Extraction in the tech industry

A sort of supplement to Ron’s post from the weekend, this article in the New York Times about the patent wars in the tech industry and its effects on smaller firms is an excellent example of our society wrecking the path to innovation and progress. The opening anecdote is as good an example as any of the problem:

For three decades, Mr. Phillips had focused on writing software to allow computers to understand human speech. In 2006, he had co-founded a voice recognition company, and eventually executives at Apple, Google and elsewhere proposed partnerships. Mr. Phillips’s technology was even integrated into Siri itself before the digital assistant was absorbed into the iPhone.

But in 2008, Mr. Phillips’s company, Vlingo, had been contacted by a much larger voice recognition firm called Nuance. “I have patents that can prevent you from practicing in this market,” Nuance’s chief executive, Paul Ricci, told Mr. Phillips, according to executives involved in that conversation.

Mr. Ricci issued an ultimatum: Mr. Phillips could sell his firm to Mr. Ricci or be sued for patent infringements. When Mr. Phillips refused to sell, Mr. Ricci’s company filed the first of six lawsuits.

Soon after, Apple and Google stopped returning phone calls. The company behind Siri switched its partnership from Mr. Phillips to Mr. Ricci’s firm. And the millions of dollars Mr. Phillips had set aside for research and development were redirected to lawyers and court fees.

When the first lawsuit went to trial last year, Mr. Phillips won. In the companies’ only courtroom face-off, a jury ruled that Mr. Phillips had not infringed on a broad voice recognition patent owned by Mr. Ricci’s company.

But it was too late. The suit had cost $3 million, and the financial damage was done. In December, Mr. Phillips agreed to sell his company to Mr. Ricci. “We were on the brink of changing the world before we got stuck in this legal muck,” Mr. Phillips said.

Apple is currently getting the most press from its lawsuits on patents, but is far from alone and, as the article notes, actually is being sued far more frequently than it is doing the suing. One of the things the article does note is that most tech companies are aware that the current patent system is broken and are attempting to get things changed. How much of that is sincere and how much is PR is still a question, of course, but having followed this issue for some time, I would say there is more than a bit of truth there. The reason is that while Apple, Google, Microsoft, and others are into protecting their own intellectual property in the design and architecture of their products, they also depend to a not-insignificant degree on smaller firms willing to make the applications that run on their devices, and the patent trolling behaviour that the current system makes so profitable can and has easily affected those app ecosystems, giving the big players a reason to want to see some change, though still probably a lot less and in only very specific ways that continue to benefit them.

That being the case, why has there been no progress? Apparently, that’s partly the fault of another industry where large companies jealously guard their intellectual property to extract huge profits for decades while their competitors rush to produce near-clones of “me-too” products for profitable niches; the pharmaceutical industry.

Mr. Perlman, the independent inventor, for instance, was hopeful his voice would be heard on Capitol Hill. But alongside Mr. Perlman were hundreds of lobbyists from high-tech corporations and the pharmaceutical industry, which often push conflicting proposals. Big technology companies, in general, want to limit the financial damages juries can award for minor patent violations, while drug makers want to make sure they can sue for billions of dollars if a single patent is violated.

These and dozens of other narrow battles have paralyzed Congress’s ability to make real changes, lawmakers and lobbyists say. The last attempt, the America Invents Act, which was passed last year, achieved mostly administrative fixes, like making it easier for outsiders to challenge a patent’s validity.

Even here, however, the big boys have worked to rig the system in their favour.

The new law did make one fundamental change. Since the patent system was overseen by Thomas Jefferson, the United States has awarded ownership of an innovation to whoever created the first prototype, a policy known as “first to invent.” Under the America Invents Act, ownership will be awarded to whoever submits the first application, or “first to file.”

The shift, inventors like Mr. Perlman say, makes life harder for small entrepreneurs. Large companies with battalions of lawyers can file thousands of pre-emptive patent applications in emerging industries. Start-ups, lacking similar resources, will find themselves easy prey once their products show promise.

It is a long article, but well worth the read.