Imagine a world in which Microsoft wasn't allowed to sell Windows or Word, no one could use a Blackberry, Intel's chips were taken off the market and every company that wanted to deploy Linux had to pay an exorbitant fee to an obscure software vendor.
That world doesn't exist, of course. But each of those scenarios could have been realised if the outcome of five major patent lawsuits had been different. It easy to dismiss the recent lawsuit by Apple against HTC, the maker of Google's Nexus One smartphone, as something that only lawyers need to care about. Indeed, most landmark patent suits are settled - often at great expense - without causing an upheaval in the technology industry.
Even so, patent litigation has become more than a cottage industry in Silicon Valley. On the one hand, it protects intellectual property developed by independent entrepreneurs and industry giants alike. But it also wastes untold millions of dollars a year that could be better spent on innovation, says Charlene Morrow, who heads the patent litigation practice of Fenwick & West. "When startup valuations were very high, and a new company got a round of funding, you could absolutely count on a non-practicing entity to file a patent suit," she says.
More on patent laws
Non-practising entity? That's a polite term for what others call a "patent troll," a company that purchases a patent, often from a bankrupt firm, and then sues another company by claiming that one of its products infringes on the purchased patent. Patent trolls typically have no actual technology or products on the market.
We've tapped the memory banks of Silicon Valley veterans who recount five of the most sensational patent cases ever to roil the technology industry.
1. Who invented the GUI?
Although it seems like a relic of the distant past, it's only been 30 years since Microsoft launched Windows 3.0, its first successful operating system to sport a graphical user interface. It was a great idea, but whose idea was it anyway?
According to Apple founder Steve Jobs, it wasn't Microsoft's; it was Apple's. Or was it? Legend has it that Jobs actually got the idea when he took a tour of the famed Xerox PARC and saw an early version of a windowed operating system, recalls long-time semiconductor analyst Nathan Brookwood of Insight 64.
Whether that's true or not, Apple claimed that the "look and feel" of the Macintosh operating system, taken as a whole, was protected by copyright, and it sued Microsoft in federal court in 1988. Not to be outdone, Xerox jumped into the fray before the original action was resolved and sued Apple for stealing its ideas.
After six years of litigation and appeals that went all the up to the United States Supreme Court, both suits were dismissed; Apple's because it couldn't prove its claims, Xerox's because it had waited too long.
2. Is it Linux or UNIX?
In early 2003, an obscure software company called SCO, which had come into existence via a Byzantine series of mergers and technology sales, shocked Silicon Valley by announcing that part of its UNIX system code had found its way into Linux. SCO, which hadn't invented the code, refused to identify the specific segments of the software, claiming that it was a secret which they would reveal only to the court.
A flurry of lawsuits followed, including a $1 billion action against IBM, and suits against Novell, Red Hat and Daimler Chrysler. For a while, there was fear that third party customers who used Linux could be liable for huge damages to SCO. There were allegations that Microsoft, in a truly Machiavellian move, had funnelled money to SCO to help fund a lawsuit that would damage its competitors. Ultimately, though, the cases fell apart.3. No Crackberry for you
Hardly anyone had heard of a tiny Virginia-based company called NTP. That changed in a hurry when NTP, which held a basketful of wireless patents, brought suit against RIM, the inventor of the wildly popular Blackberry. A jury agreed that the patents were valid and RIM was hit for $53 million in damages.
Had it ended there, it would have been just another expensive lawsuit. But a judge then ruled that RIM was continuing to violate NTP's patents by operating the Blackberry data network. He could have issued an injunction to shut down the service. Panic ensued as everyone from Wall Street traders to senior advisers at the White House faced the loss of their favourite electronic gadget. Ultimately RIM settled for $615 million, one of the largest ever settlements in a technology patent case.
The NTP suit sparked outrage in many quarters at the perceived unfairness of the patent system. However, in a more recent patent case known as eBay vs. MercExchange, the U.S. Supreme Court issued a ruling making it less likely that a patent holder could win an injunction to shut down the business of a patent violator, says Michael Sacksteder, a patent attorney with Fenwick & West.
4. Chips Ahoy
Intel and a workstation maker called Integraph tangled in a complex series of patent lawsuits beginning in 1997. Integraph claimed that Intel, the world's larger microprocessor maker, had stolen key features of its Clipper chip. One settlement, which that involved memory design, cost Intel about $300 million. A second alleged infringement involving a microprocessor instruction set known as VLIW was settled for $225 million. Brookwood notes that the settlement was more money than anyone ever made bringing that technology to market. At $525 million, the Integraph litigation resulted in the largest set of damages ever won against Intel.
Making matters even more complicated, computer makers, including Hewlett-Packard, became involved because they had purchased chips from Intel that included memory features claimed by Intergraph. Ultimately, those claims were settled as well.
5. A Gold Medal for the Canadians
It would be hard to find a product that has a larger user base than Microsoft Word, or an application that makes more money for its inventors. So when a tiny Canadian company called i4i won an injunction preventing Microsoft from selling Word, the world noticed.
The 30-employee company claimed that Microsoft had infringed on a patent for the use of an XML feature. Microsoft never stopped selling Word, but it has removed the featured from Word 2007 and the upcoming Office 2010 and paid $290 million in damages.
It's worth noting that i4i filed its case in the small East Texas town of Tyler, a venue considered the friendliest in the United States for claims brought by patent trolls.
One other bit of tech patent history: It appears that the term patent troll was first used by Chuck Mulloy, a veteran tech industry public relations man who has fought on both sides of the Intel-AMD chip wars. As Mulloy recounts, Intel was defending a patent case brought against it by a company called TechSearch. In an interview with reporter Dean Takahashi of the Wall Street Journal, the normally affable Mulloy let his irritation show and he referred to TechSearch as a "patent extortionist."
TechSearch's lawyers quickly added a libel case to their suit. After a huddle with corporate attorneys, Mulloy retracted "patent extortionist," and substituted the milder "patent troll." "It's like the troll that lives under the bridge, but doesn't own it, and charges a toll on everyone who crosses," he said recently.
San Francisco journalist Bill Snyder writes frequently about business and technology. He welcomes your comments and suggestions. Reach him at [email protected].