Leading Edge / Spring 2013
Patent Wars

Intellectual property rights are intended to foster innovation. But could they actually be stifling it?


Last year, a California jury sided with Apple in a patent trial that saw the iPhone-maker awarded $1 billion (an amount that the judge later reduced to $550 million) from rival Samsung. Editor Scott Anderson asked law professor Ariel Katz, who specializes in intellectual property, about how companies are using, or abusing, the patent system.

Please explain the different kinds of intellectual property rights.
Patents cover the invention of machines, composition of matter and manufacturing processes. What the Americans call “design patents” and Canadians call “industrial designs” are different. These cover the aesthetic, non-functional elements of products. In Canada, patents for inventions are granted for 20 years; for industrial design the term is 10 years. They cannot be renewed. Copyright protects written, musical and artistic works, and typically lasts for the life of the author plus 50 years. Infringement of copyright requires copying. In theory, you could have identical works but if they were independently created, then there’s no infringement and both may be protected. Trademarks apply to words or symbols that are used to distinguish the products or services of one seller from those of another. Trademarks can remain valid as long as they are used for that purpose and remain distinctive.

Companies’ products often resemble each other. When is “copying” a product allowed and when isn’t it?
We sometimes have the sentiment that if something is not original – if it’s a copy – then there’s something wrong with it. But our legal tradition – the common law – has generally resisted those intuitions. Once we think about those intuitions further, we see that this is how society develops. We copy to learn and improve, and we copy to compete. That is the norm. Restriction of copying is actually the exception. We justify intellectual property rights in situations where we want to encourage investment in new inventions or designs, and where without protection (where people can immediately start copying what you do and you have no opportunity to recoup your investment) people would refrain from investing in the first place.

The reality is complicated. We don’t have any good way to identify in advance which inventions merit this protection and which do not. We offer patent protection for 20 years. This is an arbitrary amount of time. It means that in some cases, it’s not long enough for companies or individuals to recoup their investment. But for most industries, pharmaceuticals being an important exception, the consensus is that patents are not as important as we think they are — at least not as inducement for investment.

Would technology companies invest in new products if they were unable to acquire patents?
Quite plausibly. There are few areas in which patents are necessary for investment in R&D, and smartphones are probably not among them. However, if, as a company, you have the ability to patent something and use this to prevent competition, then why wouldn’t you take advantage of it? You may also know that your competitors would try to do the same thing to you. This helps explain why tech companies are trying to amass large portfolios of patents – so they can use them offensively to raise the costs of their competitors and threaten them. Or use them defensively, to countersue.

On that basis, it seems doubtful whether the patent system is beneficial, especially in the tech industry.
The life cycle of these products tends to be very short. You can make a good deal of money by entering the market slightly before your competitor. But the only way to continue making money is to further innovate to create the next even-better product. In this way it’s competition, rather than having an exclusive right, that encourages innovation. If you think of any market that has been dominated by one or very few firms for a very long time, the quality of service or prices are often not as good as they otherwise would be. It’s only when there’s actual competition or the threat of competition that companies increase their innovation efforts.

Apple’s lawyers accused Samsung of copying the iPhone’s rounded corners. Can “rounded corners” be protected?
It’s questionable. BlackBerry devices had rounded corners before the iPhone, and one could argue that this has a useful function and therefore could not be subject to a design patent. When you put a phone in your pocket you want it to slide easily. There’s nothing new about making things with rounded corners for these purposes.

Is it a problem that this case was tried with a jury in California, not far from Apple’s head office?
The case in the U.S. is just one of many around the world – in Japan, Korea, the U.K., and other European countries – between Apple and Samsung. Each of them involves slightly different intellectual property issues or different products – phones or tablets – and the results have been quite different. In most of them, Samsung prevailed, with the exception of the one in California. Does it have to do with the fact that this was a jury trial, in California, and that the plaintiff was Apple and the defendant a Korean company? Who knows?

How has intellectual property law changed recently?
Over the last 300 years, and particularly in recent decades, protections increased – expanding what can be covered and for how long, and what remedies are available against infringers. But we’re seeing signs that the pendulum may be swinging back. Last July, the Supreme Court of Canada issued decisions on five important copyright cases that weren’t that favourable to copyright owners. The court affirmed that all the exceptions and limitations to copyright are, in fact, “users’ rights” and should be given a liberal interpretation. The Copyright Modernization Act, while expanding some copyrights, also expanded the scope of many users’ rights.

Will how young people experienced file-sharing have any bearing on how intellectual property laws evolve?
I think it already has. Before the Internet, kids made mixed tapes of songs from the radio or from records. Some copyright owners argued that this was infringement, but no one seriously cared. And then along came Napster and all of a sudden you can share similar things with millions of “friends.” That gives rise – justifiably – to concern. As long as you did this with analog technology, whether it was or was not infringing, the impact on the market was negligible. With the Internet, the concerns over infringement seemed reasonable – even though the empirical evidence is not clear. We know there has been a decrease in sales of sound recordings. But studies have found little evidence for a decline in production of new music, or decline in the quality of music.

Clearly, the ability to share content is beneficial to society, and content that can be shared tends to become more valuable. Eventually, intellectual property law would have to adjust to support business models that capture value from sharing rather than from scarcity. .

Do you think there will be a further scaling back of protections for intellectual property?
Eventually, I think so. It may not be immediate and there may be ups and downs along the way. One of the things that the Internet has revolutionized is people’s perceptions about the value of shared knowledge and greater awareness to carefully balance between when knowledge should be owned and when it shouldn’t. That’s a sharp contrast to, say, 15 years ago, when the Internet was sometimes seen as a menacing unknown and policy-makers were quick to respond with a protective impulse. There are some signs that increasingly policy-makers see the benefits of shared knowledge; that they seem more skeptical of unsupported claims of copyright-owners about harm. Despite earlier predictions, the industry did not collapse. Some players may sell less and make less profit, but civilization did not end. Young people tend to realize that even better, and eventually, these views may be translated into political action.


Reader Comments

# 1
Posted by John Hall BSc%201965 on April 4th, 2013 @ 2:46 pm

An excellent and informative article.

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