Titans of tech clash in courts for claims to prized patents

Some call them “patent trolls.”

They might not hide under bridges, but critics say they come out of nowhere, demanding payment for the theft of inventions no one knew they owned. They are despised in Silicon Valley for stunting innovation, but that hasn’t stopped the growing industry from slapping established tech giants with patent-infringement lawsuits after they hit it big.

And with technological innovation and e-commerce exploding in tandem, the unclear legal outlines of what can and cannot be patented is only encouraging more firms to try their luck in court.

“Indeed, there has been a general and dramatic rise in patent litigation that some analysts attribute to rapid growth in the number of patents with unclear or unpredictable boundaries,” according to an extensive study of the phenomenon by researchers at Boston University.

Some of the biggest names in the business are getting into the game.

Yahoo’s decision to sue Facebook last week charging patent infringement is just the latest lawsuit over who invented what and who ripped off whom. The pre-Google search-engine giant is suing Facebook for what it says are 10 patent infringements over social-networking technology, online-advertising methods, privacy, and customization.

The lawsuit was filed shortly after Facebook submitted its first public stock offering - a time when the industry giant might not welcome a protracted and expensive legal battle hanging over its head.

Yahoo officials argues that Facebook in its basic business model is employing technology and techniques that the search-engine giant developed and owns, and wants the popular social network to pay up.

“Facebook’s entire social-network model, which allows users to create profiles for and connect with, among other things, persons and businesses, is based on Yahoo’s patented social-networking technology,” the company contended in papers filed with the U.S. District Court of Northern California.

Facebook vowed to vigorously defend itself against “these puzzling actions,” while a number of high-tech bloggers suggested Yahoo was trying to “bully” a rival that had surpassed it in the marketplace.

Protecting the little guy

Some argue that patent litigation is the only way smaller-industry players - who may have no immediate prospect of bringing their product to market - can defend their property rights against richer rivals.

“Some investors lack the resources and expertise needed to successfully license their technologies or, if necessary, enforce their patents,” says the Boston University study, conducted by James Bessen, Jennifer Ford and Michael Meurer.

But the legal battles have real costs to the real economy.

The BU study found that on average, patent lawsuits cost defendants $122 million. That led to “half a trillion dollars” of lost wealth from 1990 to 2010, averaging some $80 billion annually over the past four years.

The prospect of ruinous legal bills “can decrease the incentives for these firms to innovate,” the study found. “Innovators deciding to invest in new technology have to consider the risk of inadvertent infringement as a cost of doing business.”

Kodak, the once-dominant film company, in January filed a series of lawsuits against Samsung, Apple and HTC, as it headed into bankruptcy. The lawsuits accuse the companies of infringing on Kodak’s image-transmission technology, particularly in the case of Apple’s iPhone, iPad and iPod.

Some analysts say the most valuable asset left for Kodak, which failed to meet the challenges of foreign competition and the switch to digital photography, is its hoard of patents and the potential for payoffs in court if its lawsuits succeed.

Big tech-industry players, many with a deep inventory of patents, have tended to shy away from attacking one another, in a standoff many compared to the old Cold War nuclear detente. Going after a big rival for patent infringement could leave one vulnerable to a massive legal retaliatory strike.

But cases such as the Yahoo-Facebook and the Kodak filings suggest the old fears are breaking down.

Many active patent plaintiffs are essentially in the licensing business, acquiring patents for products or technology that they never produce. Instead, they seek to sell the rights to other companies.

Such is the case with Varia Holdings, which sued Samsung and Research in Motion, the maker of BlackBerry, last week for allegedly infringing on its patent for the use of “emoticons” on mobile phones and other mobile devices. In another example, Purple Leaf in July sued Amazon, Google and PayPal over a patent related to electronic checkout services.

Eolas Technologies, a company that won a $521 million patent-infringement award from a jury against Microsoft in 2003 (later overturned on appeal) is now in a Texas court contending it essentially owns the rights to many interactive features of the Web, including the function that offers a “search suggestion” when you’re entering a term in the search bar.

’Fuzzy patents’

Fueling the rush to the courthouse is the uncertainty over what can and cannot be protected under patent law.

Plaintiffs thrive on “fuzzy patents,” which they can use to claim ownership of popular technologies, according to the BU study. “They buy up vaguely worded patents that can be construed to cover established technologies and use them opportunistically to extract licensing fees from the real innovators.”

But some say the overall health and growth of the industry indicate that the fears are overblown.

“If it was going to ruin the industry, it would have happened a decade or two ago,” said Jeff Kagan, a wireless and telecommunications industry analyst based in Atlanta.

Mr. Kagan said patent litigation has been heating up in part because it’s hard to keep up with technology’s ever-changing pace.

“Technology has been exploding,” he said. “It’s so far ahead of our ability to keep track of it. Eventually, when we catch up, we find things that are wrong, and lawsuits are filed.”