Patent lawsuits impact companies negatively

Rise in patent lawsuits and patent trolling becoming a "distraction" to organizations, market observers note, but debate remains over whether they stifle innovation and lead to heightened competition.
Written by Ellyne Phneah, Contributor

The increasing number of patent lawsuits are time-consuming, costly and disruptive for organizations, according to industry insiders who note a rise in "patent trolling", but it is still hard to say whether the legal tussles stifle innovation and are responsible for the intensifying market competition in the IT industry today.

Patent litigations are a "huge distraction" to the strategic direction of organizations which need to divert financial resources from research and development toward the lawsuits, Krishna Baidya, ICT practice industry manager at Frost & Sullivan Asia-Pacific, told ZDNet Asia.

Daryl Chiam, Canalys' principal analyst, added that in a patent lawsuit, both parties would countersue for "a few rounds" before reaching a settlement and this was "a waste of time". While it did not affect the industry negatively "in a big way", some companies would be distracted, especially the smaller ones that might not have the resources and scale to support the lengthy process, Chiam said in a phone interview.

Settlements in relation to patent lawsuits, which almost always include payment of an often substantial settlement amount, have neither a good nor bad impact on the companies involved, said Andy Leck, principal lawyer at Baker & Mackenzie, Wong & Leow.

"Litigation is expensive in terms of money, time and effort. It is often more beneficial for the parties concerned to work out a settlement deal which allows for the cross-licensing of technologies," Leck told ZDNet Asia.

Additionally, from the recent explosion of litigation in the IT sector, Baidya observed that some organizations appeared to be trying to gain financially from another company's success through their questionable patent claims.

Patent systems were originally established to reward innovators by protecting their inventions and rights, he said. However, he noted that there had been instances where organizations, which were not inventors "in their own right" but owned patents for the innovation as part of their efforts to build a patent warehouse, would "haunt" other organizations with the threat of litigation, especially after huge commercial success of a particular invention.

These companies were simply keen to gain from "runway successes" of their competitors' new technologies and often referred to as "patent trolls", Baidya added, citing Wilan and Intellectual Ventures as examples.

He said there had been increasing cases of "patent trolls" in recent times, where the likes of Apple and Google were drawn to litigation. At the same time, the many smaller partners in the ecosystem and independent developers that supported their platform were also not spared, he said.

"With little or no funds to support a legal fight against the patent holders, such partners and developers are forced to lurk in uncertainty of their existence without help from their principals," Baidya said.

Impact on innovation uncertain
Leck noted that a dramatic increase in patent lawsuits, especially if brought about by excessively strong and broad patents, might potentially stifle innovation in a particular field, but whether this was so would depend on various aspects of the patent system in question. These would depend, for example, on the ease and cost of defending patent lawsuits as well as the amount of damages awarded by courts in the case of infringements.

However, he maintained that whether patent lawsuit stifled innovation depended on the industry, country in which the patent lawsuits were initiated, and the country's patent regime.

Bryan Tan, director of Keystone Law Corporation and a ZDNet Asia blogger, agreed that it would be "extremely hard to measure" the impact of increasing patent lawsuits on innovation.

"Innovation will still take place because that is a business advantage but some fear that, logically speaking, we will reach a stage where everything patentable has been patented," Tan said in an e-mail.

Brian Prentice, research vice president at Gartner, said the primary objective of a patent is to provide information about an invention to other parts of society so they can "take [the invention] and improve on it". If the patent system works, this can be interpreted to mean "patents represent innovation", he said in a phone interview.

However, Prentice said, the issue is that the system does not work and patents are being granted when they should not have been in the first place. He pointed to the United States, where the average amount of time taken to examine a patent was 18 hours which, he said, was a short period of time to figure out issues that were complex.

Asked if patent lawsuits intensified market competition, Tan agreed that there had been heightened competition in the industry but whether this was the result of the lawsuits was "hard to say".

Prentice noted that competition has been increasing in the IT industry for a while, and has "preceded and continued today". He added that patent lawsuits were also now an integral part of the IT landscape. "It is very hard to do anything in IT without bringing about a patent infringement," he said.

Baidya of Frost & Sullivan drew a direct correlation, noting that with market conditions intensifying over the years, competitors are often "keeping no stones unturned to gain an upper hand". Hence, organizations may be motivation by a desire to create a stumbling block for their competition through patent lawsuits, he said.

Baker & Mackenzie's Leck concluded: "The increase in high profile patent lawsuits is certainly reflective of intensive market competition in the smartphone and tablet computer segments of the market."

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