The purchase by Apple and Microsoft of Nortel’s 6000 auctioned software patents was criticised, including by Google, as simply an exercise in capturing patents.  According to those in the IT industry, this $US4.5 billion investment will not facilitate any innovation and the payment was five times higher than the expected value. 

Instead, this particular purchase is widely regarded simply as “buying arms” for an ongoing patent war and that the $4.5 billion cost is likely to be passed on to Apple and Microsoft customers.

Now Google has acquired Motorola Mobility for $US12.5 billion.  That purchase does provide options for technological innovation of Google’s Android operating system but the deal also comes with an estimated 17,000 patent war chest.

What these two deals have done, particularly the 6000 Nortel patents, is to put the spotlight firmly on the anti-competitive nature of patents.  The recent broadcasting of Chicago Public Radio’s This American Life revealed the systemic abuse of software patent monopolies: how they are used to block innovation, increase costs and behaviour that could be described as “standover tactics” if not for the engagement of clever corporate players and the legal weaponry they employ.  The practice of accumulating patents purely for economic advantage has been understood for some time but the scale of this practice is mind boggling.  One group is estimated to control more than 35,000 patents.

The information revealed in the Chicago Public Radio broadcast is timely given these two extraordinary expensive transactions made by the three major players in the tech industry.  These transactions should be noted with interest and alarm by those engaged in governance of intellectual property rights (IPRs).

The consequences that flow from the behaviour described in the Chicago broadcast are not confined to the US.  The global nature of these IPRs, and the associate licensing rights, also has consequences for Australian consumers and innovators.  It is time that the legal industry and the bureaucracy responsible for IPRs to address these problems and be accountable for their role in facilitating (or for not moving against) such practices. The public has a right to expect that blatant misuse of monopoly power be addressed by active anti-trust/anti-competitive laws.

Apart from the obvious financial burden of misuse of patent monopolies, there is also a perception issue.  Media exposure of these practices may damage the brands of organisations that generally gain kudos from being linked to “innovation”.  Exposed as being linked to monopoly practice is not a clever strategy.  And there is the possibility that these practices will further erode public perception of intellectual property rights more generally.

Ironically, the “patent war” language being used to describe the accumulation of patents on software comes from the Cold War era.  It is being used by those who have little or no memory or understanding of what these terms meant to those who lived with the fear of nuclear holocaust.  Now the Doctrine of Mutual Assured Destruction (MAD) describes trading practices in the technology industry.  The weapons for this Mutual Assured Destruction strategy are based on the “patent arsenal” — you have patents I am using but I have patents you are using — so who dares to push the “patent infringement” button.

Companies can also take pre-emptive action just like the old East/West divide by aligning themselves with one of the organisations that have stockpiled these IP arms.  One of the companies investigated in the Chicago public radio program has a war chest of 35,000 patents and other IPRs.  This is one of the largest collections of patents in the world and apparently you can seek protection under their “IP shield”.  As everyone knows, IP rights are only as good as your legal capacity to “encourage” others into making out-of-court deals.  So strategically positioning yourself under this “patent umbrella” makes economic sense but it introduces a level of dysfunction and leads to undermining, respect for and adherence to, the rule-of-law.

Just as in the Cold War era, the taxpayer and ultimately the consumer paid the funding of the arms race.  For example, the taxes used to fund the operation of the IP bureaucracy, the use of the judicial system, trade policy inputs, and tax write-offs etc.  For the public, all the costs associated with this arms race, the pre-emptive strategies and weapons stockpile are eventually fed into the cost of goods and services.  So the recent $US4.5 billion and $US12.5 billion  deals, unless they add to a society’s productive and innovative capacity, will be a dead weight paid for by consumers across the globe, in one form or another.

In a bizarre way the language being used to make sense of the corporate gaming strategies of the tech industry may just end up being the catalyst that brings this dysfunctional and monopolistic behaviour to the attention of politicians.  Unlike the esoteric intellectual property language, the Weapons of Mass Destruction (WMDs) descriptors clearly illustrate what strategies are being pursued, who is winning and who pays the costs.  More importantly, it illustrates that patents should never have been allowed to be placed on software in the first instance.

IPRs are an important and significant part of economic development but, like all monopolies, there comes a point where their legitimacy and functional capacity will be questioned if the monopoly is seen to transcend boundaries of political or economic acceptability.  There are growing signs that IPRs — in areas such as software, databases, DNA gene sequences and over skills such as surgical methods — are highly questionable in the first instance.  They cause significant levels of dysfunction across the economy so it would seem that something will have to give, and soon.

IPRs have been allowed to grow exponentially in a policy vacuum driven by an assertive and strongly politically connected industry that is itself growing exponentially. This lucrative industry sucks in talented graduates and imposes large administrative costs across the economy — all resources that could be utilised for more productive ends. There is a need for much more transparency and analysis of their effects.  IP monopoly rights are now traded on the global stock market, with little known about ownership, control or value.  IPRs are also easily hived-off to tax havens.

Chicago public radio’s investigative analysis revealed a sector of the legal industry just looking for opportunities to initiate infringement. Like the stealth weapons they can appear from nowhere and strike at the latest innovation. Trying to fix failures of governance is costly,  administratively and politically.  Those responsible for the governance of IP appear to have paid little heed either to national or public interest concerns nor to important aspects of global governance.   In the rush to place IPRs over “everything under the sun” — low-level promiscuous patents on software is only one example of the dangers of creating such monopolies.

There is a lesson from the Cold War era that should be noted by those promoting such patents and pursuing practices that damage competition. Even as the arms race continued, there came a point where it was recognised that the interest of the state could also be served by negotiating the mutual reduction of arms. A focus on disarmament and non-proliferation strategies then became the policy that would serve best the national and global interest.

*Anna George is an adjunct professor at Murdoch University and associate fellow with the Centre on Global Health Security