Cumulative Innovation and the Smartphone Patent Wars

A typical smartphone is open to approximately a quarter of a million patent claims. Which probably doesnt sound like a lot if your background is gene sequencing or derivatives trading.

But if you are an enterprise whose purpose is primarily to create products and services you can sell to others rather than merely paying lawyers to pursue claims, that number sounds like it could provide substantial distraction from the business at hand - to say nothing of the fees that might have to be paid by someone, eventually.

And that is why the so-called patent wars being waged by Apple, Google, Samsung and their various proxies are both so potentially destructive and so serious. Because they are both a distraction, an expense, an impediment to useful innovation and a rejection of the fundamental principle guiding the technological revolution from which we all benefit.

That fundamental principle is called, in this case, cumulative innovation. People uses emotive phrases like 'standing on the shoulders of giants,' to try to convey the idea. Basically, however, it comes down - as the following article explains - to complementarity and sequentiality.

These words have meaning in the culture and they also have come assume legal consequences, but the significant implication is that everything in tech is the result of something someone did previously. Some innovations are sufficiently distinct - and often amazing - that they stand on their own. And no one with a heart or mind is opposed to those who have done the hard work of reaping at least some of the benefits. But we have pushed this obsession with ownership to the point where even an organization as chronically immune to reason as the US Congress has overwhelmingly voted to end frivolous lawsuits over intellectual property. Would that the institutions they are hoping to protect would now follow that lead. JL

Paul Belleflamme comments in IPdigIT:

The legal quagmire that currently plagues the smartphone industry results from a combination of forces that should be familiar by now.
In April 2012, Lucy Koh, a US District Court Judge, tried to force a truce on one of the fiercest fronts of what is now commonly known as the “Smartphone Patent Wars”. She ordered Tim Cook and Choi Gee-Sung, the CEOs of Apple and Samsung, to meet and work out their bitter and prolonged patent disputes. The two firms had indeed spent long months suing and countersuing each other, all over the world, for alleged patent infringements.
As most companies in the smartphone industry are fighting similar battles (for a very effective presentation of the existing feuds, see the animated graphic proposed by the Financial Times), the peacemaking process that Lucy Koh initiated may prove crucial for saving the industry from a potential collective suicide.
1. Smartphones are the archetypal example of a cumulative innovation. They exhibit indeed the two types of cumulativeness: complementarity and sequentiality.

• Complementarity describes the fact that a second-generation product requires the combination of a number of different first-generation innovations (‘many-to-one’). This is clearly the case for smartphones as they result from the collision between computers and mobile-phones, which are themselves already cumulative in nature.
• Sequentiality refers to the notion that a first-generation innovation leads to the creation of many second-generation innovations (‘one-to-many’). This is also the case for smartphones insofar as all handsets have to incorporate a number of existing standards (for, e.g., wi-fi access, email transfers or video display).

2. The previous technical features raise important-and potentially conflicting-economic issues regarding the allocation of intellectual property rights. On the one hand, complementarity raises the prospect of the ‘tragedy of the anticommons’: the allocation of strong property rights to separate right-holders results in higher prices (‘royalty-stacking’) and higher transaction costs. In this respect, some form of ‘collective’ or ‘shared’ property is more prone to favor interoperability and easy access to interfaces.
Sequentiality, on the other hand, is likely to create hold-up opportunities for first-generation innovators if intellectual property rights are defined too broadly (i.e., if the first-generation innovation confers the patentee rights over subsequent innovations).

3. The importance of the previous two problems is magnified by the sheer density and size of the ‘patent thicket’ that engulfs the smartphone industry: according to estimates, a smartphone is open to a quarter of a million patent claims. If you factor in the diversity of players (as companies flock from industries as diverse as equipment manufacturing and software development), the crucial need for interoperability (just try to imagine how painful your life would be if several incompatible email services were coexisting), and the high profitability of the whole market (the global mobile phone industry reached a value of US$1.18 trillions in 2011), you easily understand why even though private solutions to the previous problems do exist (patent pools and standard-setting organizations address the tragedy of the anticommons while licensing agreements may solve the hold-up problem), these solutions are very hard to achieve in the smartphone arena.
Accordingly, some players in the market have called upon the competition authorities to sort out the mess. Some observers have been rather critical of the authorities’ abilities to do so. For instance, in an article posted on this blog, Yann Ménière expresses doubts that competition authorities would be able to impose sanctions that address the fundamental problem(s).