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History

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Apple filed patents to protect all of their new technology from being used by competitors. Not all of these patents are necessarily technically or commercially essential with the products. Apple has over 250,000 patents in total that cover both design and functionality of its devices. These patents involved both elements of software and non-software elements, meaning often times these patents are over broad and therefore improperly issued for software and design of these products. [1] [2][3]Many companies sought to maximize their revenues, therefore decided to commit patent infringement against Apple, much like Samsung. Patents are hard to value because they are intangible assets. The definition of the patents can cover a wide variety of things. [4][5]

Causes

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Patents protect a firm’s inventions from being copied, and therefore can be used as strategy. Firms can hoard patents in order to create barriers to enter the market for a product. The inventing firm reaps all the benefits from their invention, however this negatively affects the economy with monopoly power. [6] [7][8]Monopoly power creates deficiencies in the economy. Monopolies have a unique product and are the price maker for this product. Patents allow the inventing party to become a monopoly, which causes dead weight loss and depletes dynamic efficiency. Monopolies also cause losses in total social welfare.[9] Patents allow one firm to become the market for a product unless another firm chooses to violate that patent or pay royalties.

The patent prevents competitors from sharing the economic benefits of the inventor, since competitors have invested far less to enter the market. That also means that in order for a competing company to enter the market for the patented product they must negotiate with the inventor, who for a number of reasons may not let them use the invention. [10][11]With the patent in place competing companies have little incentive to challenge the monopoly power at times. This is due to the fact that violation of the patent will result in litigation and damages for that company. Companies holding the patents will also instantly be seeking damages as another source of revenue. [12][13]Companies believe that by manipulating the market by applying for lots of patents (for a number of reasons) and blocking the barriers to entry in the market. [14] Companies, due to the patents, are faced with an ethical decision to commit patent infringement.

Effects

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With constant patent infringement lawsuits, distrust is created between companies. Patents are needed to protect property rights. Yet at the same time patents create a monopoly situation, which encourages firms to violate the patent. The nature of patent wars is high costs. If companies are involved in litigation the damages will be costly.[15]Patent infringement is illegal and any person or company that commits it will certainly face a legal battle resulting in damages as compensation for the patent holder.[16]This is a moral issue because the person or company is faced with the decision of breaking the law.Patents are used to protect the inventing company, but the competing company commits the infringement because they can reap the financial rewards from selling the patented product.[17][18]The infringing party makes the efficient decision of committing patent infringement because it will outweigh any legal damages or litigation costs brought on by the patent holder. This is where the issue occurs with patents as a form of property protection. The competing firms would rather deal with long and expensive legal battles rather then pay royalties or negotiate with the patent holder, creating patent wars amongst firms. [19] [20]

Any profit seeking entity will always try to increase revenues, whether that be hoarding patents or suing for damages. Patents allow them to greatly increase their financial gains by creating monopolies.[21]These monopolies can also hoard patents involved with their product. This creates protection from any competing company from entering the product market, increasing the patent holders revenue.[22]Since the inventor holds the patent they are certain to win the litigation, with the patent protection. This leads the other infringing party having to pay the patent holder damages. These damages can amount to large sums pending on the use of the patent and also greatly increase revenues for the patent holder.[23] In order for a competitor to use a patented product, they must negotiate with the patent holder and pay the patent holder royalties. Royalties are paid out with sales and also increase the patent holders revenues. The patent holder may also demand large fees in order for competing companies to use the patent, causing them to commit infringement and deal with a legal battle.[24] Problems with new innovation also occur if the patent holder becomes content. Since there is only one firm in the market, that firm dictates what happens. Competing firms are unable to enter the market. A possibility as to why Firms are unwilling to spend money researching the patented product for the duration of the patent is fear of litigation against the holder.[25]


Response

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The value and prominence of patents has increased with the revenues and profits associated with intellectual property intensive business.[26]Patents are being used to create monopolistic competition and exclude firms seeking to enter markets instead of their intended use of property protection. It has become a strategy for companies to hoard patents to eliminate their competitors.Without the patents, firms who create products believe their competitors will unfairly receive benefits from their products and inventions, but with patents these same firms take full advantage of the monopoly power.[27] This means that companies holding patents must find all current and potential users of the product when the patent is in place to ensure that litigation is long and expensive for those intending to violate their patent.[28]That leads to the most damages. Damages also discourage innovation due to their costly nature.[29]

References

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2. Chillemi, Ottorino, and Claudio Mezzetti. “Optimal Procurement Mechanisms: bidding on price and damages fore breach.” Journal of Economics and Law (2013): 335(355). Ebsco.[30]

3. Cusumano, Michael A. "The Apple-Samsung Lawsuits." Communications of the ACM(2013): 28(32). [31]

4. Frohlich, M. "The Smartphone Patent Wars Saga: Availability of Injunctive Relief for Standard Essential Patents." Journal of Intellectual Property Law & Practice (2014): 156-(159). [32]

5. Graham, Stuart and Saurabh Vishnubhakat. "Of Smart Phone Wars and Software Patents." Journal of Economic Perspectives (2013): 67(86). [33]

6. Gupta, K. "The Patent Policy Debate In The High-Tech World." Journal of Competition Law and Economics (2013): 827(858). [34]

7. Hagiu, Andrei and David B. Yoffie. "The New Patent Intermediaries: Platforms, Defensive Aggregators, and Super-Aggregators." Journal of Economic Perspectives (2013): 45(66). [35]

8. Klass, Gregory. "Efficient Breach." Georgetown Public Law and Legal Theory (2013): 1(31).[36]

  1. ^ Cusumano, Michael. "The Apple-Samsung Lawsuits". Communications of the ACM. 56 (1).
  2. ^ Graham, Stuart (2013). "Of Smart Phone Wars and Software Patents". Journal of Economic Perspectives. 27: 67–86. doi:10.1257/jep.27.1.67. {{cite journal}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  3. ^ Gupta, K. (2013). "The Patent Policy Debate in the High-Tech World". Journal of Competition Law and Economics. 9 (4): 827–858. doi:10.1093/joclec/nht039.
  4. ^ Gupta, K. (2013). "The Patent Policy Debate in the High-Tech World". Journal of Competition Law and Economics. 9 (4): 827–858. doi:10.1093/joclec/nht039.
  5. ^ Hagiu, Andrei (2013). "The New Patent Intermediaries: Platforms, Defensive Aggregators, and Super- Aggregators". Journal of Economic Perspectives. 27: 45–66. doi:10.1257/jep.27.1.45. {{cite journal}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  6. ^ Frohlich, M. (2014). "The Smartphone Patent Wars Saga: Availability of Injunctive Relief for Standard Essential Patents". Journal of Intellectual Property Law & Practice. 9 (2): 156–159. doi:10.1093/jiplp/jpt231.
  7. ^ Graham, Stuart (2013). "Of Smart Phone Wars and Software Patents". Journal of Economic Perspectives. 27: 67–86. doi:10.1257/jep.27.1.67. {{cite journal}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  8. ^ Gupta, K. (2013). "The Patent Policy Debate in the High-Tech World". Journal of Competition Law and Economics. 9 (4): 827–858. doi:10.1093/joclec/nht039.
  9. ^ Klass, Gregory (2013). "Efficient Breach". Georgetown Public Law and Legal Theory: 1–31.
  10. ^ Cusumano, Michael. "The Apple-Samsung Lawsuits". Communications of the ACM. 56 (1).
  11. ^ Gupta, K. (2013). "The Patent Policy Debate in the High-Tech World". Journal of Competition Law and Economics. 9 (4): 827–858. doi:10.1093/joclec/nht039.
  12. ^ Graham, Stuart (2013). "Of Smart Phone Wars and Software Patents". Journal of Economic Perspectives. 27: 67–86. doi:10.1257/jep.27.1.67. {{cite journal}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  13. ^ Gupta, K. (2013). "The Patent Policy Debate in the High-Tech World". Journal of Competition Law and Economics. 9 (4): 827–858. doi:10.1093/joclec/nht039.
  14. ^ Cusumano, Michael. "The Apple-Samsung Lawsuits". Communications of the ACM. 56 (1).
  15. ^ Cusumano, Michael. "The Apple-Samsung Lawsuits". Communications of the ACM. 56 (1).
  16. ^ Klass, Gregory (2013). "Efficient Breach". Georgetown Public Law and Legal Theory: 1–31.
  17. ^ Graham, Stuart (2013). "Of Smart Phone Wars and Software Patents". Journal of Economic Perspectives. 27: 67–86. doi:10.1257/jep.27.1.67. {{cite journal}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  18. ^ Gupta, K. (2013). "The Patent Policy Debate in the High-Tech World". Journal of Competition Law and Economics. 9 (4): 827–858. doi:10.1093/joclec/nht039.
  19. ^ Cusumano, Michael. "The Apple-Samsung Lawsuits". Communications of the ACM. 56 (1).
  20. ^ Frohlich, M. (2014). "The Smartphone Patent Wars Saga: Availability of Injunctive Relief for Standard Essential Patents". Journal of Intellectual Property Law & Practice. 9 (2): 156–159. doi:10.1093/jiplp/jpt231.
  21. ^ Gupta, K. (2013). "The Patent Policy Debate in the High-Tech World". Journal of Competition Law and Economics. 9 (4): 827–858. doi:10.1093/joclec/nht039.
  22. ^ Klass, Gregory (2013). "Efficient Breach". Georgetown Public Law and Legal Theory: 1–31.
  23. ^ Cusumano, Michael. "The Apple-Samsung Lawsuits". Communications of the ACM. 56 (1).
  24. ^ Frohlich, M. (2014). "The Smartphone Patent Wars Saga: Availability of Injunctive Relief for Standard Essential Patents". Journal of Intellectual Property Law & Practice. 9 (2): 156–159. doi:10.1093/jiplp/jpt231.
  25. ^ Cusumano, Michael. "The Apple-Samsung Lawsuits". Communications of the ACM. 56 (1).
  26. ^ Gupta, K. (2013). "The Patent Policy Debate in the High-Tech World". Journal of Competition Law and Economics. 9 (4): 827–858. doi:10.1093/joclec/nht039.
  27. ^ Cusumano, Michael. "The Apple-Samsung Lawsuits". Communications of the ACM. 56 (1).
  28. ^ Frohlich, M. (2014). "The Smartphone Patent Wars Saga: Availability of Injunctive Relief for Standard Essential Patents". Journal of Intellectual Property Law & Practice. 9 (2): 156–159. doi:10.1093/jiplp/jpt231.
  29. ^ Chillemi, Ottorino (2013). "Optimal Procurement Mechanisms: Bidding on Price and Damages for Breach". Journal of Economics and Law. Ebsco: 335–355. {{cite journal}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  30. ^ Chillemi, Ottorino (2013). "Optimal Procurement Mechanisms: Bidding on Price and Damages for Breach". Journal of Economics and Law. Ebsco: 335–355. {{cite journal}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  31. ^ Cusumano, Michael. "The Apple-Samsung Lawsuits". Communications of the ACM. 56 (1).
  32. ^ Frohlich, M. (2014). "The Smartphone Patent Wars Saga: Availability of Injunctive Relief for Standard Essential Patents". Journal of Intellectual Property Law & Practice. 9 (2): 156–159. doi:10.1093/jiplp/jpt231.
  33. ^ Graham, Stuart (2013). "Of Smart Phone Wars and Software Patents". Journal of Economic Perspectives. 27: 67–86. doi:10.1257/jep.27.1.67. {{cite journal}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  34. ^ Gupta, K. (2013). "The Patent Policy Debate in the High-Tech World". Journal of Competition Law and Economics. 9 (4): 827–858. doi:10.1093/joclec/nht039.
  35. ^ Hagiu, Andrei (2013). "The New Patent Intermediaries: Platforms, Defensive Aggregators, and Super- Aggregators". Journal of Economic Perspectives. 27: 45–66. doi:10.1257/jep.27.1.45. {{cite journal}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  36. ^ Klass, Gregory (2013). "Efficient Breach". Georgetown Public Law and Legal Theory: 1–31.
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