A Patent Protection Racket

From: Learn To Speak Mafia

About 15 years ago I was working for a small firm making telecoms equipment, and developing from scratch a Voice over IP box.  It was a very simple device to convert SIP internet calls to local analogue POTS lines (Plain Old Telephony Service) and there were just two of us working on the project: Mike the hardware engineer, and me, for the software.

The box had a microprocessor running Linux (including a massively hacked version of Linphone for the SIP stack), and it had a DSP to support the codecs (short for Codify/Decodify).  It was quite a fun project (*).

A word about codecs and SIP:  SIP stands for Session Initiation Protocol (**) and is an internet standard allowing two internet peers to start a phone call.  One of the main tasks SIP has to perform is to co-ordinate on which codec to use.  One peer may support GSM, G.729, and G.711, and another may support G.726, GSM, and Speex - in which case the two peers would have to agree to use their only common codec, namely GSM.

Now, there's nothing difficult about designing or implementing a new codec, and so - in principle - there's no reason why you have to use one that's already exists.  However, if you want your VoIP box to be able to talk to anyone elses you really need it to support the most commonly used codecs available.  Luckily for us, our DSP came with a library that supplied routines for a bunch of them, saving us a bit of work.

The men with the baseball bats arrive

One day a couple of guys from our DSP manufacturer turned up wanting to show us a PowerPoint presentation.  They were offering us a service called "indemnity" - which I didn't really understand.  The presentation didn't contain very much except for a table that looked something like the following

	G.711	G.726	GSM	H.26...	more codecs...
IBM		✓			✓    ✓
TI	✓	✓		✓	✓    ✓    ✓
Cisco	✓		✓	✓	✓    ✓
Microsoft		✓	✓		✓    ✓    ✓
other companies...	✓			✓	✓    ✓

As you can see, the rows were companies and the columns represented codecs.  But what did the ticks represent?  It turned out that a tick meant: that company held a patent on some or other technology needed to implement that codec.

So what were these guys selling?  At first I thought it was the right to use their library code.  No, that came free with the devices we'd bought they told us.  Eventually after much confused questioning from me I determined that they were selling the right to use certain codecs.  I was still confused:

   "But there isn't a single codec in that table for which only you have patents"

No, no, no - that doesn't matter.  "We're selling indemnification" they told us.

  "Okay, I have to admit - I don't know what indemnification is"

So, they patiently explained that if we pay them a fixed fee per VoIP box we sold, they'd prevent us from getting sued by any of the other big patent-owning players.  But, how could they do that, I asked.  Well it turns out that the DSP manufacturer had just enough patents such that all the other big players were necessarily infringing at least one of them.  So, what our DSP supplier was able to guarantee us was that, were one of the other companies to sue us, they'd sue them back.  And they were so confident that this Mutually Assured Destruction deterrent would work they could also offer to cover our costs should it fail.

Upshot: we need to pay them money, or we'd be in trouble.

This business model isn't entirely invulnerable of course.  There are Patent Trolls who buy up a number of patents but don't make any products themselves, which enables them to sue without the risk of being counter-sued.  In the cold war analogy this is a bit like one side having a Star Wars style missile shield.

Now, Patent Trolls get a lot of stick.  And they should.  But we hear less often  about the protection racket run by the big tech companies, and how bad that is for the industry as a whole.  Perhaps there would be some justification to it if they'd developed the codecs in the first place.  But, in fact, the patents are almost always simply acquired, and usually don't apply to the codec as a whole, just some fairly trivial technique it requires - one that nobody previously thought patentable (***).

The net result is, small agile companies need to pay protection money for virtually anything they do, but large lumbering ones don't.  And, unsurprisingly, the small companies fail.

FOOTNOTES

• (*) Although I had a sneaking suspicion that my company was not serious about the product and it was all going to be a waste of time.  Nobody ever asked me about it and I couldn't engage them when I tried.  Yet whenever I asked "is this really still on?" I was told "oh, absolutely".  Mike and I spent about a third of our time on the project over a period of about 18 months, and the thing worked beautifully, as we cleared every hurdle and fixed every issue.  Finally, when there was nothing left to do we begged management to let us demonstrate it, and that was when they dropped the bombshell: this isn't at all your fault but we don't need this product any more.  We never did get to show anyone our work.
• (**) This is RFC 3261.  If you look it up you'll find it's 269 pages long, has 8 authors, and all but one of the authors represents a tech company.  The original RFCs were written by one guy, John Postel - sometimes with a co-author - and they were much, much shorter and easier to read.  Not only are the later RFCs enormous, they also fail to specify working implementations.  That is, it is perfectly possible to have different conforming implementations of a modern RFC which nonetheless cannot work together - and SIP is an example of such an RFC.  The reason this happened, is that once it became apparent that there was money in the internet, businesses infiltrated the standardization bodies.  The goal was no-longer to help newcomers write a working implementation, but to ensure that whatever alpha-version product the big players had already developed gets approved with no changes.  Nowadays, if you want to implement a standard, don't read the standard.  Wikipedia will tell you much more clearly what the defacto rules are!
• (***) Surely the patent authorities prevent trivial patents being approved, I hear you say.  Actually, no.  In most cases there is a financial incentive - usually indirect - to say yes.  For example, in 2008 European Patent Office staff went on strike to demand the right to say no to crappy patents.  It turns out that member states get a kickback when a patent is approved but not when they are denied. As a result, states lean on their own staff to say yes pretty much all of the time.