This story has been updated to reflect the following correction: The U.S. Patent and Trademark Office receives nearly 500,000 patent applications every year. Incorrect information was published Tuesday.
This summer's public feud between Research In Motion and Ericsson over the carcass of Nortel Networks, Canada's debased networking giant, underscores a new reality in the technology business.
Like it or not, patents are the new gold. Filing them, owning them, defending them and licensing them can be as important as what you do with them.
Years of scandal, mismanagement and neglect helped kill Nortel. But its patents, particularly in the area of next-generation wireless technology known as long-term evolution, or LTE, are highly prized. They made Nortel worth $1.1-billion to Ericsson, enabling Nortel to keep the patents out of the hands of its competitors, such as RIM, or patent trolls (companies that make their money solely by licensing technology).
The recession could soon push a lot more of this intellectual property onto the market.
The U.S. patent office gets nearly 500,000 applications every year. Figuring out who owns what, typically in court, has morphed into a business worth $10-billion (U.S.) a year in the United States, where the global patent war is mainly being waged.
It is a system run amok. Litigation has exploded since the 1980s. Cases have tripled, while judgments, legal costs and licensing fees have vastly outpaced inflation.
To understand why, you have to look at what has happened to technology.
It has moved away from machines to increasingly complex digital systems. In the information age, the best new technologies are typically the outcome of thousands of tiny innovations. The result is that it is now harder to determine where one technology ends and another begins.
The results are fuzzy patents and disputed ownership of technology. And lawyers have feasted in this fog of uncertainty.
Consider inventor Charles Freeny's 1988 patent for a "system for reproducing information in material objects at a point-of-sale location." His system was for making musical tapes from digital information, but his original patent has since been used to thwart thousands of companies involved in all kinds of e-commerce.
New research by Boston University law professors James Bessen and Michael Meurer, published in their 2008 book Patent Failure, paints a sobering look at patents in the digital age. Aside from pharmaceutical and chemical manufacturers, companies in all other industries now spend vastly more on litigation than they generate in profits from their patents.
One solution is fundamental patent reform, which would limit oversized infringement awards in court and generally improve the quality of patents.
But repeated efforts to modernize the current system have failed in the U.S. Congress. A new compromise bill has passed a key Senate committee earlier this year, but its prospects are unclear.
Technology companies, such as Microsoft, Intel and RIM, want reform so they aren't forced to constantly battle over vague patents. Makers of drugs and chemicals, whose patents are generally few and highly specific (chemical formulations), prefer the status quo.
Among other things, the proposed reforms would tie potential damages to the incremental value of the disputed technology, rather than the end product. That would take some of lure out of serial litigation.
U.S. President Barack Obama is sympathetic. And he recently appointed a reform-friendly former IBM patent lawyer to head the beleaguered U.S. Patent and Trademark Office.
But the stalemate in Congress shows no sign of going away.
In the absence of legislative reform, the courts are remaking the law, bit by bit. In 2006, eBay won a seminal U.S. Supreme Court case that eliminated the automatic granting of injunctions in patent lawsuits.
"It's hard to overstate the significance of this case," said patent litigator Alan Fisch of Kaye Scholer in Washington, D.C.
In June, the Supreme Court took on another potentially game-changing case that gets at the heart of what can be patented. The case involves a method of hedging risks in the sale of commodities. If the court upholds lower court limits on murky "business method" patents, tens of thousands of other patents could be put in question.
While Canadian tech companies, such as RIM and Nortel, have fought to reform a system that cost them dearly, others are playing - and winning - under existing rules.
Several Canadian companies have secured key patent victories in U.S. courts this year, including generic drug maker Apotex (a re-examination of anti-clotting drug Plavix), Royal Bank of Canada (locking up patents on a system to index hedge funds) and tiny, Toronto-based software maker i4i Inc. (securing a $290-million patent infringement award against Microsoft).
The message, sadly, is that litigation is still the price of doing business in the world's largest marketplace.
The downside is that legal action slows the spread of technology, inhibits sharing and makes the rest of us pay a lot more for much of what we buy.