Kellogg School of Management at Northwestern University
Patented

Nothing came of the much-hyped Apple-Samsung negotiations. Not that anyone really thought much would come of them. Samsung had the most to gain by settling, and Apple is famously protective of its intellectual property. A settlement would have been a surprise. Still, the anticlimactic conclusion of these talks belies their importance. They were more than just a step along the way in another patent suit. They were negotiations in an extremely large patent suit. A harbinger of the future, perhaps.

“I think that in telecom they’re going to be the norm,” James Conley, a clinical professor of technology and expert in intellectual property, said of such large patent suits. “In telecom, IP is important.”

Wide-ranging patent litigation isn’t likely to be limited to telecom, either. To identify where such patent suits will bubble up, Conley said to look up the value chain. Telecom is a perfect storm in this case because wireless providers are the primary gateway to consumers. While Apple has partially cut providers out of the equation by selling iPhones directly to consumers, they haven’t been able to excise them completely. Most phone manufacturers have to go through this gateway, which lessens the opportunity for direct customer engagement. The intellectual property behind each device then becomes vitally important. It is, in a sense, the only thing that differentiates one phone from another in the consumer’s eyes.

Some other industries have the same idiosyncrasies, while others don’t. “I’m not sure we’ll see large patent suits in each and every industry. It depends on the context,” Conley said. Banking is one industry where he expects more litigation, but he doesn’t see the same happening for pharma. “The big firms don’t have enough blockbusters to block the generics.”

It may seem that large patent suits like Apple-Samsung are to blame for the recent explosion in patent litigation. But that would overlook the rise of non-practicing entities, or NPEs, which have played a major role. NPEs are firms that hold intellectual property like patents, but don’t sell or manufacture any products. In the tech and telecom worlds, they’re often derided as “patent trolls.”

A famous recent example is NTP’s suit against BlackBerry maker RIM. NTP is simply a holding company with about 50 patents in its portfolio—it doesn’t produce any goods or services. In a 2006 suit, NTP alleged RIM was infringing on patents it held for wireless email. Eventually, RIM settled for over $600 million. The holding firm then went on to sue Apple, Google, Microsoft, and others.

“These NPEs have run up the litigation, but the laws are slowly changing,” Conley remarked. “Probably not fast enough.”

This is part 4 of our coverage of the Apple-Samsung negotiations. Read parts one, two, and three.

Photo by SoulRider.222.

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