Thursday, February 09, 2012

The patent truth

This week the UK government will close consultation on draft legislation that aims to reward innovation by cutting corporation tax on profits made on patented technologies down to just 10 percent.  In what is a welcome shot in the arm for the UK tech industry and a recognition of the potential for innovation that lies too often dormant in companies and universities up and down the country, it does spark a wider thought about the significance being placed on patent portfolios (and suing those that infringe them).

While 2011 was littered with IPR lawsuits, 2012 shows little sign of slowing down.  Apple and Samsung continue to move around the globe, seemingly taking it in turns to sue each other in different jurisdictions.   However, in a twist on the saga, the EU is now investigating whether Samsung's use of patents to sue Apple is actually anti-competitive.   The point of contention is whether the patents fall under Frand, or standards-essential rules. Under those standards, patents that are generally used in a device -- such as for 3G or Wi-Fi on a smartphone -- are open for fair use between companies.

So, clearly there is more to this patent game than just collecting more and more of them.  Increasingly, one could be forgiven that suing to enforce patents has become the last refuge for a company that is struggling to make money ... you just have to look at Kodak suing Samsung (why always Samsung?!) over image patents, news of which broke on the same day that Kodak sought bankrupcy protection having singularly failed to capitalise on the move to digital, despite 133 years of leadership in the industry.

The point is, it's not about the patent.  It's not about what a widget does.  Simply slapping a patent on something doesn't mean it actually creates value.  Kodak may well claim to have invented the world's first digital camera in 1975, but if they can't make digital cameras that consumers want to buy, they'll still end up in the big photo album in the sky. 

Rewarding UK companies for innovation by giving tax breaks on patents reinforces this point.  The tax break isn't on the patent ... it's on the profits generated by the patented technology.  In other words, it's what it enables that is key. 

Too often companies claim patents as a badge of honour, almost as if simply having them proves they are innovative.  The question is though, how many of those patents actually generate revenue and actually create something of value?

The Patent Box legislation now coming to the end of its consultation phase is definitely the right way of looking at the thorny question of IPR.  Companies should focus on creating real value through their patents, and not simply see them as a litigious way to compensate for their own inability to create products that people actually want.

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