Every week we see more companies filing more lawsuits over patents. Microsoft and Oracle sue Google, Apple sues a long list of companies…and they all countersue in a new kind of circular firing squad, a real MAD (Mutually Assured Destruction) conflagration. Soon, high-tech companies will have more lawyers than engineers.
First, a word on the general topic of patents. Feast your eyes on this Wikipedia article and you’ll see that patents, those erstwhile royal decrees, have been around for a long time. In theory, they’re supposed to foster innovation by granting the inventor a monopoly on an original process. In reality, things get complicated. Byzantine patent law has created lifetime employment opportunities for those who are expert in the Talmudic parsing of what is actually, legally patentable.
Back in the tangible, “real-world” days, you could invent a new process to temper steel that would result in taller, safer buildings. In patenting your idea, you’d earn a bit for yourself and encourage others to raise the bar.
Since then, we’ve invented software and, according to some critics, including at least one Nobel Laureate, we made the terrible mistake of allowing patents on these “inventions”. Can you really patent any algorithm, even a simple one, or only those that are complicated and “non-obvious”? What about the program code that realizes the abstract algorithm? And what do you call the formal language used to create an unequivocal description of the algorithm? Just text or a program?
It’s messy. But the mess isn’t new, it’s been with us for decades.
What’s new is the smartphone. A closer look at its complexity and profitability will provide a simple(r) explanation for the new madness.
First, the complexity. I’m one of those who like to call smartphones the Really Personal Computers. This could be misleading as it implies that these ubiquitous devices are like PCs, only smaller. In reality, a smartphone is much more complicated than a PC: accelerometer, gyroscope, compass, two cameras, multiple radios (Wi-Fi flavors, Bluetooth, multi-band cellular radio/modem), light sensor, humidity sensor, capacitive touch screen… All this in one very small and resilient package.
Most of today’s PCs aren’t nearly that complicated, they have fewer “sensory organs”, form factor size is barely an issue. The smartphone, with its richness, complexity, and miniaturization, has required more, newer, smarter inventions…and has spawned many more patents than a PC.
Second, the money. Take a look at the iPhone’s slice of Apple’s income pie. This year, iPhones (and its iOS siblings, the iPod Touch and the iPad) will yield about 65% of Apple’s approximately $100B revenue. See this Asymco chart for Apple’s most recent quarter:
Furthermore, while Apple’s overall Operating Margin hovers around 40%, the number is significantly higher — upwards of 60% — for iPhones. A mere four years ago, as the chart shows, there were no iPhone billions — zero — Apple was just Macs and iPods.
The Android ecosystem has similarly high stakes. Android devices can’t boast Apple’s Operating Margin, but they make it up in volume – unit sales are much larger than Apple. Add Nokia and RIM and you get an industry that will ship an estimated 475M smartphones this year (see Brian Hall’s post), and growing fast.
That’s a lot of phones, a lot of innovation, and a lot of money. And a lot of money has already changed hands in the smartphone patent wars. In 2006, after years of sometimes dirty pool, RIM agreed to pay NTP, an intellectual property company (a.k.a patent troll), the nice sum of $612M for “full and final settlement of all claims”. More recently, in a little-heralded settlement, Stephen Elop, Nokia’s CEO-for-now, pronounced himself “very pleased to have Apple join the growing number of Nokia licensees.” The unsubstantiated whisper was $600M.
Speaking of those $600M, we didn’t hear David Drummond criticize Nokia for “extorting” Apple. You know, the David Drummond, Google’s Chief Legal Officer, who penned a whiny blog post titled “When patents attack Android”. This was right on the heels of Google’s loss in the auction for Nortel’s patents. It’s rather ironic when considering Google’s fortunes depend on key patents from Stanford, and Applied Semantics for AdSense.
And now, Google buys a patent, turns around and sells it to HTC who promptly uses it to sue Apple, the precise kind of dirty maneuver Drummond shed crocodile tears over. See Philip Elmer-Dewitt choice words: Google gets its hands dirty…
Today, there are about 5 billion cell phone subscriptions in the world, about 30% of which are smartphones (also from Asymco):
The smartphone industry has billions of devices and hundreds of billions of dollars in its future.
Imagine the throng of patent holders trying to extract royalties from each of these smartphones. For reference, Microsoft is rumored to get about $5 in royalties on each Android phone made by HTC and others (which leads to the ironic situation in which the Redmond company makes more money from Android than from its own Windows 7 Phone platform. Hopefully, when the MicroNokia agreement kicks in, this will change).
More patentable content per device, more devices, huge revenue and profit numbers at stake… No wonder the knives — and the attorneys — come out. See this detailed, well-written NPR story on patent trolls. After mentioning the $4.5B Nortel patent portfolio purchase by a consortium of companies including RIM, Microsoft, and Apple, the article concludes:
“The big companies — Google, Apple, Microsoft — will probably survive. The likely casualties are the companies out there now that no one’s ever heard of that could one day take their place.”
Can we reform this? Should we? No. Band-aids such as the recently-passed First To File reformette won’t quench appetites, nor will it put leg irons on the trolls. Instead, we should rejoice and look at the current agitation as an unavoidable side-effect of the smartphone ecosystem’s prosperity. A robust organism will always attract a number of parasites – pardon – symbionts.
Consider this false legend: In 1899, Charles Duell, Director of the US Patent and Trademark Office, is supposed to have said ‘Everything that can be invented has been invented’. We know this was wrong then, and it’s wrong now. If you think that large companies have a monopoly on invention, you forget how today’s giants — Google, Apple, Microsoft — toppled their elders: By imagining the unimaginable, patenting the unpatented.
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- The End of Megapixel Wars TweetFinally, reason is about to prevail over marketing machismo. Specifically, Canon and Sony are coming up with more advanced cameras featuring less pixels. Why? In these new cameras, less pixels translates into better pictures in low light. (You might want to refer back to two Monday Notes on digital photography: Pixels Size vs. Number and More [...]...
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16 Comments
Thank Steve for Apple’s immaculate inventions. May Android be swept away in an overwhelming flood of lawsuits.
Governments are extremely interested by this question because :
* it’s where big money can be extracted in the painless way and at multiple levels.
* it can be a place to be more efficient and become more attractive.
By this reformette the USA are catching up and give their bureau the money to be strong. How will react the other countries for example China?
“That’s a lot of phones, a lot of innovation, and a lot of money.”
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And that’s pretty much the whole post, in a sentence. (Though “crocodile tears” bears repeating in some circles.)
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I’ve yet to see anybody claim what wireless would look like without patent protection. Looks to me that GSM, LTE, CDMA and almost every other standard was developed under patent and would NOT have been created had not the Nortels, Nokias and others been able to anticipate fair and reasonable licensing fees for them. The stories of Nortel and Motorola make it blindingly obvious that there’s no magic money tree that pays engineers, and the firms could well have collapsed long before doing their work, had not backers been able to anticipate future revenues from (or purchase of) the intellectual property.
Oh, after following your links, @J-LG, I note you didn’t mention the Overture ’361 patent, without which Google would not be able to efficiently monetize its ads. In a nutshell — others are welcome to provide a more complete characterization — Google licensed work by others to auction off ads, and Google would not have had an efficient way of connecting advertisers with eyeballs had they not been able to come to terms with the Overture invention (which had been acquired by Yahoo!).
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Mr. Drummond inconveniently forgot to mention that they have, in the past, managed to be coerced into paying others for their work, and still profited handsomely from their own inventions.
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Yet another instance of Google making money thru the patent system that they were able to negotiate effectively. (Google’s success owes mountains to “the best advice I ever got” and others’ contributions)
That’s about the first time i do not agree with a JLG post. It seems you are so much an Apple’s enthusiast now that it affects your perspicacity : since Apple is attacking everyone with patents, then it must be a good thing.
What really strikes me is this last sentence :
“you forget how today’s giants toppled their elders : By imagining the unimaginable, patenting the unpatented.”
This couldn’t be worse. No, today’s giant have not just “patented the unpatented”, they have envisioned and well executed a good product, invention or concept, which makes them an essential part of today’s life.
This last sentence is so far away from one of yours :
“you could invent a new process to temper steel that would result in taller, safer buildings. In patenting your idea, you’d earn a bit for yourself and encourage others to raise the bar.”
Hell, this is exactly what has changed today : it’s not necessary to invent anything, nor to make the world a better place with your invention : just patent the unpatented, if possible an obvious principle, described in an obscure language (and don’t be shy if it is already daily used by the industry, the wording may distract reviewers and jurists). Do not disclose nor execute anything, hide the patent as long as necessary to make sure as many victims as possible can be blackmailed. And now, out of nowhere, attack the stupid working class which is busy trying to execute a complex invention with your corsairs … sorry, lawyers.
It’s correct to say that a lot of money “will always attract a number of parasites”. Yes but that’s no good reason to let the parasites overtake their host. In fact, any “robust organism” can only remain healthy as long as its defense system can successfully protect it from those parasites. Otherwise, it just dies.
We’ve been there before Jean-Louis. Now it’s smartphones, but at the beginning it was steam engines. The evidence shows clearly that patents _slowed_ innovation.
http://blog.dgwbirch.com/?p=453
@patent, I agree that the situation is far from ideal.
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But while you assert that it’s not NECESSARY to invent anything to gain a patent, what setup do you propose to compensate those few individuals who actually DO invent things? Trade secrets?
Suppose I invent a new method of compressing music, resulting in obviously higher fidelity in files half the size. It might take me years of work to try dozens of variations on my original idea before it clicks. And nobody will use my work until it gets a broad base of acceptance from “content providers,” middlemen such as Amazon’s store, and manufacturers of hardware or software players. I might have the talent, insight and perspicacity to create a dramatically better standard but I could not possibly reap any rewards from it without patent protection.
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Are you proposing that I should just donate my time to your, and others’ greater enjoyment of music? Are you willing to subsidize my invention work without any promise that I’ll actually create something? Where’s the meat in these claims that we’ll all be better off without patents?
Am I missing something here?
Patents can be given legitimacy by requiring that the property for which the application is being made actually is new (didn’t already exist or already be in use); exists in the real world (even if only as a working prototype); was invented by the applicant and that all of the foregoing be proven before a patent is granted. Dishonestly acquired patents must be capable of rapid suspension and/or voiding or vacating them.
There has to be more, I am sure, but there seems to be no equivalent of the idea of plagiarism or ‘passing off’ for trying to control pre-existing ideas or practices known to be and evidently widespread.
@Walt French: I understand the need for patents, but in the USA especially, they have become a perverse joke driven by naked greed. These issues are as nothing compared to patenting the Human genome or the chemistry of exotic plant remedies discovered and used for thousands of years.
Sad to say, but America is vying to become the centre of the world’s corruption industry, it seems.
@chano, good points, all of them.
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In theory, exactly all of your points about integrity of patents are addressed by various national patent organizations. That human beings fall short of these ideals, or that financial interests corrupt the process, hardly is cause to throw out either ideals or efforts to protect legitimate interests, as some claim.
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Nor is it new. My first introduction to the issues around patents came when, as a budding electronics enthusiast (and subsequently, radio engineer), I read the history of one of radio’s gods, Edwin Armstrong. His invention of the “idea” of FM and superhet radios — yes, he built actual implementations but like software the ideas were broad enough that multiple actual circuits were only sketched out — remain crucial, many decades later, to almost all wireless communication.
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Wikipedia has a fairly comprehensive account of the importance of his work, as well as the tragic difficulties he, and eventually his wife, had; difficulties that I interpret as having kept him from doing MORE great work. In this case I think we can say that the *corruption* of the patent system was society’s loss.
The entire point about patents is that they are the most effective means to bring new ideas into the daylight. No one can hide patents. Once granted, they are published and searchable. There are transgressions as patent lawyers seek to broaden the scope (and therefore value) of ideas beyond what was initially intended/imagined and sometimes this leads to over-reaching patents that are brought to bear many years after their issuance to target devices that the original inventors had no idea might ever exist. However, that is the price to pay for reward of ideas. It might be improved by requiring true reduction to practice and imposing more defined limits, but the system generally works. We have to incentivize and reward ingenuity. The off-target effects are a pain but are not important in the grand scheme. What would be far more deleterious is secrecy and inability to form standards by collecting key patents together.
I do think Apple is behaving a little differently from the other telephone device companies though. It is not interested in cross-licensing its fundamental UI patents ascribed to the touch interface and architecture of the iPhone (and iPad) as it believes these are key to product differentiation and represent the DNA of the company. That is the jewel the others wanted oct they realized the iPhone design and interface was such a game-changer and that is why Apple preferred to pay Nokia rather than cross-license. Apple isn’t using its key patents as a means to leverage income from others. Apple is using those patents to protect its products. That won’t be the case with the Nortel trove. Those patents are the cards with which it will trade licenses for other foundational technologies with its competitors.
Think of it as high stakes Poker. New entrants are possible but the incumbents are, in effect, the house.
The car industry has been rather healthy over the last half century yet I have never heard of such crazy patent wars. So why do the current patent mess in technology seems to me more like desperation than like the illustration of a healthy ecosystem?
I like the explanation and analysis of the actual situation. But I find the last part (“Can we reform this? Should we? No”) too short and not really convincing.
France and Europe have no software patent, but instead intellectual property, and it seems better. So why not stop this ridiculous patent war by forbidding patent on software?
Kicking Away The Ladder Jobs. Somehow true software pioneers were quite inventive prior to software patents. Structured programming, object oriented programming, multiprocessing, mouse, GUI, etc., etc. Wasn’t Steve Jobs the very one who refused to pay royalties to Xerox for use of GUI concepts it pioneered? Quite likely Apple would not have existed if software patents existed in, say, 1975. They just made something a little nicer.
By law, patents are supposed to be original and unobvious. The last patent officer to stick to those ideas despite politics and pressure was Thomas Jefferson. Once a patent office becomes a government bureaucracy it is under pressure to grant monopolies unless there is a very good and obvious reason not to. So we have the blinking cursor patent, the one click patent, and on and on.
> The car industry has been rather healthy
The car industry is a joke. The internal combustion engine? It is a joke. You can’t see it because you made a deal with the devil long ago so that you could drive without being crushed by the guilt of recognizing you are giving little girls asthma. So you overlook the tailpipe.
Everything in cars has been speeds and feeds. Incremental improvement.
If Apple comes out with a car that is carved out of a block of aluminum so it is very light and strong, and powered by hundreds of iPhone batteries for 250 km range, and with so few parts they sell profitably at $9999 for a sedan, then the existing car companies would never stop suing them.
This guy “patents” seems to be saying that Google invented the iPhone and Apple should be happy to get out of Google’s way and let them keep innovating.
@Walt French :
this story about a lone individual genius bringing a miraculous advance to the society thanks to the the patent system is just a joke. And sadly, always the same one to try rescuing the patent system.
Because the answer is pretty simple : how many examples of such scenario can you provide ? Or to be more specific, how many post-80′s example is it possible to provide ?
The reality is simple and as bad as it can be : it never happens.
Protecting an invention with a patent is out of reach for an individual. Not only is it complex and expensive process (for an individual, not a corporation), the patent is also worthless if not used afterwards to sue competitors and collateral victims. So the real cost must include legal war support during many years.
Moreover, if it is a real invention, clearly described and useful, it will get circumvented, legally. Get a lawyer, he will find subtle language variations, which will make the invention non applicable to minor changes.
In fact, whether you want to create or avoid a patent, the most important step is always the same : get a lawyer, a good one, which knows how to “cheat” the system : over-extending claims, obscure wording which avoids describing the invention (so that its description is useless for humanity), and so on. That’s why claims on “obvious common little things” are so much more valuable than complex and focused inventions.
Where is the genius inventor in this process ? no where.
The reality is that there is no way for a lone inventor to get protected for its invention. At best, he will be able to sell its invention for a penny to a much more capable financial organisation. At worst, he will be left exhausted and penniless.
thanks !! very useful article!
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