How Patent Madness Is Killing Innovation and Costing Us Billions

apple patents
apple patents

Pop quiz: Who would you guess owns the concept of one-click purchasing? What about the idea of rounded-edged phones?

The answers are (AMZN) and Apple (AAPL), respectively. But if you're like most people, you're probably less surprised by the patent-holders than by the fact that such simple ideas are eligible for patent protection in the first place.

Unfortunately, it doesn't stop there: Amazon and Apple are currently embroiled in a courtroom battle over use of the term to describe the place where one buys apps. At the center of the argument is whether Apple's use of the name "App Store" first legally prevents Amazon from calling its version the "Amazon Appstore."

When Did This Patent Craze Begin?

It's no accident that Apple has such a heightened sensitivity to patents.

It was the summer of 2006, and Apple had just been ordered to hand over $100 million to Creative Technology -- a company in Singapore that had patented a "portable music playback device" in 2001. This previously unheralded competitor had filed first on the basic idea behind Apple's superstar product, the iPod. Now Apple had to pay the price.

Steve Jobs, Apple's CEO, quickly went on the defensive.

According to the company's former general counsel, Jobs' policy shifted to the tack "that if someone at Apple can dream it up, then we should apply for a patent, because even if we never build it, it's a defensive tool." As a result, Apple has become a voracious patent-filer: Over the past decade, the number of Apple's patent applications has skyrocketed nearly 1,000 percent.

On the surface, the strategy makes sense -- especially combined with the fact that knockoffs can be convincingly similar to the original. Some companies making these knockoffs go so far as to attempt to patent the copied designs, as the small Chinese firm Shenzhen Shenma Lianzhong e-Commerce recently tried to do with its Goophone I5, a blatant rip-off of the iPhone 5.

New Ideas Get the Short Shrift

Yet when you look at just how much is spent acquiring and protecting patents, this is a trend that has clearly gone too far.

Experts estimate that the smartphone industry alone spent $20 billion on patents during the past two years. Even more startling is that for the first time ever, last year "spending by Apple and Google on patent lawsuits and unusually big-dollar patent purchases exceeded spending on research and development," according to The New York Times.

In other words, more time, money, and effort is now spent protecting old ideas than is spent on developing tomorrow's next big ideas.

So it's no surprise this epic shift has many tech visionaries nervous. Amazon's CEO, Jeff Bezos, recently admitted that "patents are supposed to encourage innovation [yet] we're starting to be in a world where they might start to stifle innovation."

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So Why Does This Matter to You?

Consumers, investors, and inventors are ultimately left holding the tab for the billions spent on the ephemeral world of patents.

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As consumers, we pay for it in the form of higher prices.

If you're an investor in these companies, you're sitting on the sidelines watching as money goes from your pockets into those of patent lawyers.

If you're a small-time or aspiring inventor, good luck trying to make it big. Not only are the monetary odds against you, but patent law itself was recently changed to favor large, patent-hungry companies. No longer does a patent go to the "first to invent," but now to the "first to file."

Yet perhaps what should sadden us most as consumers is the absence of products we'll never even know we're missing. After all, it's quite possible that the next great technological breakthrough may have already occurred -- but it's stuck deep in the file cabinet of a patent attorney's office.

Motley Fool analyst Adam J. Wiederman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple,, and Google. Motley Fool newsletter services recommend Apple,, and Google.

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