Making patents better

[andrewducker]

I am full of stupid ideas this week. This one has been percolating for a while, and I'm finally spurred into sharing it by the latest fuckwittery in the patent wars - whereby Apple has had to remove the iPhone and iPad from its online store in Germany (see here).

The great thing about patents is that they give companies a good reason to both carry out R&D, and to share the results openly. They then get a limited period to use the patents exclusively, and at the end of the period everyone else then gets to use the public knowledge. Theoretically it's a win-win situation - enforced monopoly + public knowledge.

The awful thing about patents is that they're frequently used to enforce a wider monopoly - if you want to get into the computer processors then you have no choice but to license patents from numerous companies already making them, because they've already cross-licensed them from each other, and now basically have a cosy cartel that nobody else can get into unless they feel like letting them in. This leads to situations like the current one where Apple and Samsung are throwing patents at each other in an attempt to lock them out of the market - and frankly not only are most of these patents overly broad*, but they're also frequently invalid - in use before they were patented. But small companies can't afford to fight this through the courts.

I have two possible solutions to this. They're entirely independent, so no complaining if the two of them don't work well together.

1) An anti-patent alliance. Get a few large companies together, and they all agree - entirely openly - that they will not use their patents on anyone else in the alliance. Additionally, if someone outside of the alliance uses a patent against one of them then the entirety of their patent pools will be used against this one company. Now, in some ways this _is_ cartel behaviour, except for the fact that it's entirely open - anyone can join. I suspect this would cause major heart palpitations across the tech industry, a lot of publicity, and politicians stamping their feet. But it might also cause a major rethink of patents, which would be a good thing.

2) Firewalls. If the companies can't be trusted to behave like adults then they can't look after their own patents. All patents must be sold off to a company which does not do work inside the industry. That company must then license it out to all people for exactly the same terms. So if Siemens comes up with the patent for "Batteries that last for weeks, even if you use your phone all the damn time" then that's great - they sell it on to AwesomeCorp for millions of dollars, and AwesomeCorp then license it to everyone at whatever cost seems reasonable to them. Siemens make their cash, and anyone can sell phones which last for a decent amount of time - it's a winner for everyone.

Now, tell me why neither of these would ever work :->

*i.e. they cover things like "Using a finger to press a button that causes the phone to make a call"

Comments

[nameandnature]

1) isn't quite what the various wireless standards bodies do, but there are similarities, especially with the Bluetooth SIG. My understanding of that is that joining gets you a licence to use the patents without being sued as long as your product passes qualification tests, the idea being that you get to use the patents (and make the Bluetooth ecosystem bigger, so everyone wins) as long as your stuff works with other people's stuff. Of course, I'm not a lawyer, so there are probably fine details I've missed. Joining the SIG is not free, and as far as I know there's mutual retaliation clause.

Of course, a mutual retaliation clause only helps against companies who have some other business than suing people for patent infringement, where that other business might be covered by patents owned by companies in the group. It doesn't really help against patent trolls, and there are a lot of those about.

[kerrypolka.livejournal.com]

Who regulates AwesomeCorp and its ilk and keeps them from become a cartel?

[andrewducker]

Like I said, they _have_ to give equal terms to everyone. So if they want to charge £500/phone to make them run better then that's fine, but I suspect that they'll want to offer the terms that gets them out to more people than that (and maximise their profit over the period they have the patent for).

[andrewducker]

Mutual retaliation doesn't help against pure patent owners (I don't object to companies selling/buying patents). But many patents are invalidated by prior art - frequently by prior patents. So having a massive bank of them will probably help invalidate ridiculous ones.

[danieldwilliam.livejournal.com]

I think the Awesome Corp model stops firms using one or more patents as part of a more general and longer term competitive strategy. A firm might not be interested in the cash prize of the invention but keen to use it to gain some other advantage. Is it your intention to limit firms ability to use patents for indirect competition?

For example, going way back to when I could understand state of the art technology, if I owned a textile mill in the 1750’s and invented a new form of water mill that was more efficient I could license the technology so that anyone who wanted a water mill used my water mill and paid me a little bit of money or I could use it to make sure my textile mill and *only* my textile mill was really cheap and then my ability to undercut my competitiors to force them out of business leaving me as the only owner of textile mills in Europe.

That’s a stark example and I guess you’d say Awesome Corp was a better result for folk generally and I’m trying to think of an example where the use of a patent for indirect advantage was more ambiguous.

All firms are probably trying to create and maintain a situation where they and only they can solve a problem and then leverage this into a monopoly.

The ability of firms to do patentable research is itself a competitive advantage. The fact that Sony used to be recognised by consumers as people who did good innovation and were therefore trusted when they brough out a new product was worth quite a lot to them. How does Awesome Corp deal with allocating the reputational kudos that come from being good at innovation?

[andrewducker]

All firms are probably trying to create and maintain a situation where they and only they can solve a problem and then leverage this into a monopoly.

Yes. I don't want that.

How does Awesome Corp deal with allocating the reputational kudos that come from being good at innovation?
In this case it's Siemens that's doing the innovating - and they can still get their designs out the door first. Let's say I do the research into new batteries - I can file a patent _and_ work on the product that uses it at the same time. So my ForeverPhone(TM) will get out the door before anyone elses does, and I get the kudos (and cash) for that. Even with patents being open it takes companies time to pivot and catch up.

[fanf]

I think both of these already exist. pw201 already mentioned standards licensing consortia. In (2) you basically describe patent trolls.

[andrewducker]

Standards Licensing consortia only cover certain patents and you have to pay to join. Which makes them quite different.

And patent owners don't have to license freely at the moment, nor are companies forced to use them. Which was rather the point of the suggestion.

[danieldwilliam.livejournal.com]

Yes. I don't want that

Coolio – just checking it was a feature not a bug.

I think the risk is that firms don’t patent stuff. They might try and use other forms of legal control such as confidentiality clauses (“by buying this ForeverFone you are agreeing to never ever look inside the case and try and reverse engineer the battery”). Or they might decide to lock the secret in a safe along side the secret blend of herbs and spices and the telephone number for Lord Lucan and bet that they can a) leverage and b) supercede their first invention before the secret leaks out.

This risk exists at the moment. I think Awesome Corp increases it but by how much is difficult to tell without empirical research. I suspect the impact would be very different in different fields. Drugs wouldn’t change – you’d have to place the drug in the public domain in order to get it licensed. Consumer durables probably affected a bit more. Stuff that affects factory process or things that happen on the IP holders site might be more affected. Alstom, for example, who know how to make really, really good gas turbine blades might be able to keep their know how secret. The blades leave the factory but the machines that make them never do.

I think you’re right on the kudos and I guess the value of the patent to Awesome Corp will depend on the reputation of the patenting firm.


I might allow firms to sell their patent to Awesome Corp for a share of the proceeds rather than a cash sum – but that’s a risk allocation thing.

[andrewducker]

I considered the "share of the proceeds" thing - the risk there is that Google patents "The phone that reads your mind" and sells it to AwesomeCorp for $1 and 99.999% of the proceeds. AwesomeCorp then licenses it at $1000 per phone. This only costs Google $1/phone (because of the profit share), but nobody else can afford to implement it.

You could limit profit sharing, of course.

[danieldwilliam.livejournal.com]

Yes I see that.

I think if the price were set at $1000 or $TOOHIGH then Awesome Corp would reduce the price of the license until it was other firms joining in. Google still get their own technology for free and other firms are not frozen out of the market by not having access to necessary technology.

It seems fair to me that if you invent something you get all the cash benefit from it (for a period) but don’t get to use it to otherwise deform the market. If other phone makers were able to use the Mind Reading Phone and that was all they were selling is it wrong that Google get all the cash (rather the shareholders of Awesome Corp)? If rival phone makers can find a way to use the mind reading technology better than Google can then they get to keep some of that value.

There may be a problem here actually. The managers of Google and Awesome Corp could “collude” through non-collusive market action to rig the market for Mind Reading Phones. I’ll need to think about the mechnics of this a little more. The Kinked Supply Curve of the Oligopolist might be about to make a welcome entrance.

The flipside is that using a fixed purchase price Awesome Corp could go bust if it gets the pricing wrong and over pays for something which it could do quite innocently.

Or that a firm would end up having to pay the shareholders of Awesome Corp for technology that that firm invented and to which the shareholders of Awesome Corp made no contribution whatsoever.

SortAwesome ltd, a leading manufacturer of Gizmos, invents and patents GizmoSolve, a devise that solves your internal Gizmo problems. It’s neat but not very valuable because not many people use Gizmo. Awesome Corp pay SortAwesome ltd one million dollars (heh, heh, heh). The license fee is $50 per unit. Next week Hugh Bonkem the famous English actor is seen using a Gizmo in the latest James Bond and Gizmo sales go through the roof and SortAwesome end up selling a million Gizmos. Awesome Corp end up with £49 million from SortAwesome for licensing them back their own technology.

That seems somewhat unfair. Perhaps acceptable as part of a better public outcome.

[fanf]

I agree that mandatory reasonable and non-discriminatory licensing would be a good thing. I don't see what is the benefit of handing patents over to a non-practicing entity, and there's a clear downside that an NPE has a greater drive to make more money by suing more since it doesn't have any income from making useful things.

[fanf]

Until the late 1990s it was the norm for software companies not to patent, and to use copyright and trade secrets instead. Most people seem to agree that that was better than the current situation.

[andrewducker]

The point is to get them out of the hands of a practising entity that has an interest in using them to give itself a monopoly. I agree that an NPE is more likely to enforce its rights rather than making deals or refusing to license, but that will at least get everything out in the open, rather than the current situation.

[andrewducker]

Or that a firm would end up having to pay the shareholders of Awesome Corp for technology that that firm invented and to which the shareholders of Awesome Corp made no contribution whatsoever.

That's exactly the point - it puts in place what happened with BT, where we now have OpenReach, who sell access to BT as an ISP/phone service provider, and also to other companies like TalkTalk, so that BT isn't getting a discount.

The only way to make sure that they don't create a monopoly there is to take it off of them and license it back.

Now, you could just make sure there are great big firewalls up, so that the percentage that's paid back doesn't distort the market - set a maximum level which prevents distortionary practice. I'd be interested in seeing suggestions there :->

[fanf]

Doesn't mandatory licensing do all that, and more simply? They can't obtain a monopoly if they have to offer a licence on reasonable terms.

[danieldwilliam.livejournal.com]

At the risk of sounding like a cop out I think the license pass back would have to be set on a case by case basis depending on the

State of the market and market and industry structure
Rate of change of current technology
Impact on the domination of goods in Product Attribute Space

An invention that was applied to a market with many buyers and sellers and several industries serving it, where the rate of technological change was quick and the impact of the invention was marginal on willingness of customers to buy or not buy could bare a higher pass back before distortion than an invention with an oligopoly, slow technological change and which was transformational.

Forever Battery for iPhone compared to Forever Battery for Airbus.

[andrewducker]

Aha! You might be able to illuminate me - what does "Reasonable Terms" mean? Does it prevent charging a huge wodge of cash? Who gets to decide what's reasonable and what isn't?

(I get nervous about things defined as "reasonable", because I then tend to discover that things like Hollywood Accounting are hiding behind them.)

[danieldwilliam.livejournal.com]

What happens to the profits that Awesome Corp makes?

[andrewducker]

They belong to AwesomeCorp. They're a company, after all. They outbid other people for the rights to something, and then they get to either lose money or make it, depending on how good their projections were.

[fanf]

Good question :-) All I know is that it is often the term used when a patent licence is required to implement a standard, and the patent holder asserts that licences will be available on RAND terms.

[calum]

Since we became part of Toshiba Ive been learning a lot more about how patent pools work in reality, and it was nothing like how I thought it did.

I suspect the issue with Apple is that Apple refused to play the game at some point...

Not sure Ive got the time or mental energy to write about this just now, but ask me about it in person sometime if you like.

[andrewducker]

Amusingly the patent that is triggering the dispute I linked to in the post is one that Samsung is available under FRAND, and Apple says is not...

[andrewducker]

I know that Nokia sued Apple because Apple wouldn't pay up. But the same is apparently true of all of the Android makers and Apple - Apple tried to get Samsung shut down, and Samsung launched patent claims in retaliation.

[danieldwilliam.livejournal.com]

Right - I think the things I've missed here is that Awesome Corp are not the only players in the licensing business and would have competitors such as Tosspot LLP and Nae Sa Bad, Yersel? plc.