Tech patent arms war reaches new level of intensity

More than two decades ago, soon after starting out in the mobile phone business, Nokia found itself on the receiving end of a massive patent infringement lawsuit from the company that had pioneered cellular communications: Motorola.

The Finnish group was in a vulnerable position. As a newcomer, it lacked enough patents of its own to counter-sue Motorola and fight it to a standstill.

The result was a quick and bloody defeat. The exact details of the settlement remained secret, but the annual payments Nokia agreed to make were big enough that Motorola was obliged to disclose in a regulatory filing when they finally ceased.

The moral of this story was not lost on the vanquished company. Nokia subsequently embarked on a deliberate campaign to build up its intellectual property war chest, and now has nearly 9,000 patents to its name in the US.

That is more than enough, these days, for it to throw its own weight around – as demonstrated in a show of strength against Apple this week. Just days after a judge ruled provisionally against a claim before the US International Trade Commission that Apple’s handsets, including the iPhone, had violated five of its patents, Nokia shot back with a further case over another five.

The fight against Apple now covers 46 patents and is being fought in six courts in four countries. The message: there is more than enough ammunition on hand, and jurisdictions to turn to, to force Apple into some sort of settlement.

The arms war in the tech patent business has reached a new level of intensity, and nowhere are its effects being felt more directly than in smartphones. The danger is that, with some companies far better endowed in the IP department than others, smaller companies will face excessive taxes to play in the most promising new markets – or, worse, that innovation will be stopped in its tracks. But balanced against that is the hope that a new equilibrium is being established that will leave a form of IP Mutually Assured Destruction – a world where the fleet-of-foot can still thrive between rival patent blocs.

Twice as many technology-related patents were issued in the first decade of this century as in the previous 10 years. And convergence of technology markets – most clearly, the clash of mobile communications and personal computing in the smartphone – has greatly added to the complexity as well as the potential for conflict. There are potentially more than 250,000 patents involved in a smartphone, according to RPX, one of several new middlemen that have been set up to buy and license patents wholesale.

Young companies that haven’t had a chance to amass their own stocks of patents, or those moving on to new technology turf, are the ones most at risk.

In this case, that may even include a company as mature as Apple, which ventured into new territory with the iPhone. It has fewer than 4,000 patents; a quarter of those were awarded since the start of last year, suggesting that it has been pushing hard to increase its IP holdings as it moves beyond its traditional computing base. Apple is hardly defenceless and has hit back with counter-claims against Nokia, but may find it hard eventually to avoid paying some form of licence fee to Finland.

Particularly conspicuous by its lack of firepower in this department is Google. With only 600 patents or so to its name (compared with 17,000 held by Microsoft), Google is an attractive target, particularly given the huge success of its Android smartphone operating system.

There have already been some 37 cases filed against Android, according to Florian Mueller, an open source advocate, virtually all of them against companies that have built devices using the software.

The best hope for continued innovation is that the new middlemen who have built up their own patent holdings will provide a counterweight to the more aggressive rights-holders. Intellectual Ventures, one of the biggest IP wholesalers, on Wednesday added BlackBerry maker Research in Motion to the list of customers covered by its 30,000 patents, joining rival smartphone makers Samsung and HTC.

To critics, this looks like a protection racket, forcing vulnerable companies to pay licence fees to the Intellectual Ventures of the world rather than risk even more lawsuits. But if they can call on these larger holdings of IP in their defence when a larger rival mounts a legal challenge, it should help to level the playing field.

One thing is certain. As the price of smartphones plummet, payments for intellectual property – either in licence fees paid to groups such as Nokia, or insurance paid to companies such as Intellectual Ventures and RPX – are set to become a meaningful share of the cost. But at least the market should not be locked up by a handful of dominant patent holders.

Richard Waters is the FT’s West Coast Editor

richard.waters@ft.com