Quick Thoughts: The Problem with Software Patents

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– Apple had every advantage in its case against Samsung, but the value of the verdict will likely erode over time as the appeals process plays out.

– The patent system is based on rules set in 1952 and is not well adapted to the realities of today’s fast moving technology market. Support is building for judicial and legislative action to fix it.

– Changes could invalidate many current software patents, make the standards for new patents higher and more specific, and remove perverse incentives to litigate.

– Apple should take advantage of its current leverage and begin negotiating cross licenses with Android OEMs in good faith.

Apple’s billion dollar patent victory over Samsung was in many ways, a perfect storm.  The trial was conducted 6 exits down the I280 freeway from Apple’s Cupertino headquarters, with the jury pool well acquainted with the polished image of the hometown hero.  The jury included three engineers, including the foreman, who had spent seven years working with lawyers to obtain his own patent and used that experience to sway the rest of the jurors, at least according to one of the other jurors speaking post-trial.  Samsung’s lawyers were unable to get some of its evidence that Apple’s patents were preceded in the market by similar technologies, and thus invalid, admitted to the trial.  The jury, again according to post trial interviews, spent little time deliberating on whether or not Apple’s patents were actually valid, despite the issue being central to the case.  Indeed, the deliberations, which required unanimous decisions on 700 separate questions concerning 14 products, 3 software patents, 4 design patents, and product “trade dress”, were completed in a shockingly short 2 ½ days.  Once again according to post trial interviews, the jury set damages based on the entire profit that it estimated Samsung had earned on infringing products to “send a message”, despite the judge’s explicit instructions to base damages only on the profits that specifically derive from the features that infringe, and that the intent was to determine fair compensation rather than punishment.  Good job Samsung legal team … NOT.

On December 6, Judge Koh will hear Samsung’s arguments that the jury verdict ought to be overruled and Apple’s arguments for an increase in damages and a permanent injunction.  The range of potential outcomes is broad, from an invalidation of some of Apple’s patent claims and a sharp downward adjustment in the calculation of damages, to a tripling of the damages for willfulness and an injunction that covers not just the products identified in the trial, but any Samsung product that can be proved to also infringe Apple’s specific patent claims, including the flagship Galaxy S III, and Note.  At the same time, these two blockbuster phones have been added to another complaint filed in February against a different set of patents that is scheduled for a March 2013 jury trial in the same San Jose district that rendered the recent slap down.  Meanwhile, the US Patent Office is re-examining two of Apple’s software patents, and could invalidate them on the basis of prior art, while the adjusted verdict from the post-trial hearing will begin a multi-year appeals process that could easily end in front of the Supreme Court.

The idea that a patent infringement suit might be Supreme Court worthy speaks to the larger issues at play.  The United States has been issuing patents since 1836, with the basic structure of the current understanding of patents set in place by the Patent Act of 1952, which established that patents be issued for innovations that were useful, new, and non-obvious.  Since 1952, US law and the practices of the Patent Office have adapted to address emerging technologies, and in the process, questions have been raised as to whether patent protection for software and design concepts was appropriate.  Influential legal scholar and Circuit Court of Appeals Judge Richard Posner requested assignment to the lower court hearing of Apple’s infringement lawsuit against Motorola, clearly believing that these questions deserved hearing.  Judge Posner dismissed the case before trial ruling that neither party had shown reasonable evidence that the alleged infringement of the patents in question had created any harm whatsoever.  In this, Judge Posner made a distinction between Apple’s moral outrage that the overall concept of their iPhone had inspired Motorola’s competitive products, and the legal rights provided by their patents.  With the burden of proof, Apple couldn’t show that use of the patents in question had specifically resulted in the loss of any sales or that the fair licensing value of the patents in question had been established, at least not to Judge Posner’s satisfaction.

At question, then, is whether or not the billion dollar award in the Apple-Samsung case is reasonable in the context of the tens of thousands of patents at play in a product as complicated as a Smartphone, and if not, what legal principle should be used to establish the value of harm?  Beyond this, the standards for granting patents are ambiguous, particularly the provisions that they be “new” and “non-obvious”.  Few patents granted are entirely new – almost all innovation stands on the shoulders of predecessors.  To what extent must new innovation stand distinct from prior art to be worthy of patent protection?  Observers in favor of further patent reform argue that most software and design patents granted do not pass the threshold, including the Apple patents asserted against Samsung, partially the result of a chronically understaffed Patent Office and a perfunctory examination process.  Non-obvious is another vague concept, particularly to patent examiners and jurors who are not expert software developers.  Of course, even design laymen might scratch their heads at the Apple patent for a rectangular device with rounded corners.  Moreover, Professor Mark Lemley of Stanford Law School argues that many software patents lay claim to the end goal of the software rather than the exact means of achieving the goal, and these claims are not permitted by the Patent Act of 1952.  The Supreme Court, should it choose to take up an appeal from Samsung, would certainly look to set precedent for more specific guidelines around these issues, possibly invalidating swaths of previously issued patents in the process and constraining the determination of damages for infringing the ones that remain.

Obviously, the software patent debate goes far beyond the Apple-Samsung case, or even Apple’s litigation heavy strategy in general.  Critics note that the proliferation of software patents and their ambiguity makes it nearly impossible to identify potential infringement in advance, allowing so-called “patent trolls” to lie in the weeds and wait to sue unsuspecting targets should their products achieve success.  It also allows big companies to use expensive litigation to squelch innovation from smaller companies without the resources to prevail in a legal battle.  The 18 month delay between filing for patent and public notice is inconsistent with the exceptionally fast pace of innovation in software driven markets where an idea can go from innovative to obvious in weeks.  Similarly, the 20 year life of US patents is tailored to the peculiar needs of the pharmaceutical industry, where costs of developing a new product are huge and the path to commercialization requires 7-10 years of testing, leaving a short window to recoup investment.

Judge Posner has suggested possible legislative remedies to the problems with software patents including reducing patent terms, compelling patent licensing, eliminating jury trials in favor of arbitration by the patent office (but subject to appeal in the courts), use-it-or-lose-it provisions to discourage patent trolls, and special training for federal judges volunteering to preside over patent litigation.  Many have argued for eliminating patent protection for software entirely on the basis that innovators are already protected by copyright law and by first mover advantage in a fast moving market, a point also raised by Posner.

To add my two cents, it would seem that two of the Apple patents asserted against Samsung clearly fall into Professor Lemley’s category of laying claims to the goal of the software –tapping to zoom, and scroll bounce back – rather than to the innovative mechanism by which those goals are achieved.  The third, which purports to define a mechanism to distinguish between a single touch gesture and a two finger touch gesture (and not specifically “pinch to zoom”, as has been assumed), is extremely vague and could be interpreted as covering all multi-touch displays.  Lemley notes that the Patent Act of 1952 was written in response to Supreme Court decisions that rejected similarly broad, goal oriented claims on physical product categories, and suggests that many software patents could be invalidated on the same basis.  The current Supreme Court has shown a decided bent toward plaintiffs in the patent cases that it has heard in recent years, perhaps portending a sympathetic ear for Samsung should the case make it that far.  Indeed, the United Kingdom’s High Court, one step below its Supreme Court, recently ruled three of the patents most often asserted by Apple in its global litigation invalid on the basis that they are both obvious and foreshadowed by previous art.

I am also taken aback at the jury’s apparent willingness to go rogue in rejecting challenges to patent validity and in setting damages.  Given that the iPhone was only available to AT&T customers during most of the period of claimed infringement, meaning that most of the US buyers of Samsung phones would not have even been able to buy the Apple product, it seems unreasonable to assign 100% of the assumed profits as an estimate of damages to Apple.  While the jury verdict is an immediate win for Apple, the open controversy around it nearly assures that the final resolution and any actual transfer of funds for damages will be several years and court stops away.  I think that Apple should take its newfound leverage and begin good faith negotiations to end its global parade of litigation with fair cross licensing agreements for its IPR.

For our full research notes, please visit our published research site.

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