Warren Savage On: Gumming Up the Works?

"The first thing we do, let's kill all the lawyers", William Shakespeare so famously wrote in Henry VI. Out of context and perhaps a bit rash, but a key topic in last week's IP Symposium revolved around the question of whether legal reform is necessary as more and more intellectual property is transacted in our global economy.

On the face of it, we are witnessing a confluence of factors that create the quintessential perfect storm to disrupt the semiconductor industry:

• Unprecedented levels of IP reuse across the semiconductor industry with decade long double-digit growth in the IP market (see last month's column)
• Record levels of patent applications that are surpassed every year
• The emergence of patent trolls, who patiently wait under the bridge until that point in time where a wealthy traveller happens to pass by

On the first point, clearly there is no turning back on the path the semiconductor industry has embarked on in its use of IP. Between 60-80% of every chip produced today consists of 3rd-party IP. It's simply no longer economically feasible to design chips without IP. We are addicted and withdrawal is not an option.

On the second point, there seems to be universal consensus that patent applications are skyrocketing while quality is plummeting. It was not so long ago that patents were taken more seriously; inventions were unique and solved significant problems. Quantity now triumphs over quality. Indeed, last week the United States Senate postponed dealing with the issue of patent reform.

Finally, patent trolls represent the gum in the works when it comes to IP law. The behaviour of such companies is to identify individuals or universities that are sitting on potentially interesting technology and then lie in wait for hot technology (like Bluetooth) to gain massive adoption in a hot space (like cell phones) and then go after the biggest names in those spaces for as much money as they can collect on behalf of their patent-holding client.

In most cases, the company pays up, the troll is fed and goes back to slumber for a bit longer until the next victim crosses their bridge.

Gratuitously filing patents

Patent reform is intended to start putting up some realistic barriers in front of companies and individuals who gratuitously file patents for the sake of some future reward rather than any conceived benefit for today.

Like miners staking claims on land they have no intention of mining, patents are being filed today with no obvious benefit and only serve as some kind of legal currency which can be traded with others. But fortunately this is the minority case.

In the IP business that is growing up around semiconductors, we trade in the practical and useful. Customers are buying IP because there is some economic advantage to buy versus make. Sellers are compensated according to its fair market value in a free market economy.

In the last 10 years, competition and steady demand for IP has produced significant progress in structuring standard legal contracts that represent a fair compromise of the concerns of the buyer and seller.

Since buyers often need to buy IP from multiple sellers, the terms that are acceptable to that buyer spread like a virus from one supplier to another and subsequently then from one of these sellers to its next buyer. Such a levelling effect is the surely the sign of a healthy, maturing market.

Economic pressure

In summary, while there is a lot of attention on patent trolling and other despicable practices in the IP market place, the overall picture is much brighter. Eventually, patent reform will occur and likely will be driven by economic pressure by buyers and sellers on their governments to solve a commerce problem versus purely protectionist legal motives.

Warren Savage, President and CEO of IPextreme, is a well-known and published authority in the field of semiconductor intellectual property.

He has a long history of pushing the envelope of design methodology from his work in fault tolerant computing at Tandem Computers in the 1980's and driving reliable design methodologies into commercial practice at Synopsys for its DesignWare IP product in the 1990s. Much of his thinking became embodied in the seminal book on IP reuse, the Reuse Methodology Manual.

Previous columns

(Nov 07) Warren Savage On: Making the Case for Invented Here

(Dec 07) Warren Savage On: Swiss Cheese Solutions

(Jan 08) Warren Savage On: Collaboration Needed for Success

(Feb 08) Warren Savage On: Knowing Your No

(Apr 08) Warren Savage On: The Next Big Thing

Reader comment:

What is a patent troll?

According to some a patent troll is a firm who licenses patents they do not themselves commercialize. Yet many of the large firms who are most critical of the practice do it themselves. Out licensing is now an important profit center of most every firm. Often, as a result they end up licensing out patents covering technologies they themselves do not use as they are not consistent with their corporate plan. Rather hypocritical isnt it? This is pure dissembling.

The sad truth is that entities some call "trolls" are often small companies or independent inventors who cant get the money to commercialize their inventions and end up on the curb watching others benefit from their creations. It's enough to drive one mad. It's certainly enough to kill the goose that lays the golden egg.

Sincerely,
Stephen Wren
actuary/inventor
StL, MO
USA