Patent Licensing Has Problems, Too

Most large software companies are trying to solve the problem of patents by getting patents of their own. Then they hope to cross-license with the other large companies that own most of the patents, so they will be free to go on as before.

While this approach will allow companies like Microsoft, Apple and IBM to continue in business, it will shut new companies out of the field. A future start-up, with no patents of its own, will be forced to pay whatever price the giants choose to impose. That price might be high: established companies have an interest in excluding future competitors. The recent Lotus lawsuits against Borland and the Santa Cruz Operation (although involving an extended idea of copyright rather than patents) show how this can work.

Even the giants cannot protect themselves with cross-licensing from companies whose only business is to obtain exclusive rights to patents and then threaten to sue. For example, consider the New York-based Refac Technology Development Corporation, representing the owner of the "natural order recalc" patent. Contrary to its name, Refac does not develop anything except lawsuits--it has no business reason to join a cross-licensing compact. Cadtrak, the owner of the exclusive-or patent, is also a litigation company.

Refac is demanding five percent of sales of all major spread-sheet programs. If a future program infringes on twenty such patents--and this is not unlikely, given the complexity of computer programs and the broad applicability of many patents--the combined royalties could exceed 100% of the sales price. (In practice, just a few patents can make a program unprofitable.)


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