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

The answers are Amazon.com (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."

Related Articles


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.

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, Amazon.com, and Google. Motley Fool newsletter services recommend Apple, Amazon.com, and Google.

Increase your money and finance knowledge from home

Goal Setting

Want to succeed? Then you need goals!

View Course »

Introduction to ETFs

The basics of Exchange Traded Funds and why ETFs are hot.

View Course »

Add a Comment

*0 / 3000 Character Maximum

23 Comments

Filter by:
rosenbill858

rosenbill858 Around 1960 I was working for a company in Chicago, when a well-qualified relatively older chemist was hired. He had been let go after 22 years by his former employer who was cutting back on R&D. His last 2 years at his previous job, his assignment was to dream up reasonable ideas and send them to the patent attorneys. No work was ever done on anything submitted--it was purely defensive in case somebody else did something similar in the future that warranted patent protection. Blanks were filled in on the proper lines by the attorneys. A similar incident happened to one of my peers in graduate school. He had an idea, but refused to sign papers until he did some work. The idea was good; he synthesized and thoroughly described the new compound and the process he went through making it. The attorneys used his information on the patent application and dreamed up several more on which nothing was done. Again, all imaginary information was placed on the proper lines on the application. The U.S. patent system has been totally unreliable for decades, maybe a century.

December 05 2012 at 3:35 PM Report abuse rate up rate down Reply
PegasusICS

The creation of intellectual capital is part of a free society. It's about the protection of personal property. Companies want to monetize the intellectual capital that their people create. That creates wealth for a society.

Charles Smith

December 04 2012 at 4:33 PM Report abuse rate up rate down Reply
PegasusICS

The creation of intellectual capital is part of a free society. It's about the protection of personal property. Companies want to monetize the intellectual capital that their people create. That creates wealth for a society.

Charles Smith
www.PegasusICS.com

December 04 2012 at 4:33 PM Report abuse rate up rate down Reply
moorlockx

Nothing new here. Patent burying has been going on as long as patents have existed. The auto and oil industries used to be the kings of it. All you need to do is read through old copies of Popular Science and Popular Mechanix. You'll find many things, like those that that would have given us 100 mpg cars 4 or 5 decades ago, that were invented but never saw the light of day because they were buried. .

December 04 2012 at 2:46 PM Report abuse rate up rate down Reply
Hi Mark!

Adam, people and corporations need to be rewarded for inventing new ideas, and the patent is the way to do that. It used to be that patent protection of 17 years started when the patent issued and the name of the game, before the patent laws were modified in the late 1990's, was to keep patents pending for as long as possible. It was possible to keep a patent pending, while still getting exclusive protection on the invention, for 20 to 30 years before the 17 years started. This was abusive, so now we have 20 years of patent protection from the date of filing, which rewards the inventor, but encourages new inventions at a faster rate. Unfortunately, copyright law protects forever. How do you feel about that?

December 04 2012 at 11:31 AM Report abuse rate up rate down Reply
mitch rochelle

greed by the 1%........will destroy this country

December 04 2012 at 11:14 AM Report abuse rate up rate down Reply
pdbliz

Goverment Greed of my tax dollars...!!!!!!!!! They want to raise your tax,,,but,,,do not want to cut any $$$ out of budget....
Goverment wants to keep the Welfare People Happy.........VOTES,,,,,VOTES...!!!!!!

December 04 2012 at 9:54 AM Report abuse rate up rate down Reply
2 replies to pdbliz's comment
mitch rochelle

like welfare for the corprations..???? welfare for the rich./????

December 04 2012 at 11:14 AM Report abuse rate up rate down Reply
vanvorous

Just exactly what does a post on taxes remotely have to do with patent law which is the topic of this blog? Do believe the answer to this query is zip-zero-nada-nothing; try posting something of relevance pdblitz because your post on taxes is totally irrelevant drivel...

December 04 2012 at 1:13 PM Report abuse rate up rate down Reply
Phil Smith

To all you future inventors, a patent is only as good as the amount of money you are willing to spend to protect it. The government does nothing to protect a patent.

December 04 2012 at 8:59 AM Report abuse +1 rate up rate down Reply
Dereck

The actual technology that steve jobs lied about creating into 'Apple' was truthfully created during the 'SR71 Blackbird' Project, and not in '63 as falsely stated by the Government and Documentors, but in '79 in which the very first 'Automated Processing Computers' and 'LCD Screens' first emerged. The Government then made those technologies available for 'Public Use', and placed steve jobs into the 'figurehead' position to steal all the money through the Payrolls and through 'Stock Options' for the Politicians, CEO's, and Upper Executives to purchase and sell or collect dividends, also in act of theft. You have also just witnessed the same conspiracy unravel with the departure of now former MicroSoft Executive steve sinofsky and General john allen who look too closely resembled to look past, both landed in hot water at the same instance, which leads to the knowledge of a much deeper plot uncovered by undisclosed investigations.

December 03 2012 at 10:37 PM Report abuse rate up rate down Reply
Dereck

'Apple' is at least a 'Fraud Scam' and at best a 'Goverment Sponsored Ponzi Scheme', they lie that they are the most valuble company in the World but they are completely falling behind 'Android' who is even consuming the PC Market now with Windows 8 built upon 'Android OS'.

December 03 2012 at 9:49 PM Report abuse +1 rate up rate down Reply
1 reply to Dereck's comment
oharne

Methinks your little tin foil hat may have slipped a wee bit! :-P

December 04 2012 at 5:16 AM Report abuse rate up rate down Reply