Are Patent-Holding Companies Holding Innovation Hostage?

The so-called “patent wars” have evolved over the past ten years from occasional spats over intellectual property rights into ghosts haunting every aspect of the software and technology industry. Billions in settlements and millions more in legal fees constitute an economy predicated on the idea that if you invent it, you own it. For years the system has protected the rights of inventors and motivated researchers to develop new technologies with a profit incentive.Gavel

The role that patents play in technology and business has been getting increased attention lately as patent wars between tech giants escalate. This week, a trial between Microsoft (NASDAQ:MSFT) and Google’s (NASDAQ:GOOG) Motorola unit ended with one of the final expert testimonies claiming that Microsoft will make $94 billion in revenue through 2017 on devices that use Google’s patented wireless technology. The lawsuit emerged because of disagreements over the royalty rates Microsoft should pay for use of the technology: Google wants $4 billion per year, while Microsoft wants to pay $1 million, claiming the technology is essential to operate in the industry.

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A standard-essential technology is subject to regulation stating that it must be licensed out fairly. Even to a company as large as Microsoft, $4 billion per year for the license would push up the cost of its products, cut into margins, and inhibit competition.