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A U.S. federal jury in February ordered Microsoft to pay Alcatel-Lucent US $1.52 billion in damages for infringing its intellectual property in MP3, the ubiquitous music-encoding software. Although in August an appeals judge reversed the decision in part and canceled the damages, the new ruling did not address Microsoft's main complaint, namely that U.S. patent law encouraged the jury to put excessive value on the IP in question. Microsoft may ultimately obtain a settlement it considers completely fair, but that could take so many years of costly litigation that even if the company wins, it will have lost.
The Microsoft-Alcatel MP3 case is just one of many that suggest to some that the patent system itself has lurched out of control, giving too much power to those laying claim to intellectual property and allowing too much leeway to patents of dubious quality or worth. Surely the case that has most captured the public imagination was the dispute over the technology of the BlackBerry personal communicator--which went on for years between Research in Motion, of Waterloo, Ont., Canada and NTP, a patent holding company in McLean, Va. Finally, last year RIM paid NTP upward of $600 million, complying with a court judgment.
The BlackBerry case drew attention to another much-criticized effect of the U.S. patent system: the presence of ”trolls,” who allegedly acquire patents, sit on them hoping that one or more will turn out to have crucial business applications, and then go to court to obtain what critics call extortionist payouts.
The data on U.S. patent awards for 2006 show that the patents in any given field still go to a few top companies, that there is little change from year to year among the dominant firms, and that big gaps yawn between the leaders and the runners-up. In almost all branches of electronics, computing, and telecommunications, awards made to the leading company jumped mightily from 2005 to 2006--by as much as 48 percent in semiconductor manufacturing, 60 percent in telecommunications equipment, and 65 percent in electronics [see table, ”Patent Push”].
Steven J. Frank, a patent lawyer in Boston and author of the 2006 book Intellectual Property for Managers and Investors (Cambridge University Press), cautions that such studies of patent concentration and impact should be treated warily. ”Just looking at the leaders, you have to ask what their game is,” Frank muses. ”Are they just trying to look like IP dynamos? Are they engaged in a kind of land grab?”
Of course that goes, too, for smaller companies making big jumps in the ranks [for some examples, see table, ”Patent Performers on the Move”],some of which might be emerging stars, while others might be merely padding their patent portfolios as a public relations exercise. To take the numbers at face value, however, and to judge from the fields in which the companies are shifting position most radically and frequently, computing, semiconductors, and telecommunications appear to be among the most dynamic areas in what the patent world broadly calls information technology (IT). Presumably, some chip and telecom companies are being truly innovative, while others may be acquiring patents mainly to defend themselves against possible litigation and position themselves to bargain effectively in cross-licensing arrangements.
IEEE Spectrum's compilation of patent awards and patent impact was prepared by 1790 Analytics, a Haddonfield, N.J., company that specializes in evaluating intellectual property. This is the second year that the firm, which takes its name from the year the first U.S. patent was awarded, has provided its data to us.
The methodology this year is essentially the same as last year's [see ”Patent Power,” Spectrum, November 2006 at http://spectrum.ieee.org/nov06/4699]. This year, however, 1790 added a measure to account for self-citation, which produces lower Pipeline Impact ratings for companies whose patents are referenced mainly internally.
Take Boeing as an example, suggests 1790's director of research, Anthony Breitzman: its raw Pipeline Impact value of 0.84 drops to 0.78 when adjusted for self-citation. Largely because of the self-citation penalty, Micron Technology, a semiconductor maker in Boise, Idaho, falls sharply from being last year's overall patent winner and is replaced at the top of the heap by Microsoft.