Analysis: The Supreme Court Rulings and Their Impact on Software

SCOTT FULTON, BetaNews: There are entire businesses whose business models are founded upon the principle of buying other companies' outmoded or slightly outdated patents that they can't hold onto anymore...and then trying to reap the benefits of that by "defending them." They are professional litigators. Prior to this action - which people knew was coming - there was patent suit after patent suit flooding US courts. We at BetaNews were becoming "Patent News Central," with up to four items per day...I don't know if the faucet is turned completely off, but I'm wondering if now it starts to turn down a little bit. [AMD has considered becoming more of a licensing company, more like Transmeta.]

CARMI LEVY, Info-Tech Research: Certainly the level of risk is lower because, essentially, you now serve as an aggregator, and you're no longer accountable for building three-billion-dollar fabrication factories, and you no longer own massive assets that expose you to huge risk; you can be significantly more agile and take on less risk, as you move from one market cycle to the next.

SCOTT FULTON: But if the weapons are taken away from you to be able to defend those licenses - whether you created the technology or acquired it from someone else - then doesn't that business model seem less attractive?

CARMI LEVY: Yea, because you're now going to be dammed into spending more time in court and less time marketing yourself. The slippery slope there is that companies will have to shift resources toward litigation-related activities, and away from marketing-related activities. As a nation, this is a huge issue because it ultimately affects not just the competitiveness of a given company, but it affects the competitiveness of a nation within a larger global market context.

I think America needs to decide what it wants to be when it grows up: Does it want to have all of its businesses duking it out in court, or does it want to have all of its businesses duking it out in the marketplace, where they can actually make real profits instead of having those profits being siphoned off to the lawyers and the other bottom-feeders who live off of these proceeds? At some point, you have to question the model, and wonder whether it, in fact, is adding overall value or whether it is, in fact, only making some people rich.

I realize it's a capitalist system, largely based on increasing shareholder value, but you increase shareholder value by creating intellectual property, by selling intellectual property for more than it costs to develop, by delivering services and products in a value-added way. This is not a delivery of a service in a value-added way; this is taking advantage of some other company's misfortune. So ultimately, while it certainly aids short-term gain for the shareholders of that particular licensing company, it is at the expense of others, and it is ultimately, in the overall scheme of things, a destructive path to pursue.

SCOTT FULTON: We tend to tout AT&T v. Microsoft as a huge case because of the players involved there...but an equally important patent ruling on the same day was KSR v. Teleflex. The essence of the ruling is, if a company or a person of "ordinary skill" can make an improvement to a device that is patented, then that improvement, when marketed, cannot be considered an infringement upon the original patent. Almost immediately, Vonage comes out and says, "We have people of ordinary skill!"

CARMI LEVY: In many respects, is it based on previous, patentable intellectual property? It's a thorny issue, and I don't think it's something that's going to be resolved any time soon, because the truth of the matter is, all technology is largely based on the creations of earlier technologies. So there really is no such thing as a technology that is absolutely "green-field."

For example, you look at Intel's next generation of processors: It's based on research that both Intel has done in the past, as well as what other companies have done in the past. So there has to be a recognition that there is also a common base of technology that's constantly moving forward. We develop a Linux application that sits on top of an open-source operating system, and then someone else improves that application - well, then, who owns the IP? I think there needs to be recognition that simply, to even prove that this is brand new technology not based on anything previously, will become increasingly difficult in the future, if it isn't impossible already.

We're always building on what's come before. So who's to say that this is not a patent infringement? At some point, simply proving these cases one way or another in court is going to become almost impossible, and essentially, it can lead to judicial gridlock...It will require legislative guidance to ensure that companies of any skill level don't simply sit by the sidelines and cherry-pick the most marketable technologies for their own gain.

SCOTT FULTON: How do you legislate that, though? How do you create a law that says, in order for this to qualify as an exemption from infringement, it must improve the state of the art?

CARMI LEVY: The potential to pull this off successfully is compromised somewhat by both the judicial system and the legislative system that woefully lag the market, and woefully lag the state of the art. So we are being led by elected representatives and being judged by judicial experts who are not considered leading-edge technologists, and who really don't understand the subtle nuances that govern the technology industry. So there's a yawning divide between the market and the forces that aim to control it.