Tech, Pharma Clash on Patent Reform

The Coalition for Patent Fairness, an ad-hoc interest group that represents Google, Apple, Intel, and Oracle, among other high-tech giants, has condemned a recently unveiled patent reform bill. In the opposing corner are interest groups representing biotech firms, pharmaceutical companies, and smaller tech companies.

Why the difference of opinion? To vastly oversimplify matters: The first group tends to gets sued over patents, and the second group licenses them.

The sticking point seems to be a lack of litigation damage limits. From 1996-2008, Google, Apple, and 13 other major tech companies (12 of which are also represented by the Coalition for Patent Fairness) were defendants in 730 patent infringement lawsuits, and collectively shelled out about $4 billion in damages, according to economist Pat Choate's book "Saving Capitalism."

Many argue these exorbitant damages have created a dodgy "litigation lottery" mindset. Drawn by the allure of potentially huge payouts, aggressive companies including so-called "patent trolls," as companies who exist solely to sue others for infringement are derisively called by their opponents, have taken to sniping at deep-pocketed tech companies through the court system and have made quite a bit of money doing so. Tough damage limits could reduce trolling by making it less lucrative.

And trolls aren't the only problem. As the recent Apple lawsuit against HTC (and also Google, by proxy) demonstrates, tech giants have just as much or more to fear from each other. Companies have complained that the looming possibility of gargantuan lawsuits has made everyone afraid to move and is significantly stifling innovation. So why aren't damage limits being demanded across the board?

One reason is that pharmaceutical companies and universities structure their businesses around licensing patented technology, so patent trolls aren't always problems -- indeed, they are often good customers. Microsoft's muted stance on the new legislation may be a result of its interests as a major patent licensor. A central argument against tighter damage limits is that they will weaken patents in general. This is bad news for licensors, who rely on a healthy fear of litigation as part of their business models.

But to most high-tech giants, weakened patents are not necessarily a bad thing.

Politicians like Rep. Marcy Kaptur (D-OH) have gone so far as to say that companies seeking tougher damage limits, are "aiming to infringe" and not just trying to protect themselves from wrongful lawsuits.

It remains to be seen whether tech giants' lobbying efforts will be enough to get a damage limits measure tacked on. If not, we should expect to see more of the same blockbuster lawsuits and licensing "protection rackets" that have become par for the course in the high-tech industry. More big lawsuits and licensing may be a necessary evil, if the alternative is a world where big companies can infringe without serious consequences.