Author: Ryan McClafferty

The Coalition for Patent Fairness, an ad-hoc interest group that represents Google, Apple, Intel, and Oracle, among other high-tech giants, has condemned a recently unveiled patent reform bill. In the opposing corner are interest groups representing biotech firms, pharmaceutical companies, and smaller tech companies.

Why the difference of opinion? To vastly oversimplify matters: The first group tends to gets sued over patents, and the second group licenses them.

The sticking point seems to be a lack of litigation damage limits. From 1996-2008, Google, Apple, and 13 other major tech companies (12 of which are also represented by the Coalition for Patent Fairness) were defendants in 730 patent infringement lawsuits, and collectively shelled out about $4 billion in damages, according to economist Pat Choate’s book “Saving Capitalism.”

Many argue these exorbitant damages have created a dodgy “litigation lottery” mindset. Drawn by the allure of potentially huge payouts, aggressive companies including so-called “patent trolls,” as companies who exist solely to sue others for infringement are derisively called by their opponents, have taken to sniping at deep-pocketed tech companies through the court system and have made quite a bit of money doing so. Tough damage limits could reduce trolling by making it less lucrative.

And trolls aren’t the only problem. As the recent Apple lawsuit against HTC (and also Google, by proxy) demonstrates, tech giants have just as much or more to fear from each other. Companies have complained that the looming possibility of gargantuan lawsuits has made everyone afraid to move and is significantly stifling innovation. So why aren’t damage limits being demanded across the board?

One reason is that pharmaceutical companies and universities structure their businesses around licensing patented technology, so patent trolls aren’t always problems — indeed, they are often good customers. Microsoft’s muted stance on the new legislation may be a result of its interests as a major patent licensor. A central argument against tighter damage limits is that they will weaken patents in general. This is bad news for licensors, who rely on a healthy fear of litigation as part of their business models.

But to most high-tech giants, weakened patents are not necessarily a bad thing. 

Politicians like Rep. Marcy Kaptur (D-OH) have gone so far as to say that companies seeking tougher damage limits, are “aiming to infringe” and not just trying to protect themselves from wrongful lawsuits.

It remains to be seen whether tech giants’ lobbying efforts will be enough to get a damage limits measure tacked on. If not, we should expect to see more of the same blockbuster lawsuits and licensing “protection rackets” that have become par for the course in the high-tech industry. More big lawsuits and licensing may be a necessary evil, if the alternative is a world where big companies can infringe without serious consequences.

Nathan Myhrvold’s company Intellectual Ventures is trying to create a capital market for patents, inventions and intellectual property, one that would use the venture capital and private equity markets as a model. Is Myhrvold’s brave new world of investment firms trading the rights to a better mousetrap feasible, or even ethical?

Intellectual Ventures — most recently seen unveiling a mosquito death ray at
the TED conference — already owns more than 30,000 patents. Its
eclectic approach matches the diverse interests of its founder, whom the
New York Times called “the ultimate polymath”:

“He earned his Ph.D. in physics from Princeton and did postdoctorate research on quantum field theory under Stephen Hawking, before founding a start-up that Microsoft acquired.

“He
is an accomplished French chef, who has also won a national barbecue
contest in Tennessee. He is an avid wildlife photographer, and he has
dabbled in paleontology, working on research projects digging for
dinosaur remains in the Rockies.”

Setting aside Myhrvold’s
colorful pedigree, his company’s approach has long drawn fire, with
critics dubbing it “Intellectual Vultures.”

Amar Bhidé, author of The Venturesome Economy, is a high profile critic of
Myhrvold’s vision. Invention, to him, is akin to writing a book: what if authors had to buy licensing rights for
every idea they cited, instead of simply giving credit in the footnotes? Many
of the best new products, he argues, are combinations of countless ideas, some
patentable, some not.
 
A patent attorney writing under the pseudonym “Sawyer” laments:
 

“Mr.
Myhrvold wants to create an entire economic category based on payments
to entities that don’t build, produce, sell, etc, any products, or
create anything of value (i.e., that don’t innovate, at least in any
useful way that advances human progress), in exchange for not being
sued on exclusionary patent rights.”

In the software patent
world, shell entities (often called “patent trolls”) backed by
investment funds already bring dozens of lawsuits against innovators
each year. They target start-ups as well as technology giants like
Google, Apple, and Microsoft, hoping to win money in battles over IP.
Sawyer writes:
 

“What we have, then, is a net outflow, on a
yearly basis, of at least several hundred million dollars, from
technology companies who “make stuff” and unquestionably innovate, to
speculators and investors who don’t.”

Strictly speaking,
Intellectual Ventures is not a patent troll, because litigation does
not form the core of its business model. It also employs an army of
engineers and scientists, who create inventions of their own.
 
But recent divestitures by
the company show that at the very least it will happily do business
with firms that engage in trolling behavior. Last year, for example, an
Intellectual Ventures shell sold a patent to holding company Picture
Frame Innovations LLC, which immediately turned around and asserted the
patent against Hewlett-Packard, Kodak, and CDW Corp. Many are afraid
that Intellectual Ventures’s efforts to create a pervasive “invention
capital” market could cause this sort of vampirism and trolling to
expand beyond the domain of software IP and stymie innovation in all
sectors.

Myhrvold assures us
the exact opposite will occur: that his system will create a
vigorous market in IP rights and solve an epidemic of under-invention. Myhrvold confidently predicts that
competition between investment funds to buy intellectual property from
inventors, bundle it, and sell it to buyers who know how to exploit it
will support increased output from innovators. But in his effort to
encourage invention, he might be single-handedly facilitating the unholy
genesis of a huge new class of parasitic middlemen.

Does Steve Jobs have designs on harnessing the power of the mighty sun? Apple has submitted a patent application for a new system to control multiple solar cells on a portable device. But don’t throw away your iPhone charger just yet.

Some portable electronics already try to take advantage of onboard
solar power systems, but size restrictions limit the number of solar
cells that can be placed on them, relegating the technology to devices
with very low energy needs. In its patent application, Apple proposes
layers of solar cells that sit underneath a display; in devices like
the iPhone or the much-anticipated Apple tablet, that would mean a
large percentage of the device’s real estate is capable of generating
electricity.

But based on some back-of-the-envelope math, the dream falls short, at least with today’s solar technology.

One square meter of the earth’s surface receives about 1,000 watts an hour
from the sun in ideal conditions, and the iPhone screen is about .003
square meters. Even the most advanced experimental photovoltaic cells
boast only around 40% efficiency, so a solar iPhone could generate
around 1.2 watts per hour (1,000 watts/hour * 0.003 * 0.4). That’s well
below the 5 watts per hour that the standard iPhone charger pulls in.

Still, a solar iPhone would have an increased battery life, and the
prospect of stepping into the sunlight with your phone on its last sip
of juice and watching the power meter creep up a few notches is
certainly alluring. And an iPhone studded with solar cells would be a
tantalizing piece of eco-bling: What better way to show off your savvy
greenness than to whip out one of those babies to glitter in the midday
sun?