Patent trolls are becoming a nuisance for technology companies. These trolls are companies/entities that develop or acquire patents for the sole purpose of suing companies that unknowingly infringe on those patents. The infringement lawsuit brought by NTP against Research in Motion (RIM) received a lot of attention in ‘06 when the ruling court threatened to shut down RIM’s Blackberry service. RIM eventually settled by paying NTP over $600 million. The motivation for such patent trolling is clear.
In the June 2008 issue of the Harvard Business Review (HBR), management professors Henkel and Reitzig have an article that offers their suggestions for how businesses can protect themselves against these trolls (which they call “sharks”). In my opinion, their recommendations are unrealistic in that they idealize the willingness of competing companies to cooperate with each other and to forgo competitiveness in technology development in order to protect themselves against the trolls.
The first half of their article is informative and makes very good points about the general situation that exists today. The recommendations they make, however, are not so good. I’ll address each of their five recommendations here and suggest what I believe are more realistic solutions below.
1. High-technology firms should move away from building huge patent portfolios for the purpose of cross-licensing with competitors
The authors correctly point out that one reason companies generate patents is to trade them for patents needed from other companies. Such trading is done because the patents behind key components in complex technical products are usually distributed across all of the major companies in an industry—no one company owns all of the patents necessary to produce a product. Because no company can produce a product solely on technology from their own patent portfolio, companies trade their patent licenses for licenses to the other companies’ patents. The cellphone industry is a typical example of this, e.g., Nokia trading patent licenses with Motorola and Samsung. The authors suggest that this strategy of building a strong portfolio and trading licenses is no longer valuable to companies and should be stopped because it doesn’t protect them from trolls. Indeed, it doesn’t—it protects them from their competitors, who are ultimately more threatening than patent trolls. Just because a patent strategy does not affect patent trolls does not mean that it isn’t worth doing. If I were Nokia, however, I would certainly try to convince Motorola to follow this advice to stop building up Motorola’s patent portfolio.
2. Companies must simplify technical standards and create more-modular designs
These two points are reasoned as follows. The authors assume that simpler technical standards would reduce the number of patents that teach the technology in a patent, thereby producing less opportunity for patent trolls to own the patents on technology required by the standards. The authors assume that modular designs for products would allow a technology component to be swapped out of a product if a patent troll claims that the component infringes on their patent; in other words, redesigning the product to respond to the troll’s threat would be easier with the modular design. Well, easier said than done. The nature of standards committees is such that they are not going to adjust their ways to account for a trend in patent litigation abuse that may or may not impact their standard—to make such adjustments would be considered by committee members as compromising the integrity of the standard. As for the modularity recommendation, a company has many other motivations to modularize their designs; if companies don’t modularize then it is because they can’t or have reasons not to (manufacturability, cost). The assumption behind the authors’ modular strategy is that patented technologies can be easily worked around by swapping different components, while in fact patents can be quite broad and difficult to design around. Whether RIM could have designed around the NTP patent is unclear to me, but there are many patents that are so fundamental that they embody the general feature of a product (e.g., an lcd screen on a remote control, ringtones on a cellphone) and to avoid the patent is to eliminate the feature. Finally, the bottom line is that companies will design products that best serve their customer in a way that best meets the needs of the company (e.g., profitability). The financial threat from patent trolls to a company is not (yet) so great that a company with risk revenue and profitability by changing their whole R&D approach to product design, particularly given that it’s unclear whether the proposed solution will, in fact, eliminate threats from trolls.
3. Companies must begin cooperating with their competitors early in the R&D process
The authors argue that the process of a company developing technology in secret, without the knowledge of their competitors, is “outdated”. The authors acknowledge that companies would be “uncomfortable” to share knowledge with their competitors early in their technology development process, but they argue that by doing so patent trolls can be abated. While the authors state that lawsuits from trolls “could change if more firms started to disclose early-stage information,” they do not explain why this the early-stage sharing of secret information would help against patent trolls. I can’t explain why either. Again, the authors seem to be suggesting that companies would be willing to forgo their competitiveness in order to avoid patent trolls, joining with their competitors in a spirit of innovation cooperation and protection. Again, if I were Nokia, I would strongly recommend to Motorola to share with me their early-stage technology development to guard themselves against patent trolls. I would go even further by offering to sacrifice Nokia to patent trolls by not sharing our technology secrets with Motorola and thereby drawing the trolls towards Nokia and away from Motorola.
4.Firms must foster interdepartmental and intercompany cooperation
Here, the authors discuss the value of getting patent lawyers involved early in the patent process. No argument from me here, although I’m not sure what they has to do with interdepartmental and intercompany cooperation. They then suggest that companies should cooperate with each other, and they give an example where a patent troll bought patents from company A and then sued company B for infringement. The authors suggest that company B would have been better off if company A had talked to company B first and offered a license to them rather than selling the patent to the troll. Indeed! In other words, please don’t sell to trolls. What the motivation is for company A to do so, however, I don’t know. This seems to me to be an unrealistically idealistic hope for how companies could work together.
5. Companies must stop flooding the patent office with insignificant applications
Now, here I agree with the authors. The patent office in the US is overwhelmed, making them more prone to issue patents that are not novel and thereby not valid. Inventions that lack novelty but are erroneously issued can become legal weapons against companies that have used the technology in a product. Also, as the authors point out, a flood of frivolous patents in a field makes monitoring patent activity difficult. The suggestion that companies should unilaterally decide to reduce patent activity for the good of the whole (and their competitors) is, however, unrealistic. Again, as Nokia I would strongly urge Motorola to reduce their patent activity as to not overburden the USPTO and my patent managers who monitor Motorola’s activities.
As can be seen, the solutions that the authors suggest simply aren’t realizable in a competitive world such as today.
I believe that the solution to this problem to is to de-fang the trolls by
- making their threats less likely to succeed in court through the combination of new federal laws and Supreme Court guidance,
- improving the patent office process in a way that reduces the number of illegitimate patents that patent offices issue.
To the first point, the US Supreme Court has already ruled in such a way that the bar is raised for obviousness. This was done in the KSR case, which I have previously blogged about with respect to the Court’s interpretation of innovation. The authors of the HBR article do mention the KSR case and others, and they clearly support this idea. What remains to be seen on the impact of KSR is if its precedence will have an impact on future court decisions. If it does, the validity of frivolous patents wielded by trolls will be easier to attack.
To my second point about reducing the number of illegitimate patents, a test program (the Community Patent Review Project) is in place in the U.S. to assist the USPTO in finding and analyzing prior art so they can better assess whether an invention is novel or not. In this program, companies are able to see patent applications earlier than normal and to offer prior art and commentary for patent applications in their field of expertise. There are potential problems with this approach that I won’t go into, but trying new ideas to help the USPTO is critical for mitigating the effectiveness trolls.
Finally, there is a patent reform bill in Congress that has been trying to gain momentum for quite a while. One effect of this bill, if passed, would be to restrict the ability to sue over patent infringement. Obviously, this would de-tooth the trolls quite a bit.