I am constantly amazed at how the US continues to attract and develop entrepreneurs and risk takers given the corrosive effect of litigation and the parlous state of its patent regime. We now even have a term to describe the opportunists that seek to mine this economic fault line – patent trolls.
eBay is currently labouring under a lawsuit regarding it’s ‘Buy it now’ service. Without going into the details of the case – the lawyers tell us it is complicated (surprise!) – what kind of system allows something like ‘Buy it now’ to be patented in the first place??? And now that Betfair has a successful business and a substantial valuation, surprise surprise up pops some guy asking for a cut. Skype is being accused of racketeering (!) and is being sued for $4.1 billion (not sure, but that number sounds suspiciously like the maximum pay-out for Skype shareholders in their deal with eBay…) It all reminds of a great line by King Julian from Madagascar :
“I thought of that, me. Write that down.”
However, there is a reason why most of the large tech companies have thrown their support behind eBay: Legal activity against tech firms has exploded over the last 18 months, with many of the lawsuits brought by companies that have obtained rights to various technologies and/or business processes. Many of these firms have done so explicitly with the hope of a payday down the road.
Representing defendants against such firms accounts for about half of his current case load, attorney Michael Sacksteder, a partner with Fenwick & West, told the E-Commerce Times. “We have seen a significant uptick over the last 18 months,” he noted.
“Some are what you might call shakedown artists — they propose a settlement that is crafted to be less than the cost of litigating their claims,” he said. Other firms go to court in the hope of hitting the jackpot — that is, successfully suing an eBay or RIM.
Under those circumstances, if the plaintiff is granted an injunction, it basically has the defendant by the throat as it negotiates for damages.
If eBay prevails, the situation may ease somewhat for these firms. The threat of injunction would remain, but it would not be as fearsome a possibility in such cases. Meanwhile, there is little chance the suits will ease over the coming years, Sacksteder said, no matter what is decided with this particular case.
“There are a lot of patents out there and more are issued every day,” he commented.
The Economist’s view is more balanced:
Some industries, such as pharmaceuticals, have much to fear from a looser approach to patents. Typically, drugs rely on one or two patented compounds. Most observers accept that injunctions are a vital part of the legal armoury that protects the industry’s leading firms. They need to be able to clamp down speedily on those who would piggyback on treatments that have taken years and vast sums of money to develop.
The tech industry is different. By and large, its big firms are less focused on exploiting patents than they are on getting innovative products quickly to market. The vast ocean of patents covering high-tech components, software and business processes means that each new product, generally comprising thousands of pieces of technology, usually infringes on several patents. Since most big tech firms both hold banks of their own patents and regularly infringe on those of their rivals, they tend not to take each other to court—patent give-and-take ensures a détente of sorts.
I am (obviously) not a patent lawyer, but – and I think that this is the point – as a lay person common sense tells me that ‘Buy it now’ or ‘ one-click shopping’ or ‘trade electronically’ are not things that should be patentable. These are things that are bloody obvious and success in business using these ideas is and should be down to execution. Furthermore, I don’t know how anyone can defend the idea of patenting what is in effect a business model. In my eyes the US patent system is broken. My emotional response is that business processes shouldn’t be patentable. I’d love for someone to try and convince me of the contrary but I can’t see it happening. Where does it stop? How much time/energy/money is wasted rushing to the patent office everytime you decide to change the way you offer your service? Who is to say that ‘Buy it now’ is any more novel than ‘Place item near check out counter’…who holds the patent on that idea? My point is that if you open the door to patenting business processes, the risk is that it just becomes a big “wacky race” to see who can get the highest number possible of ways to sell something or buy something or showcase something possible filed on the basis of collecting an arbitrary rent for having better patent lawyers than the guy across the street.
As long as the US remains the largest and most dynamic economy in the world, it may just be a little sand in the gears, but that place in the sun isn’t guaranteed to last forever. In the medium to long term it is not inconceivable that many new innovative companies will choose to avoid or ignore the US market altogether to avoid the legal tar pits dotting the US business environment. That may seem far-fetched, and I’m not suggesting it is a foregone conclusion, but the US share of global GDP is in secular decline in any event (for good healthy reasons having to do with the rest of the world catching up to the US, often by adopting the same policies that allowed America to flourish in the first place.) In any event, I think that would be a bad outcome for the world and I hope good sense ultimately prevails. We’ll see.
Who holds the patent on lemonade stands? Kids of America watch out!