Patent Bully: Steve Jobs’ Unethical Use of Patents

(Cross posted on Project DisCo)

Yesterday, a sworn statement by former Palm CEO Edward Colligan became part of the public record in a civil antitrust lawsuit brought by 5 employees at major Silicon Valley tech firms.  Colligan alleged, supported by email records, that Steve Jobs contacted him and “proposed” an arrangement in which Apple and Palm would agree not to hire each other’s employees.  If Palm did not agree, Jobs threatened Colligan with patent lawsuits.

Although the antitrust case will focus on the agreements not to hire each other’s employees (collusive agreements in restraint of trade — whether the “trade” is in physical products or the supply of labor — are an antitrust no-no punishable by steep fines and, in some cases, even criminal sanction), I think the patent “stick” used in this case is far more telling — and a far bigger deal — than the alleged do-not-poach-our-employees agreements.  (Note: the DOJ already extracted a settlement agreement from Apple, Adobe, Google, Pixar, Intuit and Intel preventing them from enacting a broad array of “no solicitation agreements” with rivals.)

I put quotation marks around the word “proposed,” as the offer was extended in much the same manner that a mob boss proposes a protection deal.  “Accept my proposal or I cannot promise that something bad will not happen to you.”

In this case, Jobs’ enforcers were not thugs with baseball bats (or swords), but Apple’s own patent lawyers.  As Colligan recalls:

Mr. Jobs also suggested that if Palm did not agree to such an arrangement, Palm could face lawsuits alleging infringement of Apple’s many patents.

However, that was not the end of their interaction [email excerpts below].  Colligan’s affidavit had an appendix that laid out the subsequent email exchange between him and Jobs.  Not only does Colligan inform Jobs that the proposal is likely illegal and immoral, but that he wasn’t threatened by Apple’s patent coercion because Palm had a robust patent portfolio of its own.  However, Colligan then extended an olive branch by saying that patent warfare was not a good way to proceed and that the only winners would be the lawyers.  Jobs’ response to Colligan’s email was the most important — and alarming — part of the Apple boss’s threat.

While not addressing the potential illegality or immorality of the do-not-hire agreement (which was the main point of Colligan’s email), Jobs decided to ratchet up his patent threats.  Almost mockingly, Jobs notes “I’m sure you realize the asymmetry in the financial resources of our respective companies when you say: ‘We will both just end up paying a lot of lawyers a lot of money.’”

I want to parse that statement.  Translation: “We are a huge company that does not have a problem paying a ton of money to patent lawyers to punish you, regardless of whether our request is illegal or not.”

As we focus on patent policy on Patent Progress and Project DisCo, and not tech execs run amok (although that would also be an interesting blog), I wanted to discuss this as a tangible example of the more metaphysical patent policy problems we frequently discuss.

Because patents are frequently issued by the millions (especially in the tech space) for innovations of dubious legitimacy, encased in impenetrable and imprecise legal jargon, patent litigation is a crapshoot of epic proportions.  Patent jurisprudence is also notoriously ambiguous and frequently changing.  Therefore, as Steve Jobs makes clear, he who has the most lawyers usually wins.  (For example, Apple won a billion dollar decision against Samsung, using some patents that were eventually invalidated.  Given the lengthy appeal process of the invalidations, the patent invalidation does Samsung little good in its case.)  This is especially true if one is talking about the long game, as opposed to any individual trial or adjudication.

It is no surprise that the recent New York Times exposé that chronicled the evolution of Apple’s patent strategy also featured a robust commentary of the patent system’s problems, problems that Jobs was apparently keen to exploit to his own advantage:

Privately, Mr. Jobs gathered his senior managers. While Apple had long been adept at filing patents, when it came to the new iPhone, “we’re going to patent it all,” he declared, according to a former executive who, like other former employees, requested anonymity because of confidentiality agreements.

“His attitude was 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,” said Nancy R. Heinen, Apple’s general counsel until 2006.

(The story also featured an anecdote of an Apple engineer refusing to participate because he believed the strategy was unethical, and other recent commentary even featured Steve Wozniak, Apple’s co-founder, rebuking Apple’s patent strategy.)

The Times article also features this nice synopsis of the problem:

It is a complaint heard throughout the industry. The increasing push to assert ownership of broad technologies has led to a destructive arms race, engineers say. Some point to so-called patent trolls, companies that exist solely to sue over patent violations. Others say big technology companies have also exploited the system’s weaknesses.

“There are hundreds of ways to write the same computer program,” said James Bessen, a legal expert at Harvard. And so patent applications often try to encompass every potential aspect of a new technology. When such applications are approved, Mr. Bessen said, “the borders are fuzzy, so it’s really easy to accuse others of trespassing on your ideas.”

The Apple-Palm coercion is not an isolated case of this dynamic.  Legal ambiguity and asymmetric budgets are frequently used to beat up on smaller rivals.  The now relatively famous shakedown of the then-young Sun Microsystems by IBM in the 1980s is a prominent example of this.  That time the shakedown was just for money, as the IBM chief negotiator was quoted as saying:

“OK, maybe you don’t infringe these seven patents. But we have 10,000 U.S. patents. Do you really want us to go back to Armonk [IBM headquarters in New York] and find seven patents you do infringe? Or do you want to make this easy and just pay us $20 million?”

The IBM-Sun story and the Jobs-Colligan exchange encapsulate the realpolitik of the patent policy problems we frequently highlight on Patent Progress.  Entrenched companies with huge patent portfolios can use the cudgel of patent lawsuits to bully the rest of the industry.  In this case, it did not matter to Steve Jobs that his request was likely illegal or immoral.

This is another example of Apple using its patent arsenal to enforce its own “code of morality” (which, as I noted, is divorced from actual legal code) on the industry.  Personal liberty and free choice be damned, don’t hire my guys.  We are Apple, the wealthiest company in the world!

Apple’s proprietary ethical code also frowns upon competition, as Steve Jobs made clear in his authorized biography

I will spend my last dying breath if I need to, and I will spend every penny of Apple’s $40 billion in the bank, to right this wrong. I’m going to destroy Android, because it’s a stolen product. I’m willing to go thermonuclear war on this.

Putting aside that Apple is a public company (and fiduciary duty to shareholders should trump the personal vendettas of even the most storied execs), competition through iterated innovation is not illegal, even though companies – by design – don’t like competition.  The very core of antitrust law and textbook economics is that competition is a good thing that benefits society.  In 1996 Steve Jobs, before Apple rose from scrappy competitor to king of the tech hill, acknowledged this when he said in an interview:

“Picasso had a saying, ‘Good artists copy, great artists steal.’  And we [Apple] have always been shameless about stealing great ideas.”

In fairness to Jobs, he made a PR faux pas when he said steal.  What he was alluding to, as is clear in the context of the interview, was the timeless dynamic of building upon the ideas of others to make them better, as eloquently encapsulated in T.S. Eliot’s prose:

One of the surest of tests is the way in which a poet borrows. Immature poets imitate; mature poets steal; bad poets deface what they take, and good poets make it into something better, or at least something different. The good poet welds his theft into a whole of feeling which is unique, utterly different from that from which it was torn; the bad poet throws it into something which has no cohesion. A good poet will usually borrow from authors remote in time, or alien in language, or diverse in interest.

Well functioning IP law should protect, at least for a limited time, the outright theft of truly innovative ideas that are both, in patent jargon, “nonobvious” and “novel.”  Attempting to improve upon a product like a smartphone or a tablet is not, and should not be, illegal.  In fact, Jobs and Apple did not invent the mp3 player, the computer, the smartphone or the tablet — they just improved upon what was out there and made it better (Creative even sued Apple and won a settlement for patent infringement related to the iPod).  So much better, in fact, that Apple’s products became the industry standards.  Companies, like the new big bad Apple, that rise to the top of the market often change their minds about competition and use improperly granted patents and the litigation nightmare that is patent law as a way to harm competition and follow-on innovation.

This rare look at the sincere thoughts and communications of the former lead man of the biggest high-tech patent litigator on the planet gives us insight into the motivations behind Apple’s ongoing campaign of nuclear patent warfare.

Much like a mob boss asserting a right to a patch of turf, Apple is enforcing its own proprietary (and at times hypocritical) code of street justice through the indiscriminate enforcement of its large, amorphous patent portfolio for strategic reasons unrelated to the “infringement” itself.  This revelation, coupled with ever-growing stories of patent misuse, should serve as a wake up call for judges and legislators to rein in excesses of the patent system, lest the ever-expanding software patent deluge impinge further upon the legitimate rights of individuals and companies.
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Email excerpts [emphasis added]:

Email from Edward Colligan to Steve Jobs:

Steve:

I have thought long and hard about our conversation on Wednesday, and I thought it important to let you know my position on the issues we discussed.  I hope we can resolve our differences, but it has to be on terms that are right not only for our respective companies, but for the individuals potentially affected. Your proposal that we agree that neither company will hire the other’s employees, regardless of the individual’s desires, is not only wrong, it is likely illegal. [...]

Like you, one of my important tasks as CEO is to build and retain a first class team.  I know it’s difficult when a respected employee decides to leave the company for a new challenge, but, as you said in our call, ‘this is America.’  We can’t dictate where someone will work, nor should we try. I can’t deny people who elect to pursue their livelihood at Palm the right to do so simply because they now do for Apple, and I wouldn’t want you to do that to current Palm employees.  We can both try to persuade them to stay but, at the end of the day, it is their choice, and a choice we should respect. [...]

That said, I want to be clear that we are not intimidated by your threat.  Palm has a very robust portfolio of patents, having been in the handheld smartphone businesses since the early 90’s.  In addition, Palm now owns the former Siemens mobile patent portfolio, most recently held by BenQ Corporation.  This mobile computing and communications portfolio includes over 1500 patent assets, the majority filed in Europe.  If you choose the litigation route, we can respond with our own claims based on these patent assets, but I don’t think litigation is the answer.  We will both end up paying a lot of lawyers a lot of money. [...]

Sincerely,

Ed

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Response email from Steve Jobs to Edward Colligan:


Ed,

This is not satisfactory to Apple.  It is not just a matter of our employees deciding they want to join Palm.  They are being actively recruited using knowledge supplied by Jon Rubenstein and Fred Anderson, with Jon personally participating in the recruitment process.  We must do whatever we can to stop this.  I’m sure you realize the financial asymmetry in the financial resources of our respective companies when you say: “We will both just end up paying a lot of lawyers a lot of money.”

Just for the record, when Siemens sold their handset business to BenQ they didn’t sell them their essential patents but rather just gave them a license.  The patents they did sell to BenQ are not that great. We looked at them ourselves when they were for sale.  I guess you guys felt differently and bought them.  We are not concerned about them at all.  My advice is to take a look at our patent portfolio before you make a final decision here.

Steve