Who Wins When Companies Wage Patent Wars?

Patent Wars | BCBusiness
Stockpiling of intellectual property patents is killing innovation.

An arms race in intellectual property is killing innovation

War is a favourite metaphor in discussions about intellectual property (or IP) law, and it’s easy to understand why. In litigation, patents are wielded like weapons: Owners of intellectual property use them to attack competitors, wringing big settlements out of infringement claims, and those companies that find themselves unarmed rush to acquire defensive patents to deter such onslaughts. But the martial metaphor also applies on a larger scale to countries, not just companies

A fierce debate is raging in Ottawa’s halls of power and in national newspaper editorial pages about the state of Canada’s IP armament. In October, John Manley, CEO of the Canadian Council of Chief Executives, wrote that “the battle over intellectual property resembles a new kind of arms race,” arguing that reforms are needed to make it easier for Canadian companies to patent their innovations. Manley’s rhetoric evokes a sense of national crisis by comparing intellectual property to more tangible strategic resources: “Our prosperity depends heavily on our abundance of natural resources, but we need to focus more on an asset that’s equally important to our economic future.” Unsecured Canadian IP assets are, to those who advocate locking and loading, the nation’s precious ideas and they’re at risk of flowing unhindered across our borders, where voracious foreign entities wait to gobble them up.

This view was reinforced last summer when the treasure trove of telecom patents held by bankrupt Nortel Networks Corp. was placed on the auction block and sold to a consortium that included American tech giants Apple Inc. and Microsoft Corp. Nortel’s roots can be traced to 1895, when Bell Telephone Co. of Canada spun off its manufacturing division to create Northern Electric and Manufacturing, later to be known as Nortel. At the height of the tech bubble in early 2000, Nortel accounted for one-third of the value of all companies listed on the TSX. Canadians have a soft spot for Nortel in the same way we have a soft spot for Tim Hortons – sure, it’s a publicly held corporation like any other, but it’s also part of our national identity. Many Canadians felt that a company weaned on taxpayer support that held such valuable patents was a national strategic asset. Comparisons to Potash Corp. of Saskatchewan Inc. were common.

But what, you might ask, does a big, dead company that owns valuable, well-protected patents – so valuable that they went for $4.5 billion – have to do with the unprotected or under-protected Canadian innovation that Manley is so concerned about? In October the Canadian International Council, a Toronto-based think-tank chaired by Research in Motion Ltd. CEO Jim Balsillie, picked up on the patent war zeitgeist and published a report aimed at making the connection. The report, authored by Karen Mazurkewich, concludes that we are bearing the burden of a sizeable intellectual property deficit.

The Canadian International Council argues that Canadian companies don’t own enough intellectual property in general – we’re simply under-armed as a nation. It follows from this thesis that selling patents and other IP to foreign entities weakens us, and acquiring more intellectual property, either by filing more patents or by buying them from foreign entities, strengthens us. In keeping with the pro-patent drumbeat, the rhetoric is jingoistic, recalling recent calls for asserting arctic sovereignty. The reasoning is that, if Europeans and Americans are sending nuclear submarines under the sea ice to plant flags in these intangible resources, then so should Canada. And, naturally, first we’ll need to build some nuclear submarines.

Not everyone agrees that the best way to protect and promote innovation is by arming ourselves to the teeth. Predictably, one of the most persuasive pacifists can be found at UBC. Much less predictably, he’s also B.C.’s biggest dealer in patents, the weapons of the new-era arms race. Angus Livingstone is managing director of UBC’s University-Industry Liaison Office (UILO). UBC is responsible for about half of all the research and development that’s done in the province, and Livingstone’s job is to act as an intermediary between the researchers and businesses. That means filing a lot of patents; in fiscal 2009, the UILO filed 245 of them.

Livingstone describes the proliferation of patents as “a travesty.” The problem, he says, is a phenomenon known as “patent thickets.” Overlapping and interwoven patents inhibit innovation because inventors don’t know who legitimately owns what. A logical question would be, Who cares? If there are enough patents on the books that they’re forming a “thicket” of prior art, then chances are good your invention isn’t new. But all new ideas rely on old ideas. Livingstone uses a chair as an analogy: if you were to seek a patent on a modern office chair, you might find that someone else, likely a long time ago, was granted a patent on the idea of attaching four legs to a flat piece of wood to form a stool. Someone else might have patented the idea of a back, which turns a stool into a chair, and a third person might have been the first to put wheels on it, or to install a mechanism that lets it spin. As the inventor of the office chair, you might be granted a patent on your idea, but to use that patent, you would have to license the intellectual property held by everyone who came before you, including the inventor of the stool. Now consider how much IP goes into making a smart phone.

Image: Peter Holst
Lawyer Blake Wiggs advises stockpiling large
blocks of patents.

Livingstone explains that this is a function of the defensive nature of patents. While you might have invented the office chair, your patent doesn’t give you the right to make one and sell it; your patent gives you the right to sue anyone else who tries to. That’s why patents can actually deter innovation. It’s also why some of the world’s most innovative companies, including Apple and Google, are spending so much money to acquire IP that might, if a patent war were to break out and they were forced to send their lawyers to ramparts, cover some small part of their technology. Which is fine for Apple and Google, Livingstone argues, but smaller players don’t dare set foot on that battlefield.

This regime denies most innovators what in IP jargon is called “freedom to operate,” or essentially freedom from litigation. “The reality is that it’s so fragmented right now that it’s virtually impossible for an innovator to move forward,” says Livingstone. So if it’s not possible to invent a piece of technology in a hot market like mobile telecommunications without running afoul of someone else’s IP, then solutions must be found that let innovators share use of the foundational ideas so that no one risks being sued over the use of the stool. This concept is known as patent pooling and it is to patent warfare what the UN is to that other kind of warfare: a nice idea, but not much good once the shooting starts.

In B.C., the person you would want to have around if a patent war were to break out in the streets is Blake Wiggs, a partner with the Vancouver intellectual property law firm Oyen Wiggs Green and Mutala LLP. Like many lawyers in his field, he was an engineer before going into law. Now he specializes in high-tech patent prosecution. He advocates the National Rifle Association’s strategy for keeping the peace: “You need to have a lot of money and large blocks of patents so you can participate effectively . . . in incessant multiple simultaneous bouts of litigation featuring potential for huge damage awards.” In other words, it’s a dangerous world out there, and he advises his clients to arm themselves accordingly.

If there’s one consolation, however, it’s that we don’t actually live in this trigger-happy hell­scape. Wiggs and Livingstone agree that there is far less patent litigation in Canada than in the U.S. And although we might like to attribute this relative peace to our agreeable nature, in fact there’s just less to fight over in Canada. Wiggs notes that the patent wars, like the fight over Nortel’s remains, are getting a lot of attention because they involve big American companies “spending vast sums for large blocks of patents in certain niche technology areas, [such as] mobile telephony, for which the dominant market is the United States.” Sometimes these disputes involve Canadian companies, but when that happens it’s often a Canadian company holding U.S. patents and suing major U.S. technology companies, as notorious Ottawa-based patent troll Wi-LAN Inc. recently did.

Patent wars are almost always fought over U.S. patents because it’s the U.S. market that most companies, American or Canadian, are interested in. John Manley thinks it should be easier to get a patent in Canada. Livingstone’s attitude toward the current state of the Canadian patent system, on the other hand, can be summed up with a single concise phrase: “I don’t care.” He says he’s concerned almost entirely with the U.S. market, and the same goes for Wiggs, who tells his clients, “You may opt to defer recording your ownership of some or all of the Canadian patents.” They’re costly and time-consuming to obtain, and they’re not worth very much relative to the value of the equivalent American patents.

Despite all the chest-thumping about defending our precious national intellectual resources, patent reform in Canada (whether to make it harder to get a patent or to make it easier) won’t make a difference next time a big, beloved Canadian company is sold off for spare parts. The vultures are already circling RIM, and the only thing that could keep its patents in Canada is a homegrown company capable of outbidding Apple, Google and Microsoft. We’re simply outgunned.