The various government bodies that enforce our nation’s patent laws must walk a fine line between protecting the rights of patent holders and encouraging new innovation. A pair of ongoing patent trials between Ericsson, a telecommunication equipment manufacturer, and Samsung, a global electronics producer, may serve as a good indicator as to whether these forces are balanced.
We want companies to take existing cutting-edge technologies and improve upon them, of course, but it is also important to protect the rights of legitimate patent holders.
We do this not because of any notion of fairness, but because awarding patent holders a legal monopoly for a period of time has proven to be a very good way to incentivize more innovation. If we allow competitors to breach patents without paying compensation, it could dis-incent investment in research and development of new products and technologies.
At the same time, we don’t want to allow existing patents to throttle innovation by overcompensating a patent holder with broad injunctions or outsized royalties that reallocate resources otherwise available for the development of new products and technologies. Achieving that balance has proven difficult, particularly since the advent of the information technology revolution and the rapid advancement of the digital world.
In the first decade of the 21st century, the adjudication of patents became highly contentious. Companies began amassing patents not as a means to innovate but merely to litigate patent infringement lawsuits and earn money from forced settlements. Others altered their business models to focus less on product development and more on patent assertion.
Ericsson is emblematic of this shift in priorities. The company was an early entrant in the cell phone market, at one point dominating the market, but it began losing market share near the turn of the century. Instead of pursuing strategies that would have made it more competitive, it exited the market altogether in 2001.
The company then shifted its business plan to focus more on patent assertion and began aggressively suing other firms over alleged patent infringements. Ericsson also outsourced patents to third parties like Unwired Patent, a firm with no extant business other than patent monetization, in exchange for a share of the litigation and licensing revenue.
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While Ericsson still does manufacture some broadband network equipment, it increasingly makes its revenue from licensing and has developed a reputation for launching worldwide litigation upon the expiration of a patent license as a negotiation strategy.
In its latest litigation campaign—an outgrowth of failed license renewal negotiations with Samsung—Ericsson filed two patent infringement complaints at the U.S. International Trade Commission (ITC) asking it to issue sweeping exclusion orders to block imports of Samsung smartphones, tablets, smart TVs, and network equipment.
The ITC exclusion order remedy represents an extreme form of overcompensation to patent holders when a complex product is involved. From an economic point of view, exclusion orders allow patent holders to threaten the entire value of a product rather than the value of its patentable contribution. In the telecommunications area, it has been estimated that a smartphone may contain upwards of 250,000 patents.
Whereas a district court would use a scalpel to dissect a reasonable royalty for the use of Ericsson’s intellectual property, the threat of exclusion from the US marketplace is akin to wielding a battle ax. Ericsson is hoping that the threat of an ITC exclusion order gives them a leg up in negotiating a supersized price tag for license renewal at the expense of Samsung’s research and product development in the short term and of U.S consumers and innovation in the long term.
Not surprisingly, Samsung responded with its own ITC patent complaints against Ericsson requesting a ban on imports of Ericsson networking gear to even the negotiating table.
The ceaseless accusations and cross-accusations and attempts to gain advantage through litigation threaten to stifle IT innovation once again, and at a crucial time of development as the globe transitions to a new standard for broadband. Lawsuits that threaten to ban cutting-edge products, harm U.S. consumers, and stifle competition are precisely not what is needed.
Source: Forbes – Business