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International Business Machines Corp
The tech world is in the midst of a high-stakes patent war. In one ring, we have Larry Ellison of (Oracle (ORCL)) and Larry Page of (Google (GOOG)) battling over Android phone patents in court. In another, we find Facebook, proud owner of 650 AOL patents it bought from Microsoft (MSFT) for $550 million.
If it wasn’t clear before, it is now: A patent arms race is on. It is likely to hurt—not help—real innovation.
The whole idea behind patent law—as originally conceived in 17th century Britain under the “statute of monopolies“—was to foster innovation by requiring the inventor of a novel idea to disclose its details for the world to see. In return, the inventor was granted exclusive rights to the invention for 20 years.
In the days of Thomas Edison and the phonograph, this approach made a lot of sense. It still does in a few industries such as pharmaceuticals, in which important and novel discoveries are made possible by years of laboratory work.
But in most industries today, patents have simply become a tax on innovation, a necessary evil for defensive purposes, helping no one but patent attorneys. Ideas that are granted patents today are often not all that novel. They may be insignificant components of a product, as with most software patents, which are simply program coding. There are patents for aligning text, sorting records, even adding footnotes to pages. Yet the U.S. Patent Office continues to grant more and more patents. In 2011, 247,000 U.S. patents were issued, up 133 percent annually from just 20 years ago.
In the tech sector, it is quite possible that nearly every major company is now violating someone’s patent. The only ones keeping score are patent trolls or sore losers. Last month, Yahoo! (YHOO) (sore loser) filed a patent infringement lawsuit against Facebook. Facebook retaliated by buying 750 patents from IBM (IBM) and countersued Yahoo for infringing them.
Struggling companies often turn to patent trolls to try to raise money. The trolls are typically lawyers who buy up patents and try to find infringers. Last month, AOL (AOL), a company on its last legs, decided to sell 800 patents in an attempt to raise cash. The patents could have gone to trolls, but Microsoft stepped in to buy them for $1.056 billion.
Twitter—perhaps intimidated by all this—recently became the patent-arms-race equivalent of Switzerland. The company announced the “Innovator’s Patent Agreement,” a contract with employees specifying that any Twitter patents would be used for “defensive purposes only” and never for “offensive litigation.”
Google has a full-time patent acquisition manager and in the past two years has acquired hundreds of patents from IBM, Motorola Mobility (MMI), and others. Apparently it hasn’t acquired anything capable of blunting the attack from Oracle, which is seeking $6 billion for alleged infringement of some programming code by Google’s Android phones.
Who will be the ultimate “Patent Wars” victor? It should be obvious: the lawyers.