Problem patents: the battle of ideas

Buying up patents is big business. But the system that was designed to protect the small investor is being twisted by big companies who are using it to stifle the small guys

San Francisco

Gadget shopping is never easy – incomprehensible technical specifications, huge price differences between shops and the underlying fear your new toy will be obsolete in a few weeks anyway.

But, consumers are facing another issue, and one that threatens the entire electronics industry: patent disputes leading to some of the biggest-selling gadgets being pulled off shelves.

Last week Apple won an injunction stopping Samsung Electronics selling its Galaxy Tab 10.1 tablet in the US, giving the iPhone maker a significant win in the global smartphone and tablet patent wars. It is the latest in a seemingly endless battle of claims which has also seen the iPhone pulled from German shelves for a short time.

The problem revolves around highly technical, and often broad patents granted around everything from using your finger on a screen to the way a 3G mobile network works.

It has led to a situation condemned as absurd even by those at the heart of it, with billion-dollar patent disputes seeing products pulled from shelves, and legal rows and court hearings.

"It's become a ridiculous situation," said Matt Barrie of freelancer.com, the world's largest online outsourcing marketplace, and a supporter of entrepreneurs who has over 25 patents filed around the world.

"Patents were designed to protect the small inventor, but it has been twisted and turned into a racket by the big companies to stifle the small guys."

Buying up patents is big business, with the major players competing bitterly for the most lucrative.

AOL, facing a slump in sales, agreed in April to sell and license 800 patents to Microsoft in a $1.1bn [£700m] sale. But even that pales into insignificance when compared to bankrupt tech company Nortel, which last year put its 6,000 patents up for auction as part of a liquidation, with the portfolio being sold to Apple and a consortium of other tech companies including Microsoft and Ericsson for $4.5bn – outbidding a $3bn offer from Google, who's recent $13bn purchase of Motorola is also believed to have been largely for its portfolio of patents.

Mr Barrie says the big losers in the patent wars are consumers, small businesses and inventors – the very people the system was designed to protect.

"A patent is only as good as your ability to defend it, so for a small firm it is virtually impossible," he said. "The only people winning here are the lawyers, and those costs get passed on to consumers. In Europe, there is some commonsense and you can't patent software. In the US something similar has to happen – it is unsustainable, you have this multi-directional fight between Google, Apple, Facebook, Microsoft and others, and it's not productive for anyone."

Apple has been at the heart of the patent war since 2010, and last week's injunction against Samsung comes less than a week after Apple suffered a setback when a federal judge in Chicago dismissed its patent claims against Google's Motorola Mobility unit. Judge Richard Posner ruled that an injunction barring the sale of Motorola smartphones would harm consumers.

Apple boss Tim Cook said recently: "Is it a problem for innovation? I think from our point of view it's important Apple not be the developer for the world. We can't take all of our energy and all of our care and finish the painting then have someone else put their name on it." Cook admits "the system is broken", and claims firms who are suing Apple are using the system in a way it was not intended.

The patent war is delaying, and in some cases stopping, new products.

Earlier this year a battle over a phone's ability to turn text into links saw HTC's flagship handsets delayed in the US. Chief executive Peter Chou said: "We think this is not healthy to the industry, this is not good for innovation and this is not fair to smaller companies. If it's not going to stop, small companies will never be able to compete with big companies. So this has to be rationalised."

Some of the biggest firms are now taking drastic measures to avoid being caught out. Qualcomm, which owns many prized patents around wireless technologies like 3G and 4G says it plans to create a separate unit for its chip business, part of efforts to protect the licensing side of its business from any lawsuits against the company.

Many in Silicon Valley, the heart of the world's electronics industry, claim that firm's are now more concerned with patents than creating new products.

Elias Bizannes, an entrepreneur in Silicon Valley who works with small startups, believes the system has led to legal action being used as a tool to make money.

Ingenious inventions - but who owned them?

Laser: The physicist Gordon Gould battled for almost 30 years to secure patents for the laser. Many scientists were working in the area, but he was the first to use the word after creating a design at Columbia University.

Car: George Selden, a patent attorney, took out a patent on the motor car in 1895 and many in the industry paid him a licensing fee. Henry Ford, and others, held out and an eight-year battle ensued, which included a challenge for Selden to build a car, which fell apart. His patent was declared invalid.

Windscreen wipers: Robert Kearns secured a patent for the design of intermittent windscreen wipers in 1967. Ford, Chrysler and others came up with systems of their own and Kearns sued. The case lasted until 1995 when the US Supreme Court awarded him $30m.

Airplanes: The Wright brothers were fiercely protective of the designs after building the first successful airplane in 1903 and set about suing those they felt had infringed their patents.

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