by Anthony Crews
It could be worse; they could be hiring gangs to shoot at each other. In mid-August, Google announced a bid to acquire Motorola Mobility for $12.5 billion, a 63 percent premium over the closing price that day. If approved, the acquisition will be Google’s biggest to date and would double its workforce. Why would arguably America’s best-known tech company overpay for a declining cell phone firm? It’s the latest maneuver in the escalating Patent War.
The U.S. software patent system is routinely compared to the Cold War arms race. Companies stockpile patents and use the courts to prevent competitors from using the technology then sue if they do; everyone else builds up to defend against such litigation. Some firms exist only to trade in dubious patents and tie up companies in court—called these “non-aligned” companies. In what sounds like a Cold War ideological debate, Google accused Apple of being “anticompetitive” in its patent-amassing, while Apple CFO Peter Oppenheimer in turn grumbled “Companies should invent their own technology.” In 1999, U.S. firms profited $4 billion from patents, while associated legal costs approached $14 billion. NPR’s This American Life summarized much of this and more in an excellent recent piece on the state of patent law.
While there is a robust debate over whether one should be able to patent software at all, the general concept of patents goes back at least to a 1474 statute issued by the Republic of Venice in which the authorities decreed legal protection would be offered to new inventions if their creators filed the proper paperwork. Patents might date have originated before that in 14th century England, or perhaps Ancient Greece. In the United States the idea of patents is enshrined in the U.S. Constitution, and the first U.S. Patent Act was passed in 1790. In short, patents have been around for a very long time and were part of the basic founding vision of American society. Of course the founders could not have predicted the implications of the digital revolution, and subsequent court decisions haven’t clarified matters. Intuitively a good idea—rewarding enterprising individuals with profit opportunity while allowing the public to access it and industry to improve it—a dysfunctional patent system can cripple an industry.
Witness the state of the U.S. film industry in the early 20th century, which devolved into a bloody criminal mess. Motion pictures at the time were controlled entirely by the Film Trust, led by (the) Thomas Edison, who held patents on the motion picture camera, projector, and 14 other pieces of equipment crucial to the filmmaking process. He created the trust with the intention of monopolizing the entire industry, and only permitted the creation of wholesome Christian entertainment. For a time, the trust controlled every aspect of the business, from manufacturing film stock to theater distribution.
Renegade Jewish filmmakers led by German immigrant Carl Laemmle began making their own films on the Lower East Side in New York City and played them in nickel theaters throughout the city. Eventually the mayors of Chicago and New York banned the films outright, blaming them for inciting criminal acts. When the law was insufficient, the authorities hired thugs to intimidate nickelodeon patrons. Refusing to be intimidated, the independent filmmakers enlisted Jewish gangsters including the infamous Yiddish Black Hand to fight back. Soon they were pilfering Edison’s equipment and shooting at rival Film Trust toughs. Drawn by cheap labor and consistent weather on the Pacific coast, the independents moved West beyond easy reach of gangsters and patent officials alike (the Trust sued Laemmle alone 289 times in 3 years). Out of that group arose the giants of studio-era Hollywood: Metro-Goldwyn-Mayer, Loews Theatre, Paramount Pictures, Universal Studios, Twentieth-Century Fox, the Warner Bros. studios, and Laemmle’s Universal Studios.
The major software firms haven’t quite come to blows yet, opting instead lob lawsuits. Despite the Byzantine patent system, the industry has had great recent success, so much so that some wonder if we are experiencing a new tech bubble. If that bubble pops and survival becomes at stake for some, the Yiddish Black Hand may well find more employment.
(Photo: Carl Laemmle holding an Oscar in 1930. From Los Angeles Times photographic archive [Public domain], via Wikimedia Commons)