Smartphone Armageddon: Patents undermine the tech industry

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

This article is part of our special report Innovation and the Digital Economy.

The EU's use of antitrust disciplines will deter some of the legal injunctions, but not solve the underlying problems – they offer no solution to the problem of how design patents, sometimes with disputable merits, can be used to block competitors’ products, writes Hosuk Lee-Makiyama.

Hosuk Lee-Makiyama is director of European Centre for International Political Economy (Ecipe), an international economy think tank in Brussels.

The global tech and software industry has been caught up in a ferocious war using patents as munitions: Apple, Ericsson, Foxconn, HTC, Microsoft, LG, Nokia, Samsung and Motorola have all sued each other for patent infringements in the Australia, Japan, Korea, the United States, the United Kingdom and five other European jurisdictions.

Companies like Apple and Google are now spending more on lawyers than on actual research to fend off irksome lawsuits.

But how did the tech industry veer into this mutually assured destruction? Steve Jobs famously declared “thermonuclear war” on Android before his too early passing, but vindictive egos do not explain the entire problem.

To start, the patent system in the US is both cheaper and less scrutinised than other countries, where the tech industry accounts for 50% of all registrations.

Many of them are so-called utility patents or design patents that protect pure ornamental or generic features rather than technical inventions – like that a tablet has rounded corners, or how swiping a finger across the touchscreen will unlock a phone.

On the other hand, setting the bar too high for new patents, or making them too costly to file, discourages innovation. The situation in Europe exemplifies this problem – there are 27 national patent offices in the EU, even in Lilliput countries with less than half a million consumers – each with its own laws, distinct quirks, patent courts, but Gulliver-sized lawyer fees.

The effects on research and innovation are devastating: Japan alone files 25% more tech patents than the entire EU put together, despite having an economy one-third of Europe’s.

As the smartphone wars have taken root in the EU, it is now beset with flaws from both the EU and the US systems, characterised by both high registration costs and lawsuits.

In the past fortnight, the European authorities have responded in two ways: First, the EU competition watchdog is pursuing smartphone manufacturers for violating antitrust rules – the logic is that certain type of patents relating to technical standards (like 3G or GSM) cannot be used to sue competitors.

Second, the EU member states have taken the first steps towards a union-wide patent instrument and courts after decades of petty arguments over the working languages, where Spain and Italy finally opted out.

However, these two recent actions by the EU will do very little to improve on the innovation climate in Europe in the short term.

To begin, the new European unitary patent will in any case co-exist, compete – or even conflict – with the national patents for a foreseeable future, while it will take years, if not decades, to resolve Europe’s long-term and structural inefficiencies in R&D.

Using antitrust disciplines will deter some of the legal injunctions, but does not solve the underlying problems – they offer no solution to the problem of how design patents, sometimes with disputable merits, can be used to block competitors’ products.

Also, technical standards are still abused by patent pools – a cartel of patents owned by several competitors packaged into one single licence. Example of one such pool is the MPEG LA that administrates the MPEG-2 pool, which is a video encoding standard used to digitally store or display video on everything from smartphones, televisions, PCs to DVD players.

Although many of the patents within the pool have expired or will expire soon, it is charging same fees from its competitors and forcing licensors to agree to contracts for use that extend to 2015, when around 90% of the MPEG 2 patents will be expired.

These patent pools were allowed on the basis that there is a freedom to use or develop competing technologies. Safeguarding a dynamic competition between different standards is absolutely necessary for technological development – or we would still watch movies on VHS tapes while tapping on PCs with floppy discs, or listening to cassette Walkmans.

Internet companies like Google or countries like China have created competing protocols, available for free – and were unsurprisingly sued for patent infringements.

Enforcing antitrust law in one type of cases while turning a blind eye to others may have other unexpected policy implications, as it inevitably rewards one type of patents over others – in this case, it is expired ones and ornamental features being favoured over technical innovations.

Brussels was not built in a day, and Europe was not dethroned as technology leader overnight. Stopping patent abuses while also preserving the integrity of the patents is of fundamental importance to innovation and the economy, but will take time.

The public and the policymakers are right to demand an immediate end of the patent wars, but this will also require a broader and comprehensive approach to patent reform, or adapting competition rules to modern high tech industries with new forms of collaboration and competition."

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