Daily: Software patents as rent-seeking
Apple has been burned in the past because of patents. This is the reason Apple has been so assiduous in patenting everything it can. The company’s zeal for patents is not just an offensive weapon to thwart the like of Samsung but also a defensive weapon to be used to beat back patent suits. We can see this in Apple’s recent $386 million patent suit loss to VirnetX over VPN technology. But as software and design patents proliferate in the technology industry, it has to be asked whether these kinds of patents are just another form of rent-seeking by competitors looking to pad their bottom line.
The Apple – Samsung patent disputes are at the heart of the mobile patent issue that is consuming the technology industry. In particular, the recent decision to award Apple $1.05 billion in a patent suit in San Jose, California has fixed eyes on the patent issue. The genesis of the mobile patent disputes comes from Apple founder Steve Jobs’ hatred for the Android operating system owned by Google. He considered Android to be a “stolen” product and threatened “thermonuclear war” in order to stop Android from being legitimized. After Steve Jobs’ passing, Apple has continued the fight against Android but to no avail as the operating system has become dominant in mobile despite Apple’s continuing ability to take the lion’s share of profit in the mobile space.
Clearly Apple sees Android as a threat, and to the degree Apple views Android as a stolen product as Jobs did, it makes sense they would try and extract allegedly ill-gotten profits from Android handset manufacturers and from Google itself, the owner of the Android OS. Google and other Android-centric technology companies have been forced to pad their patent portfolios as well in order to have a defensive weapon to use in the ongoing patent litigation. The most famous move by Google to gate in this war was Google’s questionable acquisition of Motorola Mobility, the handset maker with a huge arsenal of software and design patents. Samsung too has been patenting mobile software and design like crazy to use both offensively and defensively.
Now that Apple has settled its patent dispute with HTC with rumors of huge cross-licensing fees that pad Apple’s bottom line, the rent seeking question has to come to the fore. HTC chairman Peter Chou has been forced to deny reports that it agreed to pay Apple $6-8 per Android handset in the deal. This follows by a few months revelations during the San Jose Apple – Samsung trial that Apple offered to license patents to Samsung for $30 per handset and $40 per tablet. These are fantastically high figures that smack of rent seeking.
In economics, rent-seeking is an attempt to obtain economic rent by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth. One example is spending money on political lobbying in order to be given a share of wealth that has already been created. A famous example of rent-seeking is the limiting of access to lucrative occupations, as by medieval guilds or modern state certifications and licensures. People accused of rent seeking typically argue that they are indeed creating new wealth (or preventing the reduction of old wealth) by improving quality controls, guaranteeing that charlatans do not prey on a gullible public, and preventing bubbles.
Many current studies of rent-seeking focus on efforts to capture various monopoly privileges stemming from government regulation of a market. The term itself derives, however, from the far older practice of appropriating a portion of production by gaining ownership or control of land.
Judge Richard Posner recently wrote an article in the Atlantic titled “Why There Are Too Many Patents in America” which asks the right questions about technology patents and in my view strongly suggests that the behaviour of companies in the industry with patents is indicative of rent-seeking. Posner writes:
U.S. patent law confers a monopoly (in the sense of a right to exclude competitors), generally for 20 years, on an invention that is patented, provided the patent is valid — that is, that it is genuinely novel, useful, and not obvious. Patents are granted by the Patent and Trademark Office and are presumed valid. But their validity can be challenged in court, normally by way of defense by a company sued by a patentee for patent infringement.
With some exceptions, U.S. patent law does not discriminate among types of inventions or particular industries. This is, or should be, the most controversial feature of that law. The reason is that the need for patent protection in order to provide incentives for innovation varies greatly across industries.
Posner goes on to cite the pharma industry as one in which costs are an overriding barrier to entry. He believes patents are superfluous in the industry and are just a form of legalised monopoly protection aka rent-seeking. I believe that this is what we are seeing in the technology industry with the ultimate harm being done to consumers who ultimately pay the costs of the patents, the litigation, and the monopoly protection. As the Wikipedia entry on rent-seeking points out, the rent seeker will always argue that they are creating wealth through their novel and innovative approach. And this therefore requires the government to intervene to protect them. But, even if this were true, a patent is still a form of market manipulation that gives one entity monopoly power regarding a product, product feature, or product design. It forestalls competition and erodes the value of the market in lowering prices to consumers. My view is that we have reached a point where the proliferation of patents, particularly in the technology industry, should be viewed as prima facie evidence of rent-seeking. And the necessary remedy must be root and branch reform of the patent process.
Below are a number of recent articles outlining recent events in the mobile patent war.
“In a surprising move, HTC and Apple have announced that the two companies have settled their disputes with an unprecedented agreement for the mobile industry. While Apple will most likely fight to the death with Samsung over patent disputes, HTC and Apple have agreed to a 10-year cross-licensing deal which allows both parties to license each other’s current and future patents.
HTC and Apple have been at odds for several years over various patent disputes. Earlier this year, Apple gained the upper hand when the ITC banned imports of the HTC One X and HTC EVO 4G LTE due to a single patent infringement issue. The situation was quickly remedied, but the delayed launch has caused HTC to falter in the market.
While this cross-licensing agreement will greatly benefit HTC by giving the company access to Apple’s slide to unlock, universal search and portfolio of 4G patents, Apple has a lot to gain as well. “
“In a late-night ruling from a federal jury in Texas on Tuesday, Apple was ordered to pay $368 million for violating a VPN patent owned by software company VirnetX.
Along with the suit decided today, VirnetX also filed complaints with the U.S. International Trade Commission alleging that Apple’s products, specifically the iPhone, iPad and Mac, violate the company’s wireless patents, reports AllThingsD. VirnetX previously won a $200 million settlement from Microsoft as a result of a separate lawsuit.”
“Apple Inc. told a judge that Samsung Electronics Co. (005930)’s Galaxy Note 10.1 device infringes its patents, and sought to add the Android 4.1 Jelly Bean operating system to an existing lawsuit against Samsung in California.”
“A Dutch court has ruled Samsung Electronics does not infringe an Apple Inc patent by using certain multi-touch techniques on some of the Samsung Galaxy smartphones and tablet computers.”
“Apple has published a new patent today, one that takes the possibilities for future iOS mobile devices and adds a whole heap of abilities seemingly ripped from sci-fi thanks to flexible display technology. Some of this we’ve seen before: tactile keyboards that essentially rise up to meet your fingers have long been a theoretically possible addition to screens, and there’s been talk of Apple using them in the past. But a display that’s also a built-in surround sound system? That’s new.”
“A patent newly published by the USPTO and filed by Apple in June reveals plans for a system through which devices could be charged by the movement of a person’s body, thanks to electromagnetic induction using printed coils. Such a system could potentially allow an iPhone, iPad or any portable device to build up a charge as a user moves around, giving up a continual source of extra juice that should at the very least ensure that you never run completely dry while on the go.”
“Apple Inc. (AAPL) and Google Inc. (GOOG)’s Motorola Mobility unit are talking about a way to resolve part of their dispute over patents related to critical smartphone technology, according to a court filing.
The companies have been exchanging proposals on using binding arbitration to reach a licensing agreement over patents that are essential to comply with industry standards on how phones operate. Such an agreement could lead to a global settlement of all of their patent disputes, Apple said in a Nov. 15 filing.”
“Among the multitude of patents Apple was awarded on Tuesday were two design properties for the page-turning animation seen in iOS apps like iBooks, and IP for the third-generation iPad’s full-body case. “
“Apple on Tuesday was granted a patent outlining the basic idea and functionality of Time Machine, the backup storage feature that has been included in the company’s Mac operating system since it was introduced with Mac OS X 10.5 Leopard in 2007. “
“Now, legal experts say the question of which patents are covered by the Apple-HTC settlement, and licensing details, could be instrumental in Samsung’s efforts to thwart Apple’s subsequent quest for a permanent sales ban on its products.
The Asian company has argued it is “almost certain” that the HTC deal covers some of the same patents involved in its own litigation with Apple.”
“Late yesterday the U.S. District Court of Northern California Magistrate Judge Paul S Grewal ordered Apple to disclose the entire settlement, including the licensing fees, to Samsung’s lawyers. The Foss Patents blog notes that this will not mean Samsung’s “corporate decision-makers” gain access to the rate “as long as the court’s protective order is complied with”, as the order specifically refers to Samsung’s counsel.
A public version of the Apple-HTC licensing agreement obtained by Foss Patents on Wednesday was heavily redacted — with more than 90 percent of the cotent blacked out. It does reveal the agreement would terminate if HTC was bought by another company.”
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