Subject: [NEXTEL-1] Kerton Wireless Review - RIM & Patent Law

From: [email-masked]
Date: Thu, 04 Sep 2003 21:11:58 -0400

The Kerton Wireless Review #41
Date: August, 2003

Patents For The People
The NTP vs. RIM lawsuit is a recent case of Patent Law missing the mark

In theory, a patent publicizes an invention to encourage others to use it. Where
normally, society dislikes monopolies, for new inventions we set aside our
reservations and have the government give a legal monopoly (patent) to stimulate
(we hope) an increase in the number or inventions, which is generally in the
public interest.

Yet in an increasing number of cases, Patent Law is being used against the public
interest, and in fact often inhibits the flow of new ideas and inventions to the
national market. Patents are being granted on ideas so obvious, their invention
would be inevitable, and on ideas so vague they could apply to many future
products. This gives an undeserved and counterproductive monopoly to the patent
holder (PH). The patent restricts actual "doers" from providing the inventions,
thus lowering supply, and increasing prices.

An important current case involving vague and obvious patents concerns Waterloo,
Ontario-based Research In Motion (RIM) and NTP Incorporated. NTP, a holding
company, applied for and received multiple patents in the mid 1990s for a
technology they called "Electronic mail system with RF (radio) communications to
mobile processors." NTP is a non-producing company, whose only output (from what
our research could determine) is patents and lawsuits. NTP claims to have
prototyped a device, but the actual business of bringing useful products to the
public never materialized.

Meanwhile, RIM actively and independently developed the Blackberry line of
two-way, belt-toted, email devices. Blackberries, the first devices of their type
to hit the market, were received with great enthusiasm by professionals-on-the-go
and geeks alike, earning the nickname "Crackberries" for their addictiveness. The
ability to maintain real-time e-mail connectivity is an imperative for many
businesses, and RIM sold about 650,000 of the ~$400 devices and the stock value
rocketed.

But trouble was brewing for RIM, in November 2002, a federal jury decided that RIM
violated five NTP patents. Earlier this month, U.S. District Judge James R.
Spencer ordered RIM to pay $53.7M in damages, interest, and attorneys' fees. In
addition to ordering NTP's rich payoff, the judge also ordered an injunction,
blocking RIM from selling Blackberries, then immediately stayed the injunction
pending RIM's inevitable appeal.

This ruling is counter to the people's interests. RIM produces new ideas and real
products; NTP produces patents and lawsuits. Our legal system rewards the latter.
Thanks to patent law, the "Brainstorm-Patent-Sue" strategy can be an entire
business model. One need only think of ideas that are moderately innovative, but
likely in the future, vaguely describe them, apply for patents, wait for a similar
product, and sue for infringement. Business risk is avoided, and investment is
very low; for a semi-original thinker, this is a fantastic business.

These patent laws motivate "patent stalkers" who behave like ticks, which exert
only the effort required to scale a blade of grass, then wait for a deer to pass.
RIM could simply be the unlucky deer that happened by first, while the tick
parasitically prepares to gorge on blood.  Patent stalkers are not the inventors
we should reward.

Through history, the US and Canada have hailed inventors like Thomas Edison and
Alexander Graham Bell as national heroes. But besides ingenuity, their greatness
is based on productive companies built on their inventions, whose legacies still
exist today in Con-Edison, AT&T, and the Baby Bells. Would Bell be such a hero if
his words in the first telephone call had been, "Watson. Come here, I need
you...ahem... to help me patent this invention and hoard it. We'll sue anyone who
tries to build something with it and extract a toll." If either great innovator
had not competed furiously to build their business, we would scarcely know their
name today.

Patent law was intended to bring improvements to the people. But at some point the
system lost focus of that ideal, by rewarding squatters not "doers". Changes are
needed to bring Patent Law in line with the ideal:

   * Let's stop granting patents on obvious or inevitable inventions.
   * Require the patent holder not to be a passive owner, to do something with the
     patent in a reasonable time frame, or forfeit the monopoly rights.
   * Reduce patent durations to only 2 years if the inventor cannot clearly
     demonstrate "adequate development" of the invention.

Though some will argue that the burden of defining "adequate development of the
invention" overwhelms the benefits, there is regulatory precedent. Take wireless
telecommunications spectrum licenses for example. Governments sell monopoly rights
to carriers, like Verizon Wireless and Telus Mobility, via licenses for certain
radio spectrum frequencies. Unless the license holder provides useful services to
the public on that spectrum within a set time, they forfeit the spectrum and the
billions of dollars spent to acquire the license. The regulatory precedent has
been set: use it or lose it - build something or get out of the way.

Could this suit result in the end of RIM Blackberries? Not likely, but RIM's
prices may rise if they are forced to pay licensing fees to NTP.  In the
Washington Post, Michael Abramsky, a technology analyst at Canaccord Capital said,
"the thing about being a parasite is that you don't want to kill your host."
Despite that argument, we fear NTP can endure the risk of killing RIM, since Good
Technology, Microsoft, Danger, and a variety of other companies are in line for
NTP lawsuits.

Wireless e-mail is an invention of the caliber of the windsurfer. Sailboats
already existed, surfboards already existed. Some clever person combined the two.
Similarly, wireless technology existed, e-mail existed, and a combination of the
two was not only obvious - it was inevitable. Should a riskless, productless
holding company be rewarded by our legal systems to the tune of hundreds of
millions of dollars for the wireless equivalent of "getting your chocolate in my
peanut butter?" Do we offer these companies a monopoly to generate fees for vague
general ideas? Is it not time to tune up the patent system to reward the doers who
actually bring us progress?

later,
Derek Kerton &
Robert Kerton.

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