A scrap over patentsFeb 23rd 2007
From Economist.com
http://www.economist.com/displayStory.cfm?story_id=8758914&fsrc=RSSDISTRIBUTING recorded music has changed a bit since Thomas Edison introduced the wax cylinder at the end of the 19th century. Vinyl long-playing records and cassette tapes were supplanted by the compact disc. Now that technology faces stiff competition from the MP3 file, the most popular method for sending music files around the internet. But, while the technology has moved on, the patent system that is supposed to protect it, is badly in need of reform. A reminder of this fact came on Thursday February 22nd, when an American court decided that Microsoft should pay out $1.52 billion, the largest-ever such award, for infringing patents related to MP3 technology held by Alcatel-Lucent.
That is a lot of money and the ruling could eventually allow Alcatel-Lucent to pursue other firms that use the MP3 technology such as Apple and Sony. Yet it could have been worse for Microsoft. The award could have been three-times greater if the jury, split on the matter, had concluded that Microsoft had knowingly infringed the patents, which the tech giant insists it had duly licensed from Fraunhofer, a German firm. (Even then, Microsoft, with $29 billion in the bank, may not have worried greatly). In any case the show is not over yet. Microsoft intends to appeal against the verdict and the case could rumble on for another year or two. Complicating things further, other related court battles are pending.
But the most significant outcome of this case may be what it says about the use and abuse of patents. Despite the many patents issued in the IT and computer technology industries (the sectors accounted for roughly 30% of all newly-issued patents in 1990, in America, rising to nearly 40% today) legal challenges between the big tech firms have been relatively rare. In general companies get heavy-handed over their intellectual-property rights only when times are tough. The trend began in the 1980s with Texas Instruments, when the tactic saved the company. In the mid-1990 a struggling IBM likewise threw its weight around. Similarly Alcatel-Lucent (a newly-formed entity made up of French and American components) is not prospering at the moment.
Much of the time, big tech companies turn a blind eye to patent concerns, preferring to preserve a sort of cold war situation of deterring each other with the threat of legal retaliation, rather than getting into many protracted and costly cases. Mechanical products of old generally relied on one or two patents to keep them safe from competitors. The huge complexity of even the most humble piece of technology today means that they contain hundreds of patented parts. Each big tech firm cannot but help infringing patents held by rivals. But as long as the rivals feel they have roughly as much to lose as they might gain from starting a tit-for-tat series of court cases, they have been willing to ignore many of each other’s infringements.
Threats had been more likely to come from small firms that acquire patents with the express aim of launching suits against big rich tech giants. The risk now, with the hefty award against Microsoft, is that many more firms will consider launching similar cases as the potential rewards are evidently so great. Microsoft, for example, has filed a counter-suit against Alcatel-Lucent for infringing its messaging patents. Microsoft has also in recent years been building up its arsenal of patents. That may indicate a breakdown of a system that has helped to deter the big tech firms from fighting each other and that provided the conditions for rapid and wide innovations. On the other hand, making patent law more effective could encourage precisely the sort of innovation that will deliver the next generation of devices, whatever they may be, for music distribution.
