“The Litigation Thicket” Smartphone Patents @ War!

The patent thicket is a phenomenon that has widely been discussed since the late 90ies. A topic that is currently even more debated is a possible effect of this thicket: Patent Litigation! Following up several debates in the world of bloggers on innovation I would like to deepen into the topic. What Happened Before: Lately the Guardian started to sketch a picture of who is suing who in the Smartphone industry. TechDirt Blog put some effort in even extending this picture and drafting a quite complex version that illustrates all patent litigation arrows between almost 30 firms that are active in the Smartphone industry. This picture is very confusing but one can identify a broad conclusion: We have a Litigation Thicket!

One could easily think that the increasing number of patents causes an increase in litigation. Even though being innovative becomes more and more important, several statistics confirm that the number of patents goes down, however recent studies confirmed that there is a rough correlation between the number of patent files and litigation! For James Bessen and Michael J. Meurer this explanation seems to be too easy:

“Firms may choose to invest in technologies that expose them to a greater risk of infringement suits but they may also attempt to inoculate against this risk by acquiring more patents. These two choices may counteract each other, so that in equilibrium, prospective defendants with larger portfolios might not have lower probabilities of being sued.”

Shane Greenstein and Tim Simcoe, started a new debate at Virulent Word of Mouse, which tries to find reasons why litigation among firms increases in the smart phone industry. Both list valuable points that might be probable driving factors of these litigation cases: new business models of NPEs, patent thickets, complementary technologies, divided technical leadership, defensive patenting etc.

One important issue, that I came up with, is that the increasing number of smart phone litigation disputes might also accrue due to the fact that settling outside of courts becomes less attractive. A closer look at most patent litigation cases reveals, that the issued patents have been known for several years for most parties involved. So why don’t these firms settle and save expensive litigation costs?
One argument that is recently discussed is that there is so much at stake for the company owning the patents that they do not see an easy way to settle the dispute. What they really need in most cases is a court decision in their favor. During the past years the smart phone market heavily increased and products that totally changed the market, such as the iPhone, became more complex in their technology. Smart Phones connect different innovations both from computing and the mobile telephony, that have to be interoperable and work together. Compared to DVD or the WiFi technology, the number of patent owning companies is much larger for smart phones. Especially when the markets are highly competitive, well positioned patents have a high potential of leverage.
Especially in the US another development might have caused the sudden increase of law suits. New venues have proved to be more efficient in enforcing IPR, such as the International Trade Commission (ITC), an “independent” quasi-judicial federal agency which, among other things, functions as a forum adjudicating patent disputes involving imports. A very interesting article by Colleen Chien (2008), points out several advantages of the ITC compared to United State district courts. The most important seem to be the relaxed jurisdictional requirements and a higher degree of specialization that lead to less time consuming and therefore often less expensive law suits. Litigation at the ITC has to be import related and is thus restricted to special cases. However, Nokia, Apple and Motorola are currently embroiled in patent litigation at the ITC. Another more recent paper by Deepak Somaya and Christine A. McDaniel (2010) provides empirical evidence for firms’ strategic decision to litigate in specialized-purpose tribunals that provide fast, cost effective and predictable adjudication.

Anyone that finds further factors that increased the Litigation Thicket????

Read more: Some recent litigation cases are discussed and assessed in my article about patent trolls.

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About timpohlmann

Tim Pohlmann is a post-doctoral researcher in economics at Mines ParisTech and Berlin Institute of Technology. He specializes in the economic analysis of markets for technology. He earned his doctoral degree with the highest distinctions in August 2012 from the Berlin Institute of Technology with a dissertation on patenting and coordination in ICT standardization. Tim’s research covers the empirical analysis of the trade of patents, patent trolls, standardization consortia and patent pools. He has presented his work at a large number of international conferences. Tim has been actively involved in preparing studies for the European Commission and the German Federal Government on the role of patents in technological standardization and business models in Open Source Software. Doctoral Thesis SSRN author page
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