Monday, August 27. 2012
Normally when I comment on IP stuff I'm writing about copyright. Today, I want to talk about the another side of it - patents. (Trademarks, trade secrets and industrial design rights are also forms of intellectual property in case you're interested. Trademarks are things like the Nike Swoosh, the Coca-Cola ribbon etc. They're distinctive designs associated with a brand. Industrial design rights are oddly named but are essentially IP of the aesthetics of the design - colour, shape etc. Trade secrets are things like the Colonel's Secret Recipe - secrets that can't be reasonable deduced and are of value thanks to their secrecy.)
What a patent is, essentially, is means of saying "we invented this, if you want to use it, you must pay us a reasonable license fee for the work we did." The patent should, basically, be granted if the work covered is novel and non-obvious. Pinching in and out to zoom on a multi-touch screen - without wanting to get into who invented it - is almost certainly a patentable idea for someone. Although it is ubiquitous today, before the iPhone and iPod touch is wasn't in use - so it's certainly novel. It seems hard from today's perspective to say it's non-obvious but in a day and age of styluses and small, non-touchable screens it was almost certainly not obvious either. Note, if you're a lawyer or other professional pedant, what I'm saying isn't the same as saying Apple owns the patents (although I, in a totally non-expert way, believe they do) - someone else could have registered them, Apple paid the license fees and popularised them. Patent law certainly allows for that.
We're back, again, in the realms of making money for your ideas. Copyright law is designed to allow the artistically creative talents in the world to get paid for their efforts. Patent law is more for the inventors - be they mad ones in the garden shed or the employers of highly paid professionals in Cupertino, Redmond etc. For some reason (I think because there's a belief about advancement in engineering), patents are typically granted for 20 years. Pretty much anything you want to do with incandescent and fluorescent lights is fair game, clockwork too. Dyson's "dual cyclone technology" must be getting towards the end of its exclusive time though.
It should, also, encourage innovation and invention. You find that there's a patent covering what you're trying to do and you either license it - rewarding their innovators, or you go to yours and instruct them to do something different and better. Google Maps and the new Apple Maps are a good example of this - Google initially set no license fee for use of their mapping apps. They introduced (completely legally as I understand it, although possibly not entirely ethically to change their minds like that) a license fee for large users - like Apple. Apple's response? They developed their own, novel, mapping app. We don't know, yet, how good it is - although initial comments on the beta are pretty glowing, particularly about the benefits of a vector-based map so there's smooth zooming in and out - but it's the sort of approach that patents ought to encourage and reward.
What it often seems to encourage, instead, is a two-tier lawyer-heavy system. Companies like Motorola are bought by Google not for their product line and the like, but in a gamble that they can find some good patents, sue the competition for huge amounts of money and recoup their outlay as well as, potentially, gain market advantage going forward. We also had, on Friday, the decision in the trial between Apple and Samsung that awarded Apple over $1billion in damages for Samsung infringing its patents. While appeals and the like may change the details of this judgement, it is fair to say in the eyes of the jury Apple established patents and Samsung flagrantly infringed on a number of them - copying innovation without paying a license fee or attempting to innovate themselves. In South Korea earlier this week, the courts split - 2 cases where Apple infringed Samsung's patents, 1 where Samsung infringed Apple's. At the same time, that lovely screen on the new iPad is made by Samsung and sold to Apple.
I comment with, possibly monotonous, regularity, that although I support the intention of rewarding creative artistic efforts the copyright system is based on outdated assumptions about technology and needs to be reworked. When it comes to patents I think there's a similar issue, although a rather different solution. Perhaps it is idealistic of me but I'm back to looking at the all-consuming drive for more profit, for measuring worth by the size of the profit margin and bank account and so on. That "reasonable license fee" I talked about in the second paragraph suggests yes, a profit and reward for your innovation or to encourage innovation in others, not just copying.
How would I achieve this? I would make the system slightly more complex. I would have three stages of patents and licensing. The first is a presumptive patent. This is issued to a company that has the technology in active R&D, probably at the point they are reaching a prototype. The technology exists and broadly works and can be seen to be working. It must still be novel and non-obvious. This patent lasts for a short period of time - my gut instinct is 2 years but that is subject to change based on evidence. The idea of this period is allow you to test prototypes, iron out problems and develop a production-ready version. If that typically takes more than 2 years, then we can extend the period, or have a system that allows for a second presumptive patent to be issued perhaps (but no more than 2). This requirement for 'broadly working and at prototype level' blocks one type of trolling, with dreaming up things that might be interesting and registering patents before you can see if it works to hopefully catch other people into having to license from you. It also allows for people checking patents against their own to object before an item goes into production and all sides to be made aware of this and settle their disputes, hopefully quickly and cheaply.
Once you reach the production ready stage, you apply for and switch to a final patent. For a period, identical to the period of the presumptive patent, the technology is yours - without any compulsion to license it at any point during that period. This allows you the edge on the competition - your (hopefully brilliant) invention gets a chance to prove its worth. That's the second stage - exclusivity of innovation if you wish to keep it exclusive. After that period, a license for a reasonable fee must be provided. Not that different so far. Note that you can choose to license before the exclusive period is up. If you can't carry your invention through to a full production say, or your job is inventing (and proof of concept) of things and you want to license it to someone else to develop it fully, you can do that.
Currently there is nothing about what constitutes a reasonable fee without the lawyers getting involved. I suggest a formula: a license fee of a maximum of 1% of the R&D costs, as agreed by a patent office accountant based on retroactive accounts, per annum for a maximum of 20 years, adjusted for inflation year on year, after the initial 'safe' period of no forced licensing. If the owner of the patent is a group of 5 or fewer, this is increased to a maximum of 10% per annum for up to 20 years. If you license in your safe period, you can multiply this by 5 to recoup costs and make a profit to enable you to carry on inventing stuff. The idea behind this is that those legally copying your ideas still have to pay to develop stuff, but they pay a defined reasonable amount for copying your work too. If your invention is really great and lots of people copy it, you can make a nice living. There probably needs to be something about on-licensing too - if you incorporate the technology into a product you license to others (e.g. Android to all the Android phone manufacturers), you might, for example, halve the maximum license fee but apply it to each organisation using it as an on-licensed product. The mad inventor in the garden shed can make a living this way while the big companies doing it face a genuine choice between licensing at a clearly defined rate and recouping some of their costs while also gaining for a period of protected exploitation of their concept. Note that, unless you work in a very small team, or you produce a patent that is very widely taken up, or you choose to release it early enough you can charge at a higher rate you probably don't make a profit from a patent that you hold for the sake of the patent. You develop the idea with the expectation of making a profit on the device incorporating that patented technology - in the recent case Apple would license their patents to Samsung and probably make a nice amount of money, but Apple's main income on the patents would still come from selling iPhones and iPads - where they seem to be doing very nicely thank you. If, however, you job is creating and selling inventive solutions, recouping up to 50% of the costs per annum means you can make a nice amount of money from that. I don't know of anyone that falls into an in-between situation - I'm sure there must be someone - but without knowing the details of how they make their money it's hard to see this as unfair or iniquitous to them. Also, an option to just sell the work, sell the patent rights should exist that enables you to make a profit from the patent that way.
If, for example, pinch to zoom is patentable and the patent is owned by Apple, they get a clear period to develop and use it, free and clear. Their profits from iPhones and iPads hopefully pay for the R&D work! Android, Microsoft etc. can look at the model and decide it's good or not and license it if they choose. The amount is clear and obvious and gives an indication of the difficulty of coming up with something else. And to encourage compliance, keep the outrageous size of penalties. Make the gamble really not worth it. If we take the example of pinch to zoom through - it's clearly a wonderfully innovative and natural idea that works very well. Android, and through them Nokia, Samsung, HTC etc. license it because it is (to my mind anyway) simply the best method out there. Apple get some money back on the deal, that's OK too, and the market gets a variety of phones, tablets etc. using a good interface to give consumers choice. The Apple patent on "slide to unlock" probably doesn't get picked up - there are other ways, other variations to do that. All the other companies develop their own methods. Innovation, genuine innovation, is encouraged too. Who loses out? The lawyers and patent trolls. Motorola possibly, in this case - there's less of a gamble on the value of their patents because they're probably paid for - or maybe not, if their ideas are valuable enough who is to say that the extra income wouldn't have kept them afloat as more than just a bundle of patents?
But we also avoid one of the silly things that Friday's judgement seems to be giving us, if the gradually emerging consensus of other commentators is right. Samsung took a risk that, in fact, despite a bill that could exceed $3 billion if the judge really throws the book at them, has paid off. Nokia and RIMM ignored the iPhone and didn't infringe. And have basically gone under since then. Microsoft and Palm took notice of the patents and tried to come up with something better. Palm has gone under. Microsoft hasn't (although it's not exactly looking healthy) and if the Windows Phone fails to gain an audience when it arrives... they'll be leaving the mobile market with their tail between their legs. Samsung though, by lazily copying Apple, seems to be doing OK, even after they fork over an incredible amount of money. Unless redesigning or licensing everything is so expensive that it too dies, they've become a major player and will go forward. What will happen is the plethora of cheap smartphones from Samsung (and probably the other Android manufacturers) with get more expensive. We don't know how much, but the most common figure being suggested is about $20 or £15 (iPhone prices shouldn't rise though).
And this is why I think the law needs to be looked at. Samsung shouldn't be rewarded for just copying Apple. The consumers shouldn't be stung at that kind of price increase per unit for their indiscretions. If we apply the suggestions I'd made, we can't predict the exact numbers, but Nokia, RIMM, Palm and Microsoft could have decided to carry on their own research or just ignore the iPhone as they did (they might have reached a different decision because the price of the licenses would have been lower than I'm sure Apple's suggested - although still reasonable* - fee). Samsung gives Apple a 2 year headstart, still making old-style smart phones. It then changes, choosing not to gamble with the current suit and ideally there's a price hike of more like $2 or less per unit. There's basically no part of the smart phone market that is dramatically more expensive. Samsung might have sold a few less phones, but would still be OK. With the lower fee for licensing the consumer might even have the choice of new Nokia, RIMM and Palm phones too - they make their tactical choice about how to respond and may also decide after two years to cut their loses and license from Apple.
The innovators are rewarded both by their own sales and the license fees coming in. The consumers are rewarded by more good technology. Possibly by more competitors remaining in the market too. And, ideally, we are spared to craziness of the recent jury case which has not been edifying for anyone.
* Please note, although I don't know what the licensing fee Apple offered its competitors was, I'm pretty sure it was higher than 1% of R&D costs per year. However, it was still a reasonable fee - Apple has successfully defended itself against patent claims on the grounds of "they would not offer a reasonable license fee" within the last year or so. I'm sure others have too, Apple is just the one I've read about. Samsung certainly didn't offer this as a defence in anything I've read and if they did the jury disagreed so I feel it's fair to say Apple's licensing fee was reasonable.
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