Two of the largest tech companies in the world, Google and Microsoft, announced at the end of last month that they had reached agreement to drop 20 pending patent lawsuits between them, marking an end to five years of litigation in the US and Germany. Although the companies’ joint statement did not disclose financial terms as part of the agreement, they said that “Google and Microsoft have agreed to collaborate on certain patent matters and anticipate working together in other areas in the future to benefit customers”—the operative word being “collaborate.”
One example of this commitment to collaboration is the Alliance for Open Media, a new initiative which includes other leading tech companies in a project to develop a royalty-free video codec specification and open-source implementation to provide media formats, especially for high-definition video, that enhance user experience in the public interest. Another is the two companies’ involvement in lobbying the European Union in an effort to ensure that the projected EU-wide unified patent system will be well-guarded against the patent troll phenomenon that has been plaguing American courts.
While the rise of patent trolls has consumed much of the tech industry’s attention, the other set of legal concerns facing tech companies are battles between themselves over patent licenses and infringement. For Google and Microsoft to now put to bed their patent disputes appears to further signal a shift in the status quo of patent law. Tech companies may be finding that it is more beneficial to work together rather than fight in court, at least with regard to pressing developments that affect the whole industry as opposed to one tech heavyweight locked in lengthy litigation with another. Just last year, Apple and Samsung made an agreement to dismiss their patent suits outside of the US, showing that there may be a trend of decreasing patent litigation among big tech companies. Perhaps these events are part of a larger movement in tech that reflects a more sophisticated approach to sustaining business in an industry where a handful of the most powerful players control great market share and exert growing political influence.
Alliance for Open Media
The prevalence of video is hard to ignore. Users are increasingly streaming digital media content, and by 2018, global audio and visual streaming is expected to take up 82% of all Internet traffic. Facebook’s most recent newsworthy update to its design is the video profile picture, allowing people to upload a looping video in lieu of the usual static image. Companies like Netflix and Amazon are expanding their streaming entertainment offerings, and unsurprisingly are notable members of the Alliance for Open Media that was forged this year.
The impetus behind the Alliance has both business and legal components when it comes to competing in a video streaming market that also serves as a quagmire of patent licensing and royalty problems. According to Mobile Marketing Magazine, “the increased demands on platform infrastructure that video creates mean that social networks have to be robust and well-supported to implement it at scale.” Arguably, the same could be said not just for social media platforms but software and services companies such as the Alliance members. The upcoming H.265/HEVC video format is going to be expensive to license, so the Alliance’s project to develop a royalty-free video codec would circumvent the high IP licensing costs for the next generation of streaming. Ideally, a royalty-free, open source model such as that contemplated by Alliance would be good for business, but also drive more innovation in meeting user demand, letting patent litigation take a backseat in a significant area for the tech industry’s future.
The EU’s Unified Patent Court
In addition to being part of the Alliance for Open Media, Google and Microsoft are also participants of an industry coalition that is lobbying the EU protect against two potential opportunities for abuse of the EU’s imminent new unified patent system. The coalition includes big European companies as well as American companies like Dell, Facebook, and Intel.
The issues identified are in the bifurcation of determining the validity and infringement questions, and the injunctions handed down by judges. In particular, the coalition calls for the EU to incorporate two features into the patent court: determining patent validity before or at the same time as patent infringement or staying the injunction decision until the validity question has been decided, and providing judges with guidelines in the rules of procedure to exercise discretion in determining proportional harm and fairness to the parties before deciding on an injunction. As to the latter, the coalition recommends that the procedural rule should be amended to include the following: “In taking its decision on whether to issue a permanent injunction, the Court shall have regard to principles of proportionality, flexibility, fairness and equity.”
Twenty-five of the EU Member States signed the Agreement on a Unified Patent Court (UPC) back in February 2013, and Italy signed on this year on September 30, bringing the total to 26 EU Member States under the UPC. Essentially, the UPC is meant to streamline patent protection in the EU via three routes. The new system provides a route for European patents with unitary effect or Unitary Patent Protection (UPP) for a unitary patent effective in the 25 Member States. The existing national route is an option for patent holders seeking protection in individual Member States and validation of a European patent in one or several Member States. A third route combines the old and new system, which provides a European patent with unitary effect and also validates the patent as a classical European patent under the original European Patent Convention (EPC).
Because of the widespread impact of having a European patent with unitary effect across 26 nations, tech companies are concerned that, because the UPC Agreement as written allows the validity and infringement questions to be decided by different courts in the same case, forum shopping by patent trolls for courts in certain European countries would occur and potentially lead to an infringement ruling and injunction effective across much of the EU before a validity ruling comes down. However, because the UPC would be under the same set of procedural rules as a court with exclusive jurisdiction for litigation over European patents and unitary patents, the problem of forum shopping should actually be resolved. The other concern over insufficient guidelines for exercising judicial discretion in making injunction rulings seems to be a more practical issue, but perhaps the consistency in proportional fairness the tech companies seek will have to come about as a matter of time as the UPC builds up its case law. Eight of the thirteen Member States have ratified, and the UPC is expected to enter into force sometime in 2016.
Patent Law’s Collaborative Outlook
It may be too soon to say that the era of extensive, drawn out patent litigation against patent trolls and between tech giants is coming to a close as major companies adapt to the dynamic and fast-paced tech industry. However, recent signs of working together on the technological innovation front, as demonstrated by the Alliance for Open Media, and partnering to help shape the future of how the EU handles patents on the political front, might indicate that the leading tech companies are taking an active role in reducing patent litigation and thus avoiding its high costs in addition to playing a large part in creating a new order for the legal treatment of patents.
Caroline Lau is a J.D. candidate, 2017, at NYU School of Law.