Alphabet Inc. today reports that Google’s advertising revenue rose 19.5% in the second quarter.
Policy makers, including federal judges, don’t want to stifle innovative industries like online retailing.
If you were the mythical king of the U.S. economy you would love the Internet. It’s dramatically improved economic productivity and spawned new and growing industries, including e-commerce. You would take steps to protect that growth.
There is no king of our economy, but there are people who make economic policy, and who try to ensure the growth of the U.S. economy. They do indeed like the Internet and want to ensure that it thrives. That’s one reason Congress and the courts have been reluctant to allow states to charge sales tax on all online purchases. They haven’t wanted to kill the goose that’s been laying golden eggs at an ever-faster rate.
They also may have come to the conclusion that patent claims are slowing down innovation, including in e-commerce and mobile technology. One indication of that is the ruling this month by appellate court judge Richard Posner. It threw out a lawsuit in which Apple Inc. claimed Google Inc.’s recently acquired Motorola Mobility division violated various Apple mobile phone patents. There have been many patent lawsuits relating to wireless technology, and it’s widely believed Google bought Motorola largely for its hefty portfolio of mobile patents. Posner simply tossed the case, saying there wasn’t enough potential damage to Apple to justify the potential harm to Google—and to consumers who want more powerful and useful smartphones.
Posner has been a judge on the Seventh U.S. Circuit Court of Appeals since 1981, and he’s written and spoken widely on economic and antitrust issues. Anyone who thinks he’s not a policy maker isn’t paying attention.
Other judges seem to be coming to the view that the rights of patent holders shouldn’t unduly restrict the advance of Internet technology. Some of the largest e-retailers won a big victory in federal court last month when Judge Claudia Wilken in the U.S. District Court for the Northern District of California handed down a ruling in a case in which Kelora Systems LLC sought damages based on its patents for faceted search, the widely used practice that allows consumers to narrow down search results by such parameters as price, brand, size and color. A victory for the plaintiff would have opened the door to claims against many web retailers. The judge closed that door. And there are other recent examples that suggest the tide on patent claims is turning in favor of e-retailers.
This is a big deal for web retailers. Patent holders have been hitting them up with claims on a regular basis, and many e-retailers have settled—often paying several thousand to tens of thousands of dollars per claim to make these demands go away. These claims won’t stop—and inventors that develop real innovations have a right to license their technology. If they didn’t, there would not be as much incentive to innovate and the advance of technology would slow.
But there are lots of patents on Internet and mobile technology that companies filed many years ago, and whose merit is dubious. We recently became aware of a retailer contacted by a company that claims to have the patent on the Contact Us feature of a web site. If that claim were considered valid, every web site operator would have to pay tribute to this company. Would that advance the Internet, or drain cash those innovative online companies could otherwise use to invest in new development? At least some federal judges seem to be concluding that enough is enough, and that patent claims must not be allowed to slow the growth of some of our fastest-growing industries.