Citation(2012) 24 SAcLJ 634
Published date01 December 2012
Date01 December 2012

The principal goal of intellectual property (particularly patent) laws is to foster innovation for the public good. Yet, the proliferation of patents could stifle technological advancement if the incidence and risks of undesirable innovation “hold-ups” are not addressed. This article draws on the recent developments in the information and communication technology sector, such as the ongoing global patent war involving smartphones and tablets, to support the contention that the patent system cannot continue to play the vital role in promoting innovation without recalibrating the balance between the competing, and sometimes conflicting, interests of divergent stakeholders in the patent system. More controversially, it is argued that courts should seriously consider going further to award ongoing royalties or prospective damages as a remedy under national laws.

I. Introduction

1 The battle scene has changed: traditional patent battles have generally involved a few patents and litigants; going forward, some predict that the ongoing global patent war in smartphones and tablets is “likely a foretaste of more patent wars in the future”.1 The stakes have become phenomenal as the loser faces potential ruin from legal costs and outsize awards of damages,2 or even worse, the disaster of a

permanent injunction prohibiting the sale of its product.3 The wars of the future may involve thousands of patents (if not, hundreds of thousands) and many interested parties.

2 That the information and communication technology (“ICT”) industry has become a battleground comes as no surprise. The typically complex and cumulative ICT products, such as those in mobile communications, are dependent upon interconnectivity and interoperability. Such products are more susceptible to conflicting claims of mutual infringement, especially where they suffer from poor patent quality and notice failure. In addition, some of these may be technically more difficult to design around and thus more vulnerable to hold-up challenges. Similarly, pioneers of leading technologies in promising sectors may be tempted to amass a “massive treasure chest of patents early on in the development of the technology”.4 Take, for example, hybrid vehicles for which Toyota Motor Corp (“Toyota”) is reported to have filed more than 2,000 patent applications on its hybrid technology and components.5 In the field of mobile network technology, for example, Samsung Electronics Co Ltd (“Samsung”) owns around 820 (or around 12%) of Long-Term Evolution (“LTE”)-related patents.6

3 It is imperative that the patent system continues to offer a conducive environment for innovation, by striking an appropriate balance among the competing interests of the various stakeholders such as the inventors and their investors, researchers, consumers and the general public. This is particularly acute in sectors that are more susceptible to innovation “hold-ups” that may result, inter alia, in costly undesirable disruption to businesses and barriers to technological integration and diffusion. The key to this endeavour may lie in the proper development and application of remedies in intellectual property (“IP”).

4 This article will attempt to develop on the works of eminent scholars on IP remedies. It will seek to highlight that, in certain circumstances, limitations may need to be placed on the exercise of the “right to exclude” so as to achieve an appropriate balance of rights between protection and competition. The grant of remedies, especially permanent injunctions, is one avenue to explore. The author argues, more controversially, that an award of ongoing royalty in lieu of injunctive relief, if properly utilised, is not only complementary to existing structures but also maintains a degree of protection that is not too excessively robust for further innovation, entrepreneurship and technological advances to take place.

5 This article will draw heavily on the US experience, primarily because the author believes that the recent US jurisprudence holds significant lessons that are highly instructive to every jurisdiction that has an interest in the impact that these developments are likely to have on the exploitation of patented products in an integrated world economy. While some of these factual matrices appear to be confined to the US at the moment, the subject matter of such disputes are unlikely to end at, or involve only, one jurisdiction.

II. Role of patent system – Promotion of innovation for the public good

6 The traditional role of the patent system, which seeks to balance the competing objectives of encouraging innovation through appropriate incentives and providing reasonable access to and use of the knowledge and information thereof, still holds true today.7 To incentivise innovation for the public good, the patent system confers “exclusivity” on the patent owners to enable them to recoup research and development investments, in exchange for disclosure of the invention. While some may be tempted to assume that there is a causal connection between superior outcomes and enhanced protection as a means of “promoting the public good”, the trade-offs cannot be ignored.

7 Innovation is a complex and often expensive process fraught with risks and unpredictability. No one denies that the patent owner should be adequately protected and deserves returns from investment of considerable resources, yet the trade-off from enhanced protection is undoubtedly the loss of some degree of access and desirable competition, the preservation of which is equally important to the state of innovation.

8 The technological revolution spawned, in particular, by the biotechnology, nanotechnology and ICT sectors has cast the spotlight on the increasingly important role that IP plays in shaping innovation. In a changing landscape, the patent system needs to evolve and recalibrate to ensure that it stays relevant. Holding the public interest at its core, the IP system must strive to maximise the public benefit from scientific progress and technological advancements.8 In particular, it must ensure, inter alia, that remedies granted serve to effectively promote innovation by aligning exclusivity conferred by protection and access necessary to promote a degree of competition so as to best serve the interests of all its stakeholders.

III. Changing intellectual property marketplace – Patent assertion entities, non-practising entities, trolls and more

9 The IP marketplace has evolved in recent years from a traditional “closed” model of innovation based predominantly on a firm's reliance on its own research and development to create and commercialise its own products, to the adoption, in some cases, of “open innovation” where firms acquire inventions that originated from

others that fit into their business models.9 The emergence of a division of labour between those who invent and those who commercialise most efficiently may help to expedite innovation, as well as lower the entry barriers for inventors who may otherwise have been prevented from bringing their products to the market for reasons such as lack of effective access to capital or markets.10Ex ante patent transactions and technology transfers have been lauded in some quarters, such as by the US Federal Trade Commission, as important pathways to innovation.11

10 Still, in recent years, the activities and business models of certain entities have served to highlight the potential deleterious effects of certain ex post patent transactions,12 on innovation and society at large. A recent study13 (which has been challenged by some)14 on the business model of non-practising entities (“NPEs”) found that NPE litigation is growing rapidly in the US and revealed that the direct costs15 imposed on the US economy by NPE assertions amounted to a staggering sum of approximately US$29bn in 2011 or more than 10% of total national research and development investments by businesses in

2009.16 These NPEs acquire patents not for the purposes of protecting a market for production but mainly for setting traps for producers who may unwittingly infringe on the patent. Other terms that have been used to describe such entities range from the innocuous, such as “patent assertion entities” (“PAEs”),17 to more pejorative ones like “patent trolls” and “patent sharks”.

11 The need to differentiate between the different types of NPEs cannot be emphasised enough because not all NPEs engage in patent-trolling conduct. Indeed, some like patent consolidators18 (who license on reasonable terms in areas where there is a “tragedy of the anti-commons”),19 universities and individual inventors (who do not commercialise or manufacture their inventions for one reason or another,20 or those who invent with the hope that others may bring the invention to market) or start-ups (who may have been unsuccessful in commercialising their inventions) are not true “trolls”. Nor are we

concerned with “owners preserving cost recovery strategies from the reasonable licensing of patents obtained from failed research projects”.21

12 A more detailed analysis of patent trolling by the author has been published elsewhere22 and will not be repeated here, save to highlight a few characteristics. For instance, a new business model focussed on patent hoarding primarily to extract exorbitant settlements (that is, those far in excess of the patent value) from legitimate businesses has become a popular value proposition for some firms. Typically, they acquire “broad patents not to innovate, but solely to ensnare real innovators who might inadvertently cross the boundaries of [their] patent”.23 When opportunities arise, they may ambush an unsuspecting innovator by alleging infringement of one or more of the patents in their vast portfolios. The innovator accused of patent infringement may already have invested in developing or commercialising the patented technology. In cases where the patented technology in...

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