Patents and Innovations

So, I think that the news that Apple and Nokia decided to drop lawsuits against each other is a good starting point for this discussion. Here’s the BBC article discussing the decision. Basically, Apple decided to license several patents from Nokia. Which in itself has some implication for innovation within the Smart Phone market.

I plan to do several of these types of posts. However, in this one I will focus specifically on smart phones. This will extend to many other product spaces, but not to software or business models.

So first what are some implications of this agreement by Nokia and Apple? Well, the most obvious is that they aren’t suing each other any more. The less obvious is that neither of these cases was heard by a judge or a jury. This doesn’t allow us, the observer, to actually know if these patents were valid or not (see my post on patents to see what a valid patent is). In some cases the patent office, whichever office, may approve a patent that is invalid. This could be due to prior art, like the PB&J sandwich described in my patent post, or that it’s an obvious invention. The only way that a patent’s validity can be overturned is by a jury or a judge. Let’s say that Nokia is also suing HTC over the exact same infringement. HTC doesn’t believe that the Nokia patent is valid so they were also counter suing saying that it’s an invalid patent and HTC has the reasons why. So, this case goes to trial and Nokia is now able to say that Apple is currently licensing this patent from them. This claim will give a great deal of credibility to Nokia’s claim. At this point HTC may have to decide to license with Nokia to avoid the potential of a huge fine.

In this case Nokia has a tract record of being an innovative firm. What happens when the firm isn’t an innovative firm or has no products though? Well, these cases happen all the time. For instance a few years ago RIM, the maker of BlackBerry was hit with a lawsuit that would have effectively shut down the Blackberry network, or prevent emails. Here’s a link to when it started. While at the time it was a $60million fine, it eventually got up to $612.5 million. The firm suing BlackBerry NTP, doesn’t actually produce anything. They are a patent management firm. In other words, a patent troll.

So what does this do to our economy when it’s based upon innovation. Patenting is supposed to protect innovative firms from competition so they can exploit their invention. It’s supposed to grow the economy, as these firms can license out the patent and allow other people to manufacture the product. Well, in this case it took $612.5 million from the pocket of a firm that was innovating and creating a product and put it into the pocket of a firm that doesn’t produce anything. That’s not the best for innovation.

There are some good things about the patents though. For instance, once the Xerox patent expired for the copier, there was an explosion of innovation in the field and Xerox nearly lost all market share. It had to sprint to catch back up. How did this happen? Well, you are allowed to work on a patented technology for research and development. Xerox’s competitors didn’t sit idle while Xerox was dominating the market. They were waiting until they were able to sell a product and then unleashed pent up innovation onto the market. This was an excellent thing for consumers. We can thank the fact that this patent ran out for our 3 in 1 printers.

2 thoughts on “Patents and Innovations

  1. Do you think that it would have been better to take this case to a jury? I mean, a trial would have helped to make things clearer for people and for the industry of the smartphones?

  2. It could have helped. But it also would have been extremely expensive. So, there are some good things and bad things about going to trial. Good things, potential for clarity, bad patents thrown out. Bad things, lots of money spent, nothing changes and both firms owe each other a ton of money. These handsets may not increase in price, but it may increase the price of other handsets and possibly raise barriers to entry. Which is bad for consumers. Basically, I'd like to see a review of the patents that is much cheaper than a lawsuit.

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