More on Microsoft's IP licensing strategy

As we commented here last week, Microsoft has been making a series of important announcements recently concerning the licensing of its patent portfolio and asserted its ambitions on the smartphone market. But since all the eyes are presently turned toward Steve Jobs' soon to come biography and its now famous "I'm willing to go thermonuclear war on this" quote, Microsoft recent actions and statements went a little unnoticed. But Microsoft has its anti-android strategy all planned out and technology website dailytech revealed it all yesterday in a very detailed article entitled "Of Lawsuits and Licensing: The Full Microsoft v. Android Story". Contending that "Microsoft is essentially a failure in today's market from a pure unit sales perspective", Jason Mick explains that "Microsoft has turned from primarily being a producer of smartphones to primarily being an R&D-based litigator on the smartphone market", since it makes more money through licensing agreements than from selling devices running his own Windows Phone OS.

This article gives us the list of all the companies that Microsoft is licensing to and suing and highlights the interesting fact the company led by CEO Steve Ballmer is "double dipping" - that is "seeking licensing fees both from the "original equipment manufacturer" (OEM) who mostly designs the device (e.g. Samsung) and from the "original device manufacturer" (ODM) who primarily handles manufacturing the device (e.g. Foxconn)" - with a certain success since 55 percent of the Android ODMs and 53 percent of Android OEMs entered into licensing agreements. The following paragraph, which a quick outline of the 9 main patents that Android is said to infringe, is also definitely worth a read.

Finally Jason Mick argues that the validity of Microsoft patents will be much harder to call into question, since they appear to reach a high threshold of novelty and non-obviousness (contrary to Apple) and finishes with an interesting comment "(...)one crucial thing to remember is that these patents will expire. Many are expiring within two years, and almost all will be expired within a decade. As a result, within a decade Microsoft's license agreements with Android OEMs and ODMs will almost certainly be drastically restructured. (...) Microsoft can revel in its licensing successes for now, but if it doesn't continue to push ahead in the mobile realm, its gains will be short-lived." It seems that Microsoft understood that fact very well, since the company received more than 3000 patents in 2010...

Private and Social Costs of Patent Trolls

Patent Troll T-shirts are
available here

Thanks go to Chris Torrero for spotting, via beSpacific, "The Private and Social Costs of Patent Trolls", a research paper by James E. Bessen, Michael J. Meurer and Jennifer Laurissa Ford (September 19, 2011). Boston University School of Law, Law and Economics Research Paper No. 11-45.  According to the abstract:

"In the past, non-practicing entities (NPEs) - firms that license patents without producing goods - have facilitated technology markets and increased rents for small inventors. Is this also true for today’s NPEs? Or are they “patent trolls” who opportunistically litigate over software patents with unpredictable boundaries? Using stock market event studies around patent lawsuit filings, we find that NPE lawsuits are associated with half a trillion dollars of lost wealth to defendants from 1990 through 2010, mostly from technology companies. Moreover, very little of this loss represents a transfer to small inventors. Instead, it implies reduced innovation incentives".

This 33-page paper can be accessed via SSRN here.

The paper appears well-researched and is quite persuasive -- but this blogger is not economically gifted and he wonders how it appears to other economists.  Also, he wonders why all the debate, and apparently all the numbers-based research, seems to be related to the United States. How does the troll model which is used here fare when measured against, for example, European patent litigation patterns? Can anyone help? This blog is happy to host reviews and comments on this paper.

A new IP dawn for Microsoft?

Whereas being most definitely one of USA's patent champions with 3,094 patents awarded in 2010 (in 3rd position behind IBM and Samsung), Microsoft is not making the IP headlines as much as its US counterparts such as Google - in the midst of acquiring Motorola Mobility which is now being sued by Intellectual Ventures, or Apple - embarked in an all-out and global patent war against all its competitors on the smarphone market with Samsung as primary target. However two interesting item of news are revealing that this situation might be about to change.

On September 29th Microsoft announced in a press statement a landmark agreement with Samsung 'to cross-license the patent portfolios of both companies, providing broad coverage for each company’s products'. Given the current difficulties encountered by South-Korea's top smartphone seller to launch its products quickly (if at all) on various markets all around the world notably in Germany, the Netherlands and in Australia, such an agreement will certainly provide Samsung with the necessary patent ammunition against its newfound archenemy Apple, while bringing a large amount of money in the bank accounts of the Redmond-based corporation. Well-informed Joff Wild of IAM Magazine speaks of a royalty-based deal ranging from 10$ to 15$ per android device sold. Moreover the announcement also reports the cooperation of Samsung in the development and marketing of Windows Phone, whose latest OS version called Mango received very encouraging critics.

More interesting is another piece of news published on IAM Magazine's blog which reveals that Microsoft hired Florian Mueller to conduct a research on standard-essential/FRAND-related patents. The unorthodox choice of well-known anti-software patents activist Florian Mueller to perform such a research certainly demonstrates Microsoft's keen awareness that negotiating in fair and reasonable terms with all its competitors will help the company exploiting its heavy patent porfolio at its full potential, instead of using it primarily as defensive leverage.

Microsoft active patent licensing strategy could be another sign showing that 'IP really starts taking centre stage in corporate thinking' as many IP licensing specialists start believing after the groundbreaking Nortel patent auction...

Brüstle: counting the cost of an ethical ruling

The ruling of the Court of Justice yesterday in Case C-34/10 Brüstle v Greenpeace (reported here; see IPKat comment here) has already attracted a good deal of media attention on account of its ethical content. However, readers of IP Finance will doubtless be thinking about the other side of the coin (almost literally): the impact of the ruling on R&D investment.

In this context Dr Philip Webber (a biotech patent attorney with Dehns) has observed as follows:

"The irony of the situation is that the original intention of the Biotech Directive was to protect biotech inventions and to promote investment in this area in Europe, whereas the application of the Biotech Directive by the Court of Justice in this case could well lead to the destruction of a significant part of the European stem cell industry. 

The Court has gone much further than the European Patent Office (EPO) in applying the "uses of human embryos" exclusion. While the EPO shut their eyes to the history of the invention, the Court has said that you cannot ignore the invention's history and that, if the invention is built on immoral foundations, then the whole patent will fall.

The big question that is left unanswered is this: what distance must there be between an immoral act and the possibility of patenting a downstream product or process? The decision refers to a "stage long before the implementation of the invention". So are any inventions ever going to be patentable if - at some point in their (potentially long) past - they required the destruction of a human embryo?"

It's certainly true that the absence of patent protection will be a disincentive to commit funding to research and to what in many cases what will be the perfectly lawful commercialisation of its results. And what we have is only a partial absence: some jurisdictions tolerate stem cell patents while others don't.  We may see the transatlantic flight of a good deal of R&D funding in the near future.

Life's good for BMW and Audi in Korea?

As recently reported e.g. in the Guardian, Korean electronics company LG has sued German car companies BMW and Audi for importation into Korea of cars incorporating LED lights that allegedly infringe LG's patents.

The LED lights in question are made by Osram, which itself is reported to have sued LG and Samsung in the Korean courts for infringement of patents relating to the technology used to make white LEDs.

It would be interesting to know the commercial logic behind LG’s move: although BMW is the most popular imported car brand in Korea, the Guardian article notes that imported cars account for less than 10 percent of the Korean market. Moreover, the 16,579 BMW cars reported as being sold in Korea in the first eight months of this year are a small fraction of the 1,021,927 sales reported on the BMW website for a similar period.

Balancing this is the significantly lower cost to LG of litigating on their home turf. The Korean litigation would also appear to have generated publicity that has reached far beyond Korea’s borders. Is this publicity a signal of LG's willingness to litigate in more significant markets if a settlement is not reached?

FRAND licensing for standards-essential IP: a seminar

If anyone has a good idea for
a better illustration of FRAND
licences, just tell us!

The IP Finance weblog has organised a seminar, “Facts and figures on FRAND licensing for standards-essential IP”, which will be held on Tuesday 22 November 2011, 5.00pm to 6.30pm, in the agreeably comfortably setting of Olswang LLP's London office at 90 High Holborn.

The speaker is Keith Mallinson (WiseHarbor), who is a regular guest contributor to this weblog on FRAND-related issues. His presentation will be thrown open to comments from a panel of commentators (whose identities will soon be confirmed) -- but there will still be plenty of time for (i) questions and comments from the floor and (ii) refreshments. If you want to know a bit more about Keith, you can follow him on Twitter @WiseHarbor.

If you'd like to attend, please email Jeremy here and let him know.

Glasgow conference coming up

Andrea Tosato (Lecturer in Law, Bournemouth University) has written to inform IP Finance of a conference which is being held on the subject ISO 10668 (Brand Value) – Innovation in Practice. A strong panel of speakers, comprising both practitioners and academics, will be on display, Topics covered include brand valuation (ISO 10668), security interests over IP rights, leveraging IP rights and trade secrets valuation.

The event is being held on 24 October 2011 at the University of Glasgow. Full details are available here.

Andrea is far too modest to confess that he is one of the speakers and that he will be tackling security interests over IP rights under UK and international law.  IP Finance is not too shy to ask anyone who is attending to let this weblog have reports on the various sessions and, if possible, copies of any papers circulated.

Big laws, small businesses: what will be the AIA's impact

Child's play: patents have never
been easy for small businesses to
deal with -- but are things changing?

While there are commentaries a-plenty on the detailed legal ramifications of the recent United States overhaul of its patent system , not so much has been written about the impact of this legislative shift on the business community. For this reason, IP Finance is pleased to host this short note by Deborah Sweeney, CEO of MyCorporation.com:

"The Leahy-Smith “America Invents” Act: How will it affect Small Businesses and Startups?

The United States was one of the last countries in the world to have a first-to-invent system for issuing patents. If two inventors were competing for patent rights, they would have to prove they conceived of the idea and turned it into a product in a reasonable time frame before the other party. This meant that it could take years and a significant investment of time and money before an inventor secured the rights to their product, making the United States fairly unattractive when it came to filing patents. 

In an attempt to make the United States more attractive to entrepreneurs and inventors, the America Invents Act was passed and the country moved to a “first-to-file” system. This empowers inventors, and the businesses that invest in them, to a level never before seen in the country. However, there is still quite a bit of confusion as to how this is going to impact small businesses, start-ups, and inventors. In the hopes of clearing some of the confusion, here are what I believe are the biggest impacts the passage of this act will end up having on smaller companies and the creators of the products they are built around. 

Legal Issues are less of a Deterrent for Investment 

Investing in something new is always a gamble, but hopefully the America Invents Act will reduce that gamble by curtailing the amount of litigation typically involved with pursuing a patent. This is great for smaller business that simply don’t have the capital to keep a team of lawyers on call, and also means that bigger corporations, which are often seen as some of the worst offenders in frivolous patent lawsuits, will find it very difficult to move into the court system. 

This Act, in an attempt to get America on par with the rest of the world, also ensures that an equivalent patent filed first anywhere in the world will qualify as grounds for patent refusal. Small businesses everywhere no longer have to worry that a foreign company is going to come after them for patent infringement as it is now the patent office’s job to check any for any conflicts, domestic or international. 

Smaller Companies have a Cheaper Fast-Track Option 

A small business is almost always able to move faster than a major corporation, so the first-to-file system greatly benefits an entity that doesn’t have to involve multiple departments and corporate bureaucracies before pursuing a patent. This legislation has established an expedited option to help get applications reviewed quicker (typically within twelve months), but this course does mean the applicant has to pay an extra fee. However, if your business qualifies as a small entity or if you are an independent inventor, you get fifty percent off that fee. If your business qualifies as a micro-entity, you can get up to seventy-five percent off. This creates a substantial incentive for small businesses and entrepreneurs to invent, invest and operate in America, when combined with the fifty-percent off of filing fees that small entities receive by only having to pay $200 per application 

Everyone who uses the patent office can also rest assured that the lengthy process will be shortened thanks to an increase in funding that will allow the USPTO to hire additional examiners and other direly needed personnel. 

Non-Inventors are Allowed to File without the Inventor 

This portion of the legislation is a little controversial as it creates a path for an investor to cut out the inventor if they do not uphold their legal obligations to their investors. Some feel that, as the inventor is the one who thought up the product, they shouldn’t be so easily removed. However, not having this option open does create a little bit of apprehension in investors. If an inventor chooses to terminate their relationship illegally with whatever entity is backing them, that entity would end up having to navigate the court system being able to make a single cent. 

This is a major concern for investors as they are going to be involved in this process for at least a year, so creating this rule means more sources of capital will be open to the sole inventor since the investor is guaranteed some right to the finished product. 

The belief behind the crafters of this law is that it will increase American competiveness, small business and total number of patents. It is supposed to help small businesses, investors and inventors to create a profitable product, which it hopefully will by giving them incentives and a bit more competitive advantage against major corporate entities. It will take years to judge if this legislation is successful or not, but it is a step in the right direction to maintaining America’s competitive edge".

Readers' thoughts on what countries outside the US can learn from this exercise are appreciated. One point of interest is that, in the sphere of invention-to-investment-to-market, there are two quite separate ways of measuring and encouraging (or discouraging) competition: one is in the battle between small US entities and the mega-corporations which so famously stalk the North American continent, while the other is the competition between US industry large and small and its rivals in lively and innovative markets outside the United States. Has Congress struck the right balance in each of these spheres of commercial competition? Thoughts, please ...

Litigation risk, tax rates and gains from patent enforcement: a new paper

"Trading and Enforcing Patent Rights" is the title of a paper by an Anglo-Canadian trilogy of professors: the Alberto Galasso (Toronto), Mark Schankerman (London School of Economics) and Carlos J. Serrano (Toronto). Issued in August of this year, it's the National Bureau of Economic Research's NBER Working Paper No. 17367 and you can purchase it online in pdf format from SSRN.com for electronic delivery at the very reasonable price of US$5.

So what is this paper all about?  According to the abstract:

"We study how the market for innovation affects enforcement of patent rights. Conventional wisdom associates the gains from trade with comparative advantage in manufacturing or marketing. We show that these gains imply that patent transactions should increase litigation risk [on a lawyer's non-economic view, one might hazard a guess that any transaction that places a patent in the hands of an assignee who wants it more than assignor did is likely to to increase litigation risk, while patent pooling transactions leading to and including FRAND licensing schemes should have the opposite effect]. We identify a new source of gains from trade, comparative advantage in patent enforcement, and show that transactions driven by this motive should reduce litigation. Using data on trade and litigation of individually-owned patents in the U.S., we exploit variation in capital gains tax rates as an instrument to identify the causal effect of trade on litigation [Any chance of replicating this work using EU data? That would be good]. We find that taxes strongly effect patent transactions, and that reallocation of patent rights reduces litigation risk, on average. The impact of trade on litigation is heterogeneous, however. Patents with larger potential gains from trade are more likely to change ownership, suggesting that the market for innovation is efficient. We also show that the impact of trade on litigation depends on characteristics of the transactions".