It’s no secret that the Obama administration is looking for excuses to regulate and intervene in the free market, whether it is telecommunications, energy, homeland security or everything else.
And unfortunately, there are “bad actors” in the technology community that are inviting increased scrutiny of their business practices and abuses. Patent pooling – or agreements between two or more companies to collectively license patents for specific technologies – is a fairly common practice among device companies.
These for-profit pools are formed only following a business review by the Department of Justice, which agrees not to initiate antitrust enforcement against them if they operate fairly and adhere to a set of mutually agreed upon terms for operation. When structured and operated in accordance to the guidelines under which pools were formed, these organizations reduce the amount of intellectual property investment by the companies who use them, benefiting consumers with lower prices and helping to spur innovation.
From the Googles and Motorolas of the world down to small Silicon Valley startups, companies are on the forefront of consumer innovations, developing new products and software that will no doubt inspire the technologies of tomorrow.
But because of patent abuses – particularly through the use of patent pools – the industry and the media are taking more notice of how companies manage and license their patents. The offenders inviting increased government oversight are not Google, Motorola and others which have encountered their own very public challenges with patent law as of late. Rather, patent holding entities that do not produce anything in the way of devices or technology are disrupting the free market and stifling innovation for consumers.
We have today a patent system that is ill-suited to today’s rapidly changing, high-tech world. Software patents have been approved that are overly broad, and these approvals have been done on a massive scale. No surprise, patent litigation has exploded. You produce any product these days and you’re likely to “infringe” on some vague, ill-defined patents.
These are companies you’ve never heard of – companies like MPEG LA and Mobile Media – which license technologies to innovators in the form of patent pools. Technologies like the MPEG 2 video format – which is likely used in the very device you have in your back pocket – should be offered at a fair and reasonable fee.
Yet, these unscrupulous patent pools lock in licensors for extraordinarily long terms at rates which don’t reflect their near-valueless expired patents. MPEG LA has absolute power over the MPEG 2 technology, and innovators are forced to accept MPEG LA’s license fees and terms regardless of actual patent value.
Think of it this way: The Motorola RAZR has evolved from a simple flip phone to a dynamic touch screen smart phone in the last decade. While the technologies that made this evolution possible certainly build off each other, consumers would no longer pay the same price for a Motorola RAZR V3 today as they would have when it was first released. But this is what MPEG LA is asking of companies – to pay full price for patents that are expiring, rather than reflecting the current marketplace.
These license fees erect barriers to entry for small and medium sized tech startup companies, and these companies cannot afford to sink millions in IP like many larger corporations.
This is especially harmful to those small business startups that are most reliant on gaining access to patent pool technologies, the very startups that create jobs and fuel innovation here in America. MPEG LA’s manipulative price structures are not only standing in the way of consumers being afforded access to these new innovations, they are also driving up prices on devices that are currently available.
Even worse, MPEG LA’s Mobile Media subsidiary is also biting the hand that feeds it by deploying often frivolous “patent trolling” lawsuits on the very innovators that pay to access their patent pools.
Companies like Mobile Media are labeled a "troll" because they don’t use their patents in building or innovating on anything, but rather exist to initiate legal action against those they allege who infringed upon their intellectual property.
Many claim the “trolling” will only become more rampant under the ‘first to file’ terms set forth in the Patent Reform Act. Recent research shows that patent trolls bring more than half of the total patent lawsuit claims in the United States, which is astounding considering these companies, again, do not produce any technologies of their own.
If companies like MPEG LA and Mobile Media do not amend these unscrupulous business practices, the Department of Justice will have no choice but to intervene, inevitably slowing down innovation and creating even more barriers for a fast-moving marketplace.
And don’t we have enough regulatory hurdles to jump in the first place?
Steve Forbes is Chairman and Editor-in-Chief of Forbes Media. His latest book, "Reviving America: How Repealing Obamacare, Replacing the Tax Code, and Reforming the Fed will Restore Hope and Prosperity".