Our latest in Freakonomics: this time on the possibility of gov’t-sponsored *legal* piracy sites in Antigua and Barbuda. Why would governments do this? It’s related to a trade dispute with the U.S., and WTO rules that allow retaliation for US misbehavior. Read on for the details . . .
News today that a second prominent Apple smartphone patent — this one on “pinch-to-zoom” (allowing the user to zoom in or out by moving two fingers apart or closer together while touching the display) has been invalidated by the U.S. Patent and Trademark Office. This is the second PTO invalidation of a big Apple patent in a few weeks — the last one to be knocked down by the PTO, back in early December, was Apple’s “bounce-back” or “rubber-banding” patent (i.e., the bounce that you get when you scroll to the end of a smartphone’s screen).
In both cases, the PTO ruled that the Apple patent is both non-novel and obvious based on the existence of prior patents that disclose a very similar feature.
Here’s the most important question: The Apple “bounce back” and “pinch-to-zoom” patents were among the patents that the jury in federal court in San Jose ruled Samsung had infringed. But considering that the PTO has deemed that these patents are worthless, what should the San Jose court do now? Apple will likely appeal the PTO’s determination in both cases, so in a sense the validity of the bounce back and pinch-to-zoom patents is still up for grabs. But should a damage award based in part on patents that are of no current effect stand? Or should the court vacate the damage award and order a new trial on the question of damages? Or should the court at least suspend the damage award pending resolution of the patent validity questions?
One thing the San Jose court should not do is make final an award that may be based in part on bad patents.
Samsung announced today that it will no longer be seeking injunctions against Apple’s iphones in European courts based on claims that those phones infringed Samsung’s “standards essential patents” covering certain 3G cellular networking technologies. Samsung says that it’s doing so for the good of consumers. Um, maybe. A more likely explanation is that it fears possible action by EU antitrust officials, who are increasingly wary of injunctions in patent cases involving patents that are “essential” to industry standards.
This is an important development in the Apple/Samsung fracas, because it deprives Samsung of a bit of leverage that it thought it had. Stay tuned.
News today that Apple and the major Taiwanese smartphone company HTC have reached a settlement in their long-running patent battle. Apple had won several important rounds, including a patent judgment in the U.S. International Trade Commission that enjoined HTC from importing into the U.S. several of its popular phones.
Now HTC can get back to business. But notice that the terms of its licensing deal with Apple are secret. So watch closely. Will HTC re-emerge as a vigorous competitor in the smartphone market, as it was before the ITC ruling? Or has Apple succeeded in imposing on HTC such a significant “patent tax” that its competitive vigor will be reduced?
Time will tell.
. . . this time in the United States International Trade Commission. An administrative law judge at the ITC has ruled that Samsung has infringed four Apple patents, including one of Apple’s “rectangle” iPhone design patents, and utility patents including pinch-to-zoom. The ruling, if upheld by the full ITC, could result in a ban on the importation into the U.S. of a number of Samsung’s products. We’ll see what happens next . . .
News that a Dutch court has ruled that Samsung has not infringed Apple’s patent on smartphone “pinch-to-zoom” — i.e., the function of zooming on a smartphone screen using a two-finger gesture. Apple’s billion-dollar patent victory in U.S. federal court in California is surely the big event thus far, but outside the U.S. Apple has been on a bit of a smartphone patent losing streak, with judgments coming down against it in courts in the U.K., Japan, Germany, and now the Netherlands. This is going to be a long war, but so far the result is unclear — both sides have won some important battles.
Writing in The Daily Beast, influential journalist and economics blogger Megan McArdle picks up on a feature of The Knockoff Economy that we’re always happy to have someone notice — we are not IP abolitionists, and we think that IP law has an important role to play in encouraging creativity. And although we think that industries like food, fashion, and others that innovate without much reliance on IP have something to teach us about the future of traditionally IP-reliant industries like music and film, it’s important not to over-state the degree to which these very different sorts of industries are likely ever to run on the same logic.
Indeed, a central message of our book is that all creative industries are different. Some need IP more than others. Some don’t need it at all. Now, despite these obvious differences, the IP system tends to treat all creative industries alike. Copyright law, for example, imposes the same basic rules on hundred-million-dollar motion pictures and two-cent shampoo bottle labels. And patent law imposes the same rules on new drugs, which are often stupendously expensive to produce, that apply to Amazon’s patent on a “one-click” method of online ordering, which someone probably dreamed up and implemented in a few weeks and at very little cost. (Actually, that Amazon patent never should have been granted in the first place. “One-click” was obvious to anyone who thought about the issue at all, not least because the previous ordering method required two clicks.)
McArdle draws from our work something that we very much hope to get across — we should start thinking about ways to make IP law better at addressing the different characteristics of very different creative industries. Do fashion, food, football, and fonts need more IP? Not that we can see. Does the pharmaceutical industry need the high levels of IP protection it enjoys under current law? Well, considering how expensive it is to discover new drugs and get them through FDA-compliant clinical trials, the case for patent protection in pharma is much, much stronger. How else would pharma companies attract the kind of capital they need to get new drugs off the lab bench and into the FDA pipeline?
So fashion and food may be on one end of the spectrum (the low-IP end), and pharma on the other. And in the middle sit a variety of other, important creative industries. Let’s just consider one we tend to obsess about — music. For decades, music was a high-IP industry — that is, it relied on strong and enforceable copyright as the basis of its business model. Well, along came Napster in 1999, and we all know what happened next. The music industry’s copyright-centered business model went “poof”. And we doubt that there’s anything that the industry, or government, can do that will make copyright work again as the central piece of the music industry’s business model.
So it’s time to start thinking about what a less copyright-reliant music industry could look like. In some ways, that shift is already happening. The live concert, which is really selling an experience rather than a product, is much harder to copy than a CD or digital download. And so live music is re-emerging as a growth area. That’s just one of a host of changes that are, over time, likely to make the music industry less susceptible to copying. Time will tell, but we’re betting that in 20 years the music industry will look more like fashion than pharma. And it will be making a lot of great music — and some money as well.
Nobel-winning Harvard economist Eric Maskin has a letter in today’s NY Times where he argues that patents for software should be scrapped. His point echos something we say in The Knockoff Economy — i.e., in creative industries where a lot of innovation involves incremental improvements to and extensions of others’ work (what we refer to as “tweaking”), patents (and copyrights) are often not necessary and indeed may impede creativity by discouraging tweaking. Here’s Maskin’s take:
“[I]n the software industry, progress is highly sequential: progress is typically made through a large number of small steps, each building on the previous ones. If one of those steps is patentable, then the patent holder can effectively block (or at least slow down) subsequent progress by setting high license fees.
Moreover, like any other monopolist, it has the incentive to set such fees.
Thus, in an industry with highly sequential innovation, it may be better for society to scrap patents altogether than try to tighten them.”