IBM Shows Microsoft How to Handle Patent Disputes

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Twitter is gearing up for a high-interest IPO, which forces the online-messaging specialist to uncover some previously unknown facts. In an amended S-1 SEC filing this weekend, Twitter said IBM has found that the company is possibly infringing on some of its technology patents, which typically leads to lawsuits in today's overheated tech sector.

Source: IBM.

But IBM isn't suing Twitter. Instead, Big Blue sent Twitter a letter "inviting [Twitter] to negotiate a business resolution of the allegations."

This insight comes only days after IBM's fellow Dow Jones member Microsoft , kinda-sorta sued everything Android-related by proxy. Microsoft would never face Android backer Google directly, but Redmond is part of a consortium controlling the mobile patents of defunct telecom-equipment maker Nortel Networks.

That organization, known as Rockstar Consortium, can file patent infringement suits with little fear that Google and others will fight back, because Rockstar doesn't actually make, design, or sell anything. So there's really no reason for such patent trolls not to file frivolous lawsuits and hope for the best.

IBM comes up with more research than anybody else and has been the most prolific patent-creator for 20 straight years. You might think that IBM would walk around with a big (patented) chip on its shoulder with that kind of track record, filing infringement suits left and right to generate an annual patent-based side income in the billions of dollars.

But IBM doesn't play that game. As Twitter said, Big Blue reached out with a letter first, asking to discuss a friendly resolution, rather than going to court.

You can look at IBM's letter from many different perspectives. For example:

  • Should Twitter really have to pay IBM royalties for running a URL shortener and reducing duplicate entries from a contact list? These things seem so obvious these days.

  • Shouldn't IBM just sue Twitter to kingdom come in order to get something for its commitment to research? The patents in question are between 13 and 20 years old, after all, and these concepts weren't always so obvious.

  • Wait a minute. Didn't IBM pledge long ago not to sue over technology patents? Oh, right -- that pledge only applied to Linux systems. That explains why Google is part of that cross-licensing effort, too, as Android is built on Linux code. These technologies have nothing to do with Linux, so go right ahead and squeeze money out of Twitter, then.

Microsoft's patent portfolio is smaller than IBM's, but analysts think it's the more valuable treasure trove of the two. That's because Microsoft isn't shy about enforcing its patents, with or without friendly negotiations up front.

Both Microsoft and IBM have absolutely crushed the Dow over the 20-year period, with IBM leading the patent filing charge. So both approaches obviously work, as far as supporting a successful long-term business strategy goes.

IBM Chart

IBM data by YCharts.

But I would argue that IBM's approach is the more sustainable patent strategy -- not just for IBM, but for the tech sector as a whole.

Microsoft's aggressive attitude -- popular and understandable as it may be -- is undermining the very idea of innovation. Sure, Microsoft gets plenty of incentive to file patent applications when it can use the resulting patents as weapons of mass destruction. But where's the incentive to invent when you can't afford an army of lawyers to ensure that Microsoft and friends won't sue you senseless for trying something new?

Better, then, to sit down and negotiate the value of your patents as necessary. IBM's strategy forces the inventor to do the legwork of monetizing its inventions, rather than shifting that responsibility onto the court system. It's the right thing to do: IBM isn't serving as the world's free-for-all research center, and if everybody followed IBM's lead, you'd see a new spring of innovation sprouting across America.

I don't expect Twitter to roll over and give IBM a blank royalty check. In fact, I wouldn't be surprised to see the company putting up its dukes and heading to court anyhow. It's just the easy way out, right? Let a judge and maybe a jury decide what your technology is worth or whether you're allowed to use it for free.

But IBM is trying its best to change this destructive industrywide attitude for the better.

Good luck, Big Blue.

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