Litigation and Competition

 

Just in case you haven’t heard – Apple won one of the largest patent damage awards in the history of intellectual property litigation. They successfully sued their rival Samsung to the tune of a billion dollars in damages.

One. Billion. Dollars.

Apple is now seeking to block the import and sale of a variety of Samsung phones in the United States. Other phone manufacturers are suing Apple in response. The whole thing is a big mess, but how did it get this way and what happens next?

The first question is easy to answer. The mobile industry has long realized some important truths:

1. The United States Patent and Trademark Office (USPTO) routinely grants patents for dubious “inventions.” These patents are either for inventions that have already existed in the market (prior art), or are for minor and obvious improvements that don’t deserve patent protection.

2. It is very expensive to have a patent invalidated.

3. Everyone in the mobile industry has a boatload of patents, ranging from technical achievements (new ways to fit more data into the airwaves) to junk (only one button on the front of the device).

4. The mobile industry is fiercely competitive and the pace of innovation is high. The court system, on the other hand, is very slow. This is especially true when appeals are taken into account.

5. Each of the mobile companies are large, multi-national corporations. They have patents in each country, but the enforcement of those patents, the legal standards that are used, and the kinds of juries that will hear those cases are variables that make any single verdict in one location somewhat less than decisive.

Faced with this set of five truths, the most logical thing to do is not to sue your competitors. Any such lawsuit would have to be global, held in courtrooms around the world (#5). It would be incredibly expensive and time-consuming (#2 and #4). Your patents might not stand up in court anyway, since so many of them are clearly not inventions anyway (#1). By the time you get a damage award from one country, the offending devices aren’t even on the market anymore (#4). And worst of all, you will find yourself at the mercy of everyone else’s bogus patents as well. So, just as you get your damage award from country A, you are found liable for damages in country B (#3 and #5). Whoops.

Because of truth #1, there are zero, I repeat – zero, non-patent-infringing devices. None. Not because all the companies are stealing each other’s ideas, but because it is simply not possible to produce such a device. In addition to “Don’t sue,” the current intellectual property situation produces one other conclusion: no new companies can enter the mobile handset market. Without a war chest of patents of their own they will be sued into oblivion.

So, then, if it is insane to sue each other – what happened?

There is some debate about who fired the first shot: whether it was Apple, Nokia, Samsung, Motorola, or Kodak, it doesn’t matter. The cold-war-esque mutually assured destruction was triggered. Somebody hit the launch button and now everyone else has to hit theirs in response. These last twelve months I’ve seen a flurry of news posts about Samsung getting one or another of the iPad or iPhone devices banned in country X or Y for a few weeks at a time. This giant damage award was just the latest round of the corporate version of WWIII. It will certainly be appealed (and would have been, regardless of the outcome). The jury clearly didn’t follow the judge’s instructions, being led by a foreman who himself has bogus patents (he himself holds a patent with extensive prior art – no chance of being upheld if challenged in court). The judge in the case made a point of registering objections that were explicitly designed to allow for appeal – no matter who won.

Most ironically, the patents in question missed their major target. Apple’s long-term goal is to remove Android from the mobile market. The patents that Samsung violated? None of them are related to Android. Apple is also facing an uphill battle overseas, with Japan recently ruling that Samsung did not infringe Apple’s patents. Apple may find themselves with a billion dollar win in the US, and just as many losses in other countries.

So Apple vs. Samsung will continue in the courts for a few years. And given the five truths above, nobody should be surprised.

If anyone is interested, I’ll post a follow-up on what SHOULD happen next.

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