Patent Battles Focusing On Third Parties To Push For Settlements

from the trying-to-force-a-settlement dept

Two recent patent battle lawsuits made news this week, and both highlighted one troubling aspect of patent lawsuits: patent holders trying to damage others beyond the company that infringed. Now, before the patent system defenders rush to post angry comments, this is not a new thing. It's been quite common for a while. Nor is it surprising. If you were a patent attorney representing one of these patent holders, you'd probably do the same thing: going after third parties is probably a good strategy to force the other company to settle. However, it does highlight how patent law is used in ways that clearly are outside of its intended purpose. That is, it's being used to punish plenty of innocent third parties by removing innovation from their grasps, rather than encouraging innovation.

The first case involves a patent lawsuit concerning Microsoft's Visual Studio. WebXchange claims it has patents that Visual Studio violates -- but rather than suing Microsoft, WebXchange sued three Microsoft customers, claiming that by using the software, they were violating the patent. This is clearly an attempt to scare Microsoft into settling, out of a fear that other customers won't use Visual Studio to avoid getting sued by WebXchange. Microsoft is fighting back, asking a judge to declare the patents invalid, but in the meantime, WebXchange has been able to drag Microsoft's customers into a patent battle, putting extra pressure on Microsoft to settle.

The second case involves Spansion suing Samsung for patent infringement concerning Samsung's memory chips. In this case, Spansion isn't just going after Samsung, but demanding an injunction that would block US sales of a variety of popular gadgets that use Samsung's memory chips -- including iPods and Blackberries. Once again, while it's unlikely that a court would order such a block, by dragging other companies such as Apple and RIM into the mess, Spansion is abusing the patent system's threat of an injunction to put extra pressure on Samsung to settle.

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If You've Got A Platform Strategy, It Helps To Put Out The Welcome Mat For Third-party Developers

from the open-for-licensing dept

The New York Times Saul Hansell takes a look at the business model behind the Chumby, an Internet-age replacement for your alarm clock. Apparently, the plan is to keep the price of Chumbies low and make money by demanding a cut of any ad revenue generated by third-party applications. Hansell seems skeptical of this business model, and so am I. Chumby did the right thing by making its device relatively open and trying to provide a platform that other companies will build on. But its plan to demand a cut of other firms' advertising revenues seems like it might undercut that strategy. Especially when it's still trying to get the platform off the ground, it should want to make it as easy as possible for third-party developers to participate in the Chumby ecosystem.

Requiring third party developers to license access to the platform both increases the red tape required to enter the market for Chumby applications and reduces the potential profits from doing so. Potential third-party developers are going to think twice about betting on a platform whose owner may demand a bigger cut in the future. Obviously, there needs to be a way to recoup their investments on the Chumby platform. But if the Chumby becomes a hit, there will be all sorts of ways to monetize that success. Most obviously, the company can raise the price of the Chumby, or sell premium Chumbies with extra functionality. It can install its own applications by default and sell ads with those. It can sell accessories, or create a certification program for accessories like Apple's "Made for iPod" program. It can offer seminars and consulting services to people wanting to develop Chumby applications. It's never difficult to monetize a successful platform -- especially when you're selling the hardware. Putting up roadblocks to the development of new applications is a mistake, even if it generates a bit of extra revenue in the short run.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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