Over the last five years, the technology world has followed the seemingly constant legal battles between Apple Inc. and Samsung Electronics over technology and key design similarities in their smartphones, tablets and other devices.
The lawsuits have been incredibly expensive, both from a financial standpoint and for the technology industry as a whole, costing the companies hundreds of millions of dollars and numerous opportunities to enhance their products.
Observers in both the technology and legal fields have reached a similar conclusion on the results of the lawsuits: that patent wars over product designs and technology are having a negative effect on creativity and innovation in business.
Last year, Money Morning reported that the huge amounts spent by both Apple and Samsung created significant chilling effects for the technology industry. Other tech companies could stop innovating not for fear of a new product failing, but the risks of patent-related litigation over new products and technologies.
The argument is persuasive and compelling. Since smaller companies have limited legal resources compared to giants like Apple and Samsung, the cost of litigation is often enough to force them into passivity. Since the early 1990s, many technology companies have acquired massive amounts of patents for this very purpose.
One of the most prominent technology companies to have acquired mass numbers of patents is Microsoft. Over the last 20 years, the software company has acquired thousands of patents, often for vague new technologies. Search engines Google and Yahoo have also acquired large numbers of patents for new technologies.
There are, of course, legitimate reasons to patent a new product or technology. The technology industry moves quickly, and failing to patent a technology can result in a competitor copying it for their own product. However, many of the patents applied for by leading tech companies are designed not for protection, but for litigation.
Alarmingly, the patent disputes of today are becoming significantly more aggressive than examples from the late 1990s. Previously, technology companies used patents in defence, turning to litigation in reaction to a competitor using their intellectual property without any type of agreement.
Today, however, the focus is often on reducing competition through litigation. Since many small companies can’t afford to fight against an Apple or Microsoft in court, a carefully timed intellectual property lawsuit can prevent companies from releasing new products that threaten an established competitor’s market share.
Technology industry experts believe that more than $20 billion has been spent by the world’s largest smartphone manufacturers on patents from 2010 to 2012. The rush to acquire lucrative patents has been compared to the US-Soviet arms race at the peak of the Cold War, with both sides refusing to scale down their arsenals.
Big spenders include Google, which has spent an estimated $12 billion on patents since its launch in the late 1990s. Microsoft’s total patent count is over 21,000 – a legal arsenal that the company has spent more than 30 years building.
The growth of patent warfare can be traced back to 2004. From 2004 to 2009, the number of patent-related lawsuits surged by 70 per cent. The increase in patent-related lawsuits has cost companies dearly – many now spend more on litigation and patent acquisition than on research and development for new products.
While patent wars cost companies significant amounts of money, the biggest losers are consumers. In addition to missing out on research and development, the cost of patent warfare and endless litigation is often passed on to loyal consumers.
Last year, a Samsung executive vice president voiced the frustrations of many in the industry, saying:
“Legal battles with Apple have been a loss for both the industry and innovation as a whole.”
About the Author: This article was provided on behalf of Vannin Capital, one of the UK’s leading specialist litigation funding providers.