//Patent Sheltering by Apple and Google: A new approach to IP management

 

 

 

Patent Sheltering by Apple and Google: A new approach to IP management

In July 2011, Lodsys filed suit against 37 defendants, including Rovio (the company behind the blockbuster Angry Birds games) and Dan Castelnuovo (the creator of Pocket God), accusing them of infringing its four patents on an in-app purchasing feature. Google and Apple were both safe, as they had already had licenses for the claimed patents. However, both companies decided to intervene and defend the developers, though they opted to take different approaches to the problem. Apple inserted itself into the dispute on behalf of its developers, claiming that its license for the related patents extended to the many coders using Apple’s technology to build content. Google, on the other hand, requested a reexamination of Lodsys patents.

These reactions raised some important questions, including: Why did Apple and Google intervene in this patent battle? Is this a unique case, or is it representative of a new approach to IP management? …

We reported the interesting results of our investigation into this emerging IP management practice in a paper published on March 1 2016 in Research-Technology Management. Here the results are presented in a summary form:

The increasing patent litigation threat

The steady growth in the strategic importance of technology platforms has brought new challenges in a number of domains, including intellectual property; indeed, technology platforms have become the target of an increasing number of patent infringement claims. These claims can be very painful, especially for complementors, which may not have the resources available to platform leaders. In fact, many complementors are small, entrepreneurial businesses that cannot afford to fight costly legal battles. Patent litigation threats have thus become a particular concern for them.

However, platform leaders are responding to protect complementors as a way of defending the strength of their platforms. Some platform leaders (also sometimes called “platform owners” or “platform sponsors”) have stepped in to provide Patent Shelter for complementors active on their platforms. These actions represent an important shift in platform leaders’ strategic approach to intellectual property (IP) that may have significant implications, for both platform leaders and complementors as well as patent litigators.

Our research shows that platform leaders have responded to the growing patent litigation challenge at two different levels: by seeking to protect the platform as a whole, and complementors, by discouraging potential attackers, which we refer to as umbrella protection, and by intervening in specific patent cases.

 

Umbrella Protection

In some cases, platform leaders may proactively create protection by building or reinforcing a defensive IP umbrella that covers the whole platform ecosystem. This goal can be achieved through a number of different mechanisms. The most common route is to generate a large stock of related patents that reduces the risk of litigation for both the platform leader and complementors by establishing ownership of a wide swath of protected technology. Microsoft took this path back in 2004 (Fried 2004). In the years following the announcement of its strategy, the company has markedly accelerated its patent filings, in the process building a strong patent arsenal.

For further details on Umbrella protection strategies and examples, please refer to the full paper (link below):

 http://www.tandfonline.com/doi/full/10.1080/08956308.2015.1137195

Case-Specific Protection

Besides providing an overall shield, platform leaders may get involved in specific patent litigation attacks to defend their partners and complementors. However, platform leaders must act very selectively in providing case-specific patent shelters. The reaction must be fine-tuned to the type and extent of the threat, as well as the role and relative position of the defendant within the platform ecosystem.

Platform leaders’ case-specific actions fell into three categories:

  1. Don’t hesitate. The platform leader itself is attacked, leaving it no option but to engage immediately with the litigation and defend itself.
  2. Act strategically. When a few blockbuster applications or a large number of small complementors are threatened or sued for patent infringement, the platform leader may choose to intervene in the litigation, if the firms attacked are central to the platform ecosystem or are otherwise strategically important.
  3. Act symbolically. If patent infringement claims are or could be brought against one or a small number of non-blockbuster complementors, platform leaders may prefer not to react or they may choose a few symbolically important niche players to defend.

For further details on Patent Sheltering cases, please refer to the full paper (link below):

 

Patent Sheltering on the Rise

So far, the telecommunications and computing sectors have been the main targets of patent litigation threats from NPEs. Accordingly, the evidence on the emerging practice of patent sheltering has mostly been concentrated in these sectors. However, as other industries increasingly rely on platform-based business models to drive innovation and create value, it is reasonable to expect patent sheltering to appear in other industries as a strategy to mitigate litigation risk and protect technology platforms.

Although defending platform complementors against patent litigation may be seen as too risky, time-consuming, and costly by many large companies, our results suggest that they may need to revisit these concerns in the context of a growing platform-based competition. They can, instead, follow the strategy of intelligent and selective patent sheltering to convey a sense of security to the whole platform ecosystem and simultaneously make their platform more appealing to independent complementors. Patent sheltering could create room for leaders to differentiate their platforms and might also help them secure more favorable terms from platform members. This selective sheltering coverage might even include future developers of niche products.

Here is the full version of our analysis:

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