The saturation of mainstream telecom segments and crossovers in modern technology are forcing digital companies to increasingly enter into confrontation over copyright infringements and so-called “patent wars”. As tech giants such as Google and Apple expand into new segments of mutual interest, including products and services in connected cars and Internet of Things devices, lawsuits are set to become a feature of competition in the digital space. For consumers, this is bad news as patent disagreements can lower competition, raise prices and remove choices from the shelves. Meanwhile, companies are forced to build up war-chests to attack or defend infringement cases, rather than invest in innovations and operations.
Top Five Countries by Patent Applications and Telecom Revenues: 2014
Source: Euromonitor International from World Intellectual Property Organization (WIPO)/International Telecommunications Union (ITU)
Patent wars can be profitable and strategically beneficial for established tech majors
The expansion of Internet connectivity across almost all business and consumer markets through digital devices has opened the doors for tech companies to compete across multiple platforms. This has led to an innovation race for patents and licenses, as brands look to attract the world’s 2.6 billion Internet users (as of 2014). In order to disrupt rivals and protect market share, companies are therefore pursuing legal costs for perceived patent and copyright infringements.
Some firms have done especially well out of this process. Microsoft, an early tech pioneer, has been able to collect millions of US dollars in revenues from licensing agreements it forced on Android device manufacturers. Both Apple and Samsung have been able to stop each other, as well as other mobile vendors, from entering specific markets due to ongoing court cases: fighting for a share of the US$319 billion global smartphone retail market is a lucrative proposition. Just in February 2014, Swedish telecommunications equipment vendor Ericsson filed nine lawsuits against Apple, seeking to ban several Apple products in the USA.
The patent wars are an especially complex landscape because the tech industry is notoriously incestuous – IT specialists, executives and engineers frequently move between Silicon Valley employers. Strategies, technologies and visions are therefore frequently leaked and imitated.
Smaller businesses and consumers pay the bill for pricey lawsuits
Patents have long been seen as the grassroots of tech innovation, but they are increasingly stymieing the efforts of smaller companies. The monopolization of copyright by the world’s dominant tech giants, who stock up on patents through acquisitions and capital-intensive research & development, is pressuring small developers to pay large licensing fees and drive others out of business altogether. Few companies have the financial clout to take on the likes of Microsoft in a court battle.
A potential solution is the open-source movement, whereby companies release their innovations for public use. However, this option is unlikely to be initiated by profit-hungry and protective firms that dominate much of the upmarket tech space.
Another byproduct of the patent wars is the cost passed down to consumers. Court battles are expensive – in 2012 Samsung was ordered to pay Apple over US$1.0 billion – and these costs are typically transferred to retail goods and services. Although telecom products typically cheapen over time, digital lawsuits certainly slow down this affordability process. Consumer expenditure on communications expanded by 12.4% in real terms globally over 2009-2014.
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