headlines) today.

And, for detailed market analysis from ABI Research, take a look at our Mobile Device Intellectual Property and Royalties research service.