Tech Patent Wars Becoming Downright Bizarre
Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last week, Oracle (NASDAQ: ORCL) asked for damages from Google (NASDAQ: GOOG) over infringements of their intellectual property to the tune of. . . $0. (Personally, I think they could have pushed for $0,000,000, but keener minds than mine are at work here.) Oracle's suit was based on patents and copyrights they had obtained with the acquisition of Sun Microsystems and the Java suite in 2010, and their rapid move to sue Google mere months after buying Sun for $5.6 billion indicates Oracle saw significantly more value in the intellectual property (IP). After paying up to acquire this IP, two years in court, and massive legal fees, Oracle's stipulation that their infringement claims were worth nothing prompted presiding judge William Alsup to ask, “is there a 'catch' I need to be aware of?”
Oracle may have simply wanted to get over with the suit so that they can appeal. The company is likely seeking to have other portions of the case overturned; most importantly, Oracle sought to assert copyright over Application Programming Interfaces (APIs) that it acquired from Java. Judge Alsup found that Oracle's API claims were based on attempting to copyright not specific code, but a “system or method of operation,” which is not legally copyrightable. Though it appears unlikely that Oracle could get this portion of the decision reversed on appeal, they do have a powerful incentive for trying: copyrighting Java's APIs, which are in wide use throughout the tech world, would give them an awfully big bludgeon with which to beat other companies.
And that, increasingly, seems to be what intellectual property battles are all about. Apple (NASDAQ: AAPL) has been aggressive in pressing IP claims to limit its rivals' ability to compete. Its case against Motorola, which it has been pursuing since 2010, was dismissed this week with prejudice, after judge Richard Posner objected to Apple's attempt to legally prevent Motorola from selling US smartphones. The company also drew headlines for patenting the wedge shape of its MacBook Air; a form that nearly all ultrabooks adopt due to the need for enough thickness at the hinge to accommodate a USB port, while keeping overall weight low. This would seem to make a sloping wedge shape a physical necessity, but it wouldn't be the first time an obvious, or even ridiculous, patent were filed.
According to a Yale Law School study, more than 40,000 new patents are granted in the US each year, and some of these are so broad that they encompass much of what any tech company does. The baffling quantity and wide scope of patents has resulted in a situation in which everybody infringes on everybody else's IP all the time. This has led cash-rich tech giants to assemble vast portfolios of patents and copyright, not as a means of spurring invention and rewarding creativity, but as armor. Firms protect themselves from potential IP lawsuits by threatening to countersue; as it's a sure bet that the other guy is infringing on their IP, too.
Perhaps no legal battle illustrates the absurdity of the patent wars like Yahoo's (NASDAQ: YHOO) claim that Facebook's (NASDAQ: FB) “entire social network model. . . is based on Yahoo's patented social networking technology.” It is asserting that Facebook has violated ten of Yahoo's patents, some of which are a decade old. I can't say if Yahoo's claims have legal merit—that would require spending millions of dollars in the courtroom—though I do note that Yahoo chose to sue in March 2012, just before Facebook's widely anticipated IPO, despite the fact that Facebook, and sites like MySpace, appear to have been infringing on these patents for years. Combine this with the financial trouble that Yahoo is mired in, and this looks like a shakedown: an attempt to get an easy payout from Facebook to avoid disrupting its IPO.
The delicious twist in this story is that Yahoo, with over 1,000 patents, probably saw Facebook as an easy target, with only 21 patents. Facebook compensated for this weakness, however, by buying up four patents after Yahoo filed suit, and countersuing with them. How can we seriously say that our patent system protects intellectual property when firms assume they can find and purchase an existing patent that is broad enough to cover any given company's operations?
As big tech firms devote ever more resources to beefing up their legal departments and buying portfolios of patents and copyrights, I have to wonder whether the industry, the consumers, or shareholders are actually winning the patent wars. Patent litigation and the defensive acquisition of patent portfolios has consumed billions of dollars over the past few years; resources not spent designing new products, lowering prices, or returning cash to shareholders. But it doesn't make any sense for any individual company to disarm unilaterally, so without a new approach to patent law, the only winner of the patent wars will be the lawyers.
Daniel Ferry owns shares of Apple and Google. The Motley Fool owns shares of Apple, Facebook, Google, and Oracle. Motley Fool newsletter services recommend Apple, Google, and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.