Can Capitalism and Collaboration Co-exist? Tech Sector Cross-licensing and the Emergence of ‘Cooperative Competition’

Can Capitalism and Collaboration Co-exist? Tech Sector Cross-licensing and the Emergence of ‘Cooperative Competition’

In this year’s State of the Union address, US President Barack Obama reaffirmed his Administration’s commitment to addressing economic inequality by fostering the jobs of the future: “We know that the nation that goes all-in on innovation today will own the global economy tomorrow. This is an edge America cannot surrender.” In order to do so, the President urged Congress to “pass a patent reform bill that allows our businesses to stay focused on innovation, not costly, needless litigation.”

President Obama was alluding to a recent and growing problem where patent litigation is becoming more frequent and expensive, especially in the high-tech industries. A recent report from James Bessen and Michael J. Meurer, from the Boston University School of Law, estimates that lawsuits from so-called patent trolls are "growing rapidly, affecting 5,842 defendants in 2011." Historically, intellectual property law, and patents in particular, have been tools for promoting economic growth and technological innovation by providing incentives to create new technologies as well as legal mechanisms to benefit from these creative advancements.

However, in recent years, patent laws have been used as a means of chilling innovation by causing firms to misallocate capital towards defending their innovations against proprietary claims and away from research and development. These "Patent Wars" and their attendant—and often reactionary—debates are said to be threatening the long-term viability of technological innovation in America and throughout the world.

As Timothy B. Lee, a technology analyst and former Adjunct Scholar at the Cato Institute, argues: “The patent system has become a minefield that punishes innovators who accidentally infringe the patents of others. There are now so many software patents in force that it is practically impossible to avoid infringing them all.” And, while President Obama and others may wish for Congressional action on this front, the politically gridlocked House of Representatives combined with influential lobbyists on both sides of the issue makes these reforms unlikely to happen anytime soon.

Amidst this regulatory inertia, leading companies in the software and technology industries are exploring alternatives to government-led IP and patent reform. For instance, in 2012, Twitter created an ‘Innovator’s Patent Agreement’ (IPA), which was designed to protect the rights of creators while also avoiding costly litigation by adopting a defensive stance. As Adam Messinger, who was then the company’s VP of Engineering before becoming its Chief Technology Officer, explains, “we will not use the patents from employees’ inventions in offensive litigation without their permission. What’s more, this control flows with the patents, so if we sold them to others, they could only use them as the inventor intended.”

Twitter and other leading technology companies have been employing cross-licensing agreements to approach the problems associated with ‘Patent Wars’ on cooperative bases. On January 31, 2014, Twitter and IBM reached a cross-licensing agreement giving Twitter access to over 900 patents controlled by IBM. Ben Lee, the Legal Director for Twitter, stated that the “licensing agreement provides us with greater intellectual property protection and gives us freedom of action to innovate on behalf of all those who use our service.” IBM, meanwhile, stated that they “look forward to a productive relationship with Twitter in the future.”

On January 27, Google and Samsung agreed to a similar deal that cross-licenses the patents of the companies as well as those filed in the next 10 years. Dr. Seungho Ahn, the Head of Samsung’s Intellectual Property Center, highlighted the significance of the deal, stating, “Samsung and Google are showing the rest of the industry that there is more to gain from cooperating than engaging in unnecessary patent disputes.” Allen Lo, Deputy General Counsel for Patents at Google, echoed these sentiments, saying, “By working together on agreements like this, companies can reduce the potential for litigation and focus instead on innovation.”

These inter-firm alliances are a welcome step away from costly litigation and patent-based posturing. In these cases, capitalism and cooperation go hand-in-hand. The ‘cooperative competition’ that these companies are engaging in represents an actualization of the ‘collaborative ethos’ of digital technologies that has long been described by industry analysts.

Analyst and consultant Don Tapscott, Adjunct Professor of Management for the Rotman School of Management at the University of Toronto and Martin Prosperity Institute Fellow, argues that “Smart companies are making their boundaries porous, using the Internet to harness knowledge, resources and capabilities outside the company. They set a context for innovation and then invite their customers, partners and other third parties to co-create their products and services” (at page 3).

These firms are benefiting from low-cost communication and networking, which allows technological developments to be easily shared. With access to the information and technologies of firms that would otherwise be competitors, these companies can further develop and innovate. Governments and policy-makers should seek to encourage these types of activities while pursuing longer-term goals of legislative reform.

In early 2014, we have already seen two significant cross-licensing deals amongst industry leaders, which may well pave the way for further cross-pollination. As Twitter and IBM as well as Google and Samsung benefit from the technological know-how and increased insulation from patent litigation that can be gained through cooperative competition, their other competitors may begin to see the merits and benefits of calling a truce in the on-going ‘Patent Wars’.

Joseph F. Turcotte is an IPilogue Editor, a PhD Candidate and SSHRC Doctoral Fellow in the Communication & Culture Program (Politics & Policy) at York University, and a Nathanson Graduate Fellow at the Jack & Mae Nathanson Centre on Transnational Human Rights, Crime and Security at Osgoode Hall Law School.