Are we in the middle of a PATENT BUBBLE?
Fallout from the IP wars could mutate your smartphone
Analysis For some time, the only reason the word 'patent' meant anything to the average Joe was if they happened to know that Albert Einstein was a patent clerk before he became a rock star physicist.
Nowadays, everyone is well up on the Great Patent Wars of technology firms, in particular the face-off between Apple and Android OS partners like Samsung and HTC in the smartphone sector.
A little-known asset of firms is suddenly being seen as just that - an asset - something that can be traded and sold, and something that has whatever value the market will ascribe to it. And that could be a dangerous thing for tech companies and users alike.
Analysts are beginning to get concerned about a patent price bubble forming, where the amount of money a company, or indeed an individual investor, will pay for an intellectual property (IP) portfolio rockets out of all proportion to what it's worth.
Just like a price bubble in any other asset, the current market for patents has all the ingredients necessary to push prices up in an uncontrolled manner - high demand, the growth of a secondary market consisting of traders rather than users of patents, and scarcity of good quality IP. The economics here are simple, there's not much of the stuff, but lots of people want some, so the price goes up.
Patent application for a military man-cannon
intended to shoot troops onto rooftops.
This one might not be worth a whole lot.
Add into that the potential revenues from patents - whether you just get other companies to pay you for using them or you use them yourself to enter a lucrative technology sector - and you've got a volatile mix that could cripple innovation, drive up tech prices for end-users and leave some investors out of pocket.
But not everyone's sure the bubble really is on its way. Adam Sutton, director of valuation practices at Price Waterhouse Cooper says prices do seem high, but the value of a patent is tough to measure.
"I think it's very difficult to say a bubble's formed, you can say people are paying high prices but it's very challenging to actually measure what is the strategic and defensive value of a patent," he told The Register.
However, the traders on the ground are starting to worry. Peter Holden, head of IP investment group Coller Capital said in a recent webinar on the prospect of a patent price bubble; "From our perspective, we definitely do see a bubble, specifically in the wireless sector."
"We're [also] finding in certain technology sectors - med tech, commerce, LED, batteries and social networking - there's a perennial need and high demand for patents," he added.
The wireless sector is certainly the most high profile arena for patent sales at the moment, something kicked off by the sale of Nortel's patent portfolio for $4.5bn at the start of the summer to a consortium that included Apple, Microsoft, Sony and RIM.
As the mobile phone industry has moved into smartphones, many companies have been left behind and like Nortel, they have patents they can sell or licence to get cash flowing back into their businesses.
Holden speculated that RIM and Nokia might also consider sell-offs of patents in future and there have also been recent rumours that RIM as a whole could go on sale.
The IP held by either of these companies would look hugely attractive to any firm, but particularly of course to the big players in smartphones, Apple, Android (as a shorthand for Google and its manufacturing partners) and to a lesser extent Microsoft.
PWC's Sutton thinks the high prices paid for a portfolio like Nortel's, or potentially a RIM or Nokia portfolio, are worth it, because this race is about market share in a hugely lucrative industry.
"People are rationally paying higher prices to make sure that they maintain or enhance or their market share," he says.
"If you think that current smartphone shipments are around 300 million, somewhere on that level, and forecast by 2015 to be closer to a billion, that's massive growth and if you take the average price of a smartphone that's a very big market."
You know, the guy who stole all of Tesla's ideas and patented them?
patents worked well until the rules were broken
Prior to the US and EU patent offices discarding the rules of the patent game, the system was quite stable. They did so on their own, with the help of the "patent community" i.e. patent attorneys who profit from there being more patents. It was done without any legitimacy at all but for some obscure reason, US courts sided with the USPTO and the EU patent office started to ape them. Could it be that courts and patent offices are run by legal experts, the same that profit from there being more patents ?
To sum up the situation before, a patent had to describe a physical invention, i.e. the embodiment of an idea into a physical machine. And the invention had to be non-obvious for the man of the art. The "physical" part was not there to exclude software, but to exclude theories, mathematical formulas or other pure ideas.
So for example, you could not patent centrifugal succion by itself (when you rotate a cylinder, the centrifugal force creates a gradient of pressure inside, with low pressure - succion - in the middle). You could however patent a centrifugal pump, or a centrifugal succion cleaning machine.
The system stood on good legs: ideas were assimilated to science where publication is the norm. Patent protection was deemed necessary only when a specific implementation of an idea was considered because it required setting a manufacturing operation into motion which requires time. The protection provided the time.
Benefit for investors: possibility to implement and productize.
Benefit for society: inventions are described publically and become public after a period of exclusivity
The USPTO first abolished the first rule by allowing patents on pure ideas which created a flood of over broad patents since no specific implementation was required. The "one-click" patent was born and patent trolls followed. Under the volume, it was forced to abolish the second principle too because it did not have the resources to asses non-obviousness anymore.
Again, the goal was plain and simple: more patents of lesser quality results in more patent litigation and counseling hence more money for the "patent community", which is why the "patent community" did it.
Such is the sad story of the biggest "robbery of the 20th century".
It also shows us the way back to normal: reinstate the old rules.
Impose severe fines for willfully omitting prior art. I'm amazed at the number of times a patent article comes up and people in a matter of google minutes are able to find prior art that completely implements (and therefore invalidates as non-original) the patent
Not so much a bubble as a mine-field.
The problem with a lot of the patents is that they are not innovative and what they cover is obvious to experts in the domain of the patent. The people evaluating the initial validity of the patents are not experts in the domains of those patents
The patent system is an unmitigated disaster
I thought this report would be about the costs of the patent system itself, rather than the cost of patents. It is currently just a mechanism by which tech companies can whack each other on the head, and 'non-practising entities' can whack all tech companies on the head.
It would be better if the patent system was destroyed, root and branch, than if it continued in it's present form.