Even if a bright new company did come up with some wonderful innovation - say 3D holographic projections you can move around and play with in the manner of Tony Stark in the Iron Man movies - they'd still have to build the basic tech with the patents from the existing companies. And unlike standards-based patents, like those in 3G or LTE which are licensed on a fair, reasonable and non-discriminatory (FRAND) basis, these guys don't have to give their toys to anyone they don't want to.
It certainly can be difficult to judge the worth of any given smartphone patent.
This one covers tech intended to bring a dropped phone in to a soft
landing after its accelerometer notes that it is falling fast.
"To enter the smartphone market takes a huge amount of capital anyway so I don't think you're likely to see any significant new players you've never heard of entering that segment," Sutton says.
That situation raises the spectre of anti-competition law coming into play. Assuming one of the big three could win all the cases and drive the other two out, would the EU Commission or the US Trade Commission allow it?
According to Sutton, the prospect is too unlikely to really worry about.
"I'm sure they'd love to drive each other out, but I don't think it's realistic," he says.
"I think [competition is something] that regulators would look closely at, but I can't see any of the three big players, Microsoft, Google or Apple, dropping out of the space anytime soon, so you'll still have hearty competition because those three players have got plenty of cash, they've got significant interest in each of their OSes and the markets they're playing are very attractive and very large."
There is still a way that patent prices could be pushed up artificially, however, and that's the so-called patent trolls. These are companies that are acquiring IP purely to bring litigation against people they see as infringing on that IP.
There's some question of where the line is between specialists who trade IP assets and seek licensing fees and these trolls, but leaving that aside, aggressive trading of any asset, particularly a complex one, generally turns out badly.
Problems in various housing markets worldwide, that whole credit-default-swap (CDS) business that caused the global financial crunch and even the Great Crash of 1929 can all in some measure be traced back to people who don't really know what they're doing entering a market they don't know much about to make a quick buck.
"Some people might be jumping on the bandwagon without a good understanding of what they're buying," says Sutton. "A good amount of diligence needs to go into a examining a portfolio to fully understand what the opportunities are for it and how strong those patents are and obviously that takes a lot of specialist expertise."
IP investor Holden also said his firm "has concerns about the growth of the industry", with "indiscriminate new money" coming into the IP market.
"The biggest issue is quality, we're overwhelmed with opportunistic offerings in the market that we do need to review, which is draining our resources," he said.
This one's probably worth a bit.
Because that's the tough thing about patents, it's quite hard to figure out what they might be worth. Anyone who's ever read a patent description can tell you that it's a virtually impenetrable load of splaff to all but the people intimately involved in the technology of that sector - that's why many of the courts have to get experts in to help them through these cases.
Examining patents takes a lot of expertise and market analysis to figure out if they're actually worth anything or not, anyone but the experts are bound to be hoodwinked.
"There are two ways people tend to value most things, a market approach or an income approach," Sutton explains. "And I think with patents because they're so specific it's very difficult to read across the market for value.
"Like 'This portfolio sold for $4.5 million so per patent that translates to $60,000, therefore that's how much someone might pay for RIM's patents' - I don't think a market approach works in this context."
"You need some sort of discounted cash-flow method. So look at the potential income streams in licence and royalty fees or the licence fees and royalties you avoid paying if you have those patents, more of a look at what the future cash flows are," he adds.
For Holden, "it's a very opaque, ambiguous process, heavily based on negotiation rather than a scientific process."
Sutton also says, in something of an understatement; "It's probably not an area for the less-savvy investors to jump into without specialist advice".
The very complexity of the assets should help to keep many investors away, especially in the current economic climate, but rising returns in what's shaping up to be a pretty stable sector could prove too attractive to some.
So it's next to impossible to tell if IP's onward march is indicative of a price bubble or a growing trend. In fact, it's the sort of thing economists constantly struggle with, even with the ingredients all laid out, a sector could as easily end up with a perfectly formed mousse as a deflated soufflé.
But all the patent players seem pretty sure of one thing - it's a huge issue for technology. And it's probably the issue for the smartphone sector, likely to shape market share, prices and innovation in what's fast becoming a multi-billion dollar industry. ®
Are we in the middle of a PATENT BUBBLE?
COMMENTS
Thomas who?
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.
Or maybe...
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.
