The months-​​long legal battle that has been raging between Sam­sung and Apple over patent infringe­ment on Apple’s iPad is just one example of the patent wars being waged throughout the tech­nology industry lately. Last month, Google acquired Motorola Mobility largely to obtain its slew of patents. We asked Susan Bar­bieri Mont­gomery, exec­u­tive pro­fessor of law and busi­ness in Northeastern’s School of Law and Col­lege of Busi­ness Admin­is­tra­tion, to explain why these tech giants are so deter­mined to build a “war chest” of patents. 

Why is it so impor­tant for tech­nology giants like Google and Apple to develop large patent portfolios?

Tech­nology giants, such as Google and Apple, are espe­cially vul­ner­able to patent lit­i­ga­tion for a number of rea­sons. First and fore­most, the IT field is noto­ri­ously patent inten­sive, with mul­tiple patents impli­cated by a single device or soft­ware product. Tech­nology com­pa­nies also com­pete in a field of rapid inno­va­tion. When com­pa­nies are working fever­ishly to develop new prod­ucts and fea­tures, it is not unlikely that a com­pany would release a fea­ture without being aware of a patent or before the patent issues. On top of the gen­eral patent envi­ron­ment for tech­nology com­pa­nies, the size and status of com­pa­nies like Google and Apple add to their vul­ner­a­bility. Large com­pa­nies are tar­geted for their deeper pockets, and when dam­ages for patent infringe­ment are based on units sold, the patent owner’s poten­tial return on a law­suit is much greater.

The advan­tage of building a large patent port­folio is pri­marily the ben­efit of exclu­sivity, which may be used offen­sively or defen­sively. A large patent port­folio can be a tool to manage a company’s risk and lia­bility for patent infringe­ment. A large, diverse col­lec­tion of patents can give a com­pany more oppor­tu­ni­ties to license or to exclude others from using a wide variety of tech­nolo­gies and fea­tures. Beyond exclu­sion, a large patent port­folio can act as a hedge against litigation.

Is the stock­piling of patents an effec­tive defense against patent lawsuits?

Stock­piling patents can be an effec­tive defense to dis­courage or effi­ciently manage patent suits by com­pa­nies actu­ally involved in product devel­op­ment, man­u­fac­ture and sales. Recently, how­ever, the tech­nology industry has a seen a rise in non-​​practicing enti­ties (NPEs), some­times referred to as “trolls.” These com­pa­nies do not make or develop any prod­ucts or tech­nolo­gies and have no inten­tion to. Their busi­ness model is simply to own and acquire patents and col­lect roy­al­ties for licensing those patents. NPEs reg­u­larly file law­suits against com­pa­nies that don’t accept their licensing fees.

Even so, for com­pa­nies like Apple and Google, the defen­sive use of a large patent port­folio, some­times referred to as a “war chest,” is most effec­tive in pro­tecting against law­suits from competitors.

What future changes in patent law might affect the defen­sive value of large patent port­fo­lios for tech­nology giants?

Con­gress just passed the “America Invents Act”, which will reform patent law and intro­duce a number of sig­nif­i­cant changes of poten­tial value for tech­nology com­pa­nies large and small. For example, the act pro­vides an oppor­tu­nity for anyone to submit infor­ma­tion about prior inven­tions and known tech­nology to the patent exam­iner before a patent is approved. Sec­ondly, there will be a new oppor­tu­nity for anyone to chal­lenge the validity of a recently issued patent without suing or waiting to be sued.  These new pro­ce­dures will improve patent quality by blocking patents on ideas that are not truly new and innovative.