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Google and Microsoft Fight in Court, Friends in Congress

July 15, 2013

Google and Microsoft Are Enemies in Court, Frenemies in Congress

Microsoft wants to curb the use of patents that relate to widely used technological standards, a key issue in its fight with Google over inventions used in its Xbox video-gaming system and Windows operating system. Photographer: David Paul Morris/Bloomberg

Even as they battle in courts over smartphone and video technology, Microsoft Corp. (MSFT:US) and Google Inc. (GOOG:US) have discovered a common foe: patent owners who try to sue their customers or go after an entire industry.

Both companies are seeking to curb the litigation practices of firms that buy patents with the sole purpose of demanding royalties from as many end-users as they can, even if it means suing a pizza parlor or non-profit. Anger has united a cross section of retailers, finance companies, public-transit operators and hotels, and even caught the attention of President Barack Obama, who last month announced corrective measures.

Focusing on that core issue could create pressure in Congress for legislation and action by U.S. courts -- as long as companies avoid the squabbling that marred the previous effort to change patent law. That took almost a decade and pitted industries, and even technology companies, against each other.

“Going after bad litigation behavior is an approach we can all agree on,” said Tim Molino, director of government relations for Washington-based BSA - The Software Alliance, whose members include Microsoft and Oracle Corp.

Google spokesman Matt Kallman referred questions about patent legislation to the Coalition for Patent Fairness, a Washington-based lobbying group backed by Google, Cisco Systems Inc. and Intel Corp. Each month, the group has a meeting with an increasing number of organizations to discuss ways to get legislative change.

‘Patent Trolls’

“It’s tech and retail and restaurants and hospitals and cable companies -- you name it,” said Matt Tanielian, executive director of the coalition. “There are patrol trolls -- the patent assertion entities -- that have gone way too far and that’s what the focus is. This is no longer just about patent law. It’s about the economy and consumer protection.”

The increased political attention is due to patent owners who started going after product end-users, demanding cheap settlements from a large number of companies. A White House-commissioned report estimated that more than 100,000 companies were threatened last year, including members of politically connected Washington trade groups like the National Retail Federation and Financial Services Roundtable.

Members of Congress have proposed legislation to limit some patent owners from seeking product import bans at the U.S. International Trade Commission, expand reviews of business method patents and force certain patent owners who lose at trial to pay legal fees of those they accused of infringement.

Court Actions

The courts have also been trying to curb abuses. The ITC, a quasi-judicial agency in Washington, set up a program to resolve certain patent cases more quickly. The chief judge of the federal appeals court that specializes in patent law co-wrote a New York Times opinion piece advocating sanctions for litigation abuses.

Getting a consensus could mean avoiding more controversial issues such as curbing software patents, and ensuring that any changes don’t have unintended consequences that hurt universities needing legal protection for their research and patent-reliant businesses.

“You do not want to try to fix things that are broken and in the process break something that’s important to American competitiveness,” said Horacio Gutierrez, deputy general counsel of Redmond, Washington-based Microsoft.

There are major issues among technology companies that could create fissures. Mountain View, California-based Google wants to cut back on software patents that it says are being unfairly used in cases, for instance, that target mobile phones running on its Android operating system. Microsoft and Oracle, which both have infringement claims against Google, have pledged to fight any efforts to limit software patents.

Xboxes, IPhones

Microsoft wants to curb the use of patents that relate to widely used technological standards, a key issue in its fight with Google over inventions used in its Xbox video-gaming system and Windows operating system. Apple Inc. (AAPL:US), another Google foe, is fighting to prevent an import ban on some of its older iPhone 4s found to infringe a Samsung Electronics Co. patent on an industry standard.

Gutierrez, like others interviewed for this story, is a veteran of the debates that occurred before Congress in 2011 passed the most sweeping overhaul of the U.S. patent system in at least a half-century.

That measure started as a wish list drawn up by those who wanted help fighting off the myriad patent suits from companies that bought patents from bankrupt dot-coms or people who tinkered on their own with computers.

Legislative Hang-Over

Some of the proposals went too far for companies such as Scotch tape manufacturer 3M Co., consumer-products maker Procter & Gamble Co., drugmaker Pfizer Inc. and conglomerate General Electric Co., which said a weakening of patent rights could hurt their businesses and the economy.

Those companies have been silent in the latest push for new patent legislation, as have smaller firms that rely on intellectual property protection to start new businesses, said former PTO Director David Kappos.

The new effort should hone in on practices that are seen as abusive, rather than stigmatizing every patent owner who doesn’t make a product, he said.

“There’s almost a little bit of a mob atmosphere -- we’ve got to do more, we’ve got to do something dramatic,” said Kappos, now with Cravath Swain & Moore in New York. “We don’t hear the voices we need who will say, ‘I’ve got an important business that’s built on the strengths of the IP system and I don’t want it to be so skewed so much it disrupts my legitimate business model.’”

Less Contentious

In 2011, Congress focused on the less-contentious issues like changes to how patents are reviewed because of key rulings from courts that addressed many of the litigation controversies brought up a decade ago.

Court rulings helped by altering the calculation of damages for small parts in complex products, making it easier to prove a patent is a variation of earlier know-how and making it harder for patent owners who don’t make products to get court orders preventing others from using an invention.

“The courts have played a very helpful role over the years and they will continue to do that, and they can work more quickly than Congress,” Gutierrez said.

In the end, it will probably be a combination of the courts and Congress that curb patent abuses, particularly if industries can find common ground.

“There is a growing sentiment among people who deal with this business that there are tactics and strategies that are inappropriate and hurt the entire system,” Molino said.

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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