Apple Drops Support for Major Patent-Holding Firm

Source: Thinkstock

Source: Thinkstock

Apple (NASDAQ:AAPL) has declined to invest in the latest acquisition fund for Intellectual Ventures, a major patent assertion entity that buys up patents in order to extract licensing fees from practicing companies, reports Reuters. Although Apple has previously invested in the firm, the Cupertino-based company joined Intel (NASDAQ:INTC) in deciding to drop its support for the patent-holding company at this time. However, as noted by Reuters, it is unclear if Apple will renew its support for Intellectual Ventures at a later date.

Advocates for patent system reform have accused patent-holding firms such as Intellectual Ventures of abusing the patent system. Patent assertion entities, or PAEs, typically extract patent-licensing fees from companies that actually manufacture or sell a product by threatening them with costly litigation. As a result, many companies reach out-of-court settlements with PAEs even if the lawsuits are based on dubious patent claims. Since PAEs typically don’t make a product, they are also known as non-practicing entities, or NPEs. Patent-holding companies are also commonly referred to as “patent trolls” by critics of their business model.

According to data compiled by PatentFreedom — an organization that caters to companies being sued by non-practicing entities — Intellectual Ventures has the largest active patent portfolio of any NPE. PatentFreedom estimates that Intellectual Ventures holds 25,000 to 30,000 active patents. In contrast, the second-largest NPE – Interdigital (NASDAQ:IDCC) – only holds 3,571 active patents. According to PatentFreedom, Apple holds the overall record for the number of times that it has been sued by NPEs, with 191 lawsuits since 2009.

However, it is unclear if Apple’s decision not to invest in the latest acquisition fund for Intellectual Ventures signals a change in the iPhone maker’s overall patent strategy or if the company simply didn’t believe it was a profitable investment. Apple appears to have a contradictory, love-hate relationship with patent-assertion entities. Apple complained about the economic cost of PAEs in a friend-of-the-court brief obtained by the Los Angeles Times earlier this year. “PAEs have become a drag on technological innovation, inflicting billions of dollars in deadweight losses every year,” wrote Apple.

On the other hand, Apple has previously invested in Intellectual Ventures and is still a supporter of Rockstar, a major intellectual property licensing consortium that has filed patent-infringement lawsuits against several major manufacturers of Android-based smartphones in what is widely regarded as a proxy war against Google’s (NASDAQ:GOOG) Android. As noted by Reuters, Google previously invested in Intellectual Ventures but later dropped its support. Google is now a supporter of a patent reform bill that was passed by the U.S. House of Representatives last December and is currently pending in the Senate. The bill would make it easier force patent litigation losers to pay the legal bills of the winning party, in order to discourage frivolous patent-infringement lawsuits.

However, Apple, Microsoft (NASDAQ:MSFT), and several other prominent companies recently formed a lobbying group called Partnership for American Innovation that opposes some of the bill’s provisions, reports Reuters. “We must move beyond rhetoric that ‘the system is broken and trolls are bringing businesses to a complete halt’ to a discussion of calibrated improvements for what is actually the best patent system our planet has,” said David Kappos, a senior adviser to the group, in a Partnership for American Innovation press release. It should also be noted that Apple is currently engaged in a high-profile patent-infringement trial against smartphone rival Samsung (SSNLF.PK) in which Apple has accused the Korea-based company of infringing on five of its software patents. It’s unknown if Apple’s ongoing trial has any bearing on its decision to not reinvest in Intellectual Ventures.

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