The patent system is crying out for reform and modernisation, says Thayne Forbes of Intangible Business.
‘Patent wars’ have become synonymous with the technology industry as firms continually battle at the high courts over alleged patent infringements. As technologies rapidly develop, competition between the top tech firms is fiercer than ever, which has kept lawyers busy too, with litigation increasingly being wielded as a competitive tool. All the top firms are embroiled in various intellectual property rows, leading Google’s public policy director Pablo Chavez alongside many other critics to condemn the industry for spending money on lawsuits at the expense of innovation. The issue has gone right to the top, with Barack Obama taking a personal interest in the issues and pledging to implement reforms to stop patent abuses right across the system.
None of this is in time for the on-going infamous case of Apple vs. Samsung, regarding Samsung’s infringement on six of Apple’s function and design patents. The case was seemingly settled in 2012 with a jury awarding Apple $1bn (£626mn) in damages. However an appeal saw Judge Lucy Koh calling for re-analysis of the damages, stating that the previous jury had miscalculated $450mn (£281mn) of the valuation. A retrial is underway to re-calculate the damages. Apple claim they are owed $379.8mn and Samsung has entered a more modest $52mn - the trial is set to set to be yet another epic battle of two technology giants.
Quantifying losses and damages relating to intangibles, especially the likes of design and technology patents, is often highly subjective and it is therefore vital for such calculations to be based on comprehensive research and appropriate benchmarks. The best approach to quantify damages is often market driven, keeping the valuation grounded in commercial reality. A combination of four forms of analysis should be done to achieve this:
Internal research is carried out using existing business plans and forecasts to establish projections for use in the valuation.
Market research is necessary to establish consumer recognition of the brand and the intangible assets. It can provide robust insight to the extent of damage that has been caused and how perceptions of a brand have changed.
Benchmarking used real-world examples and points of comparison to establish the possible performance of the business, had the damage not occurred
The three intangible asset valuation approaches would then be used to quantify the damages. The relief-from-royalty income approach calculates how much a brand owner would be willing to pay for the use of its own IP, if it did not already own it; the market approach looks at comparable transactions in the markets such as licencing agreements for the use of the IP; and the cost approach calculates the historical cost of building the asset.
All of these methods would be necessary to produce a robust quantification of the losses suffered by Apple due to Samsung’s patent infringement. With the variation in figures that are currently being presented by each side, it is clear that valuing intangible assets is inherently subjective and each aspect of research is therefore necessary to support the valuation and reinforce its validity.
Implications of re-valuing the losses
At face value, the re-valuation of the damages could save or lose Samsung a substantial amount of money; however it will also have a significant impact upon all the future patent infringement cases between the two tech giants, as the change in valuation in this case gives precedents for lodging more appeals.
The Apple and Samsung “patent war” has been in the courts for so long that some of the products being reviewed are not even on sale anymore, and the continuous legal tussles are largely the product of a patent system crying out for reform and modernisation. Standard-Essential Patents (SEPs) were introduced where compliance with an industry standard necessitates infringement of a patent, aiming to make the industry fairer by allowing companies to pay reasonable license fees for innovations that their devices cannot be without. But critics argue this has brought about yet more litigation and is a nominal change to a deeply flawed system.
Samsung and Apple’s re-trial will almost certainly not be the end of the battle and Obama’s promises of legal reform will become crucial to prevent this endless legal brawl. But with slow progress being made, it is the legal teams who continue to battle, whilst technologies continue to evolve without an overarching patent system that meets their needs.
Thayne Forbes is joint managing director at Intangible Business