Late Friday afternoon, Apple won a dramatic $1 billion-plus patent verdict against Samsung. The verdict has been described, by Samsung to be sure but also by many commentators, as anti-consumer, meaning presumably that prices will be higher and consumers will have access to fewer innovative products. That of course is a particularly after-the-fact perspective and one that ignores the basic design of the patent system. Pick your favorite “good” patent—meaning one that in your heart of hearts you think is entitled to be enforced against infringers (and if you don’t have such a patent, then that is a very different discussion and you can probably stop reading)—at the point that our good patent is enforced, we are blocking consumers from a product that some firm would like to produce and that consumers are eager to buy.
I am hard-pressed as to know how to think about patents otherwise. The alternative is almost a teacher’s gold-star approach to patents. Today’s New York Times quotes Josh Lerner of Harvard Business School: “It is hard not to see all the patent-buying and patent lawsuits as a distortion of the role of patents. They are supposed to be an incentive for innovation.” Josh is both thoughtful and knowledgeable, but I don’t get this at all. An incentive how and to do what exactly? To have the U.S. Patent and Trademark Office award an inventor a gold star that she can post on the wall at home and admire as a symbol of success, just like you did in second grade? The only way to use a patent is to enforce it against someone else or to at least be able to threaten to do so, so that they will license rights from you. You don’t need a patent to practice the invention: You can do that on your own, just as you do with trade secrets. The point of the patent is to be able to enforce it against others to stop them from using the invention without your consent. We could run a different patent system with lots of compulsory licensing and ratemaking hearings, but that isn’t today’s system in the U.S.
Last Thursday, Nilay Patel and his colleagues at The Verge provided a very nice breakdown of the issues facing the jury with links to the underlying utility patent, design patent and trade dress claims being asserted by Apple, as well as the claims being asserted by Samsung. As we multiply patents, Samsung devices and Samsung companies, we end up with a complex, check-the-box jury form that asked the jury to reach a host of decisions. As Samsung put it in its motion seeking thirty minutes to review the verdict before the jury was dismissed: “[T]he verdict form in this complex case necessarily spans 20 pages and requires unanimous answers to more than 500 discrete questions across 5 different legal displaces.” I think most observers were surprised by the speed at which the jury was able to reach a conclusion, but conclude they did in a one-sided result in favor of Apple.
The hostility over the verdict directed towards Apple reflects a broader unhappiness with the patent system. With the emergence of non-practicing entities—NPEs or, less charitably, patent trolls—the tools for enforcing patents have changed. But whatever we think of those developments, they have little to do with the Apple/Samsung case, as both Apple and Samsung build and sell their products.
The charge is more basic: we have too many patents, as my colleague (and former boss) Judge Richard Posner argued recently in The Atlantic. (And for a response, see another of my colleagues, Richard Epstein, in Newsweek.) There are perhaps three popular flavors of the too-many-patents claim. The first is about patent thickets and frustrated innovation. Many small patents are granted and an actual innovative product in the area needs access to all of those patents. One holdout means no product or, in the alternative, a firm builds a product knowing that it faces the risk that a claim will emerge later for a good chunk of the profits. The great danger of these claims of course is that no one ever shows up to try to share the costs of failed products. The patents are revealed only after the fact when the product has proven itself in the marketplace and a large pot of money has been created. Whatever we think of the patent thicket idea generally, it doesn’t seem to have much bite in Apple v. Samsung.
The second version of too-many-patents is a claim about innovation and incremental incentives. Patents are supposed to induce R&D and we reward that extra investment with a property right. But if the relevant innovation would be found anyhow through the normal activities of the firm, the patent lure isn’t inducing anything and we then are handing out property rights with all of the corresponding market power harms for nothing.
The third version of too-many-patents idea is about how innovation is rewarded and is another version of the incremental incentives claim. Apple has become the most valuable company on the planet through its innovations. We might think that carrot enough even without the further benefits of patent protection for its underlying innovations. Try this: if we had said to Steve Jobs and Jonathan Ive, “your new designs will create the most valuable firm on the planet but we won’t give you property rights in them, so other firms will be able to piggyback on those ideas rapidly, will you still move forward?” I assume that we think that the answer to that is yes.
So we have two versions of the incremental incentives claim, one that the firm would have found the invention anyhow and the second that the invention’s reward was already sufficiently large that we didn’t need to add more to it with an additional property right. We could run the U.S. patent system to try to take into account those ideas, but today we don’t. Whatever the merits of the incremental incentives notion, it doesn’t have a role to play in Apple/Samsung.
I haven’t tried to sort the individual patents at stake in the Apple case. There was a great deal of evidence presented in the case and I wasn’t in the courtroom. Samsung attempted to characterize Apple’s design claims as seeking a patent on rounded corners. As that suggests, it can be easy to poke fun at design claims, but the reality is that we have run a system with design patents for a very long time. The UK’s Intellectual Property Office traces design protection there back to a 1787 act, while U.S. protection for designs started with an 1842 statute.
If your view of Apple’s patents is that Apple has pulled a fast one on the PTO by sneaking through illegitimate claims and effectively privatizing ideas that would otherwise be in the public domain, then you undoubtedly regard Apple’s lawsuit as defective from the get-go. But that clearly wasn’t the view of the jury—a hometown jury to be sure—and even if the jury may have stumbled some in answering the 500 questions posed to it, there is a core analysis in Apple’s favor that seems straightforward.
The simple version of the big picture is that Apple has actually been quite innovative and it wouldn’t be surprising if that innovativeness was captured in a variety of patents. I think that would be the case in today’s world, in which we seem to grant lots of patents on small pieces or in a different world in which we only granted patents in larger sizes. Apple seems to have been meaningfully innovative in the sense that customers like their products and competitors want to duplicate them. That innovativeness is a fusion of its touch interface and the aesthetics of design in which Apple has embodied that interface. That actually tracks the utility and design patents in the case and if we are going to run a system with patents, it wouldn’t be at all surprising that Apple would have patents connected to these innovations.
I don’t know exactly how we count interfaces. Do we start with the C prompt and menus and then move to the graphical user interface? Are the varieties of touch—from the original iPod’s click wheel to where we are today—the next step? But however we do that, Apple seems to have driven the touch innovation that is sweeping how we interact with laptop computers, tablet and mobile phones and, I suspect, that is what the jury responded to in the case.
I find lots of ironies here. Patent trolls are reviled: typically, they don’t build products and just enforce patents earned by others. There is a great deal more to be said in defense of that—about the virtues of separating invention, production and enforcement—and in the way that NPEs provide exit markets for inventors, but none of that is at stake in Apple/Samsung. There are firms that seem to be active licensors of patents in the smartphone space, such as Microsoft. But, one guesses, that is driven by the fact that Microsoft has not been an important player, to date, in smartphone platforms or handsets themselves. If you can’t monetize from selling the product, sell IP inputs, as Microsoft has done.
In contrast, Apple is the hardcore vertically integrated firm, inventing, producing and enforcing its IP rights against another very successful producing firm. We can undertake to revamp the patent system, and that could be within-patent reforms about the balance of utility patents and design patents or larger scale reforms that focus on the incremental incentives question, but given the system we have today, it isn’t at all surprising that an innovative firm like Apple holds patents that, by design, make it possible for Apple to block sales by competitors to eager customers. That is, after all, the point of the patent system in the first place.