Are we experiencing a "Minsky moment" in patents?

This Kat has been of the view that the first 15 years of the current millennium have been marked by unprecedented exuberance, touching on excess, in various aspects of the world of patents. Whether Rembrandts in the Attic, here, patent aggregators such as Intellectual Ventures, here, patent trolls (rebranded as “non-practising entities”), billion dollar price tags for the patent portfolios of failed companies (such as Nortel, Motorola Mobility and, for a time, Kodak) and the patent wars in the smartphone industry, the public persona of patents is about size, whether it be the companies, patent portfolios or sums involved. The press, particularly the business press, when challenged to provide contents on a 24/7 basis, have accommodated this process. Quite astonishingly, patents have become the rock stars of the IP world.

Yet another example of this rock star ambience took place this week. No doubt many Kat readers took note of the joint announcement by Apple and Samsung that they are dropping all suits, except in the U.S., in their high visibility patent skirmishes spanning nearly ten countries, here. According to the announcement, only the law suits in the U.S. will continue; all the other actions are being abandoned (in Australia, Japan, South Korea, Germany, Netherlands, the U.K., France and Italy). Even in the U.S., the parties in June had agreed to drop their respective appeals in the litigation that was taking place before the U.S. International Trade Commission, which had resulted in an import ban for several older models of Samsung phones. Notably, however, no mention was made of any cross-licences. Just what this partial cease-fire ultimately means is still unclear (except, perhaps, in light of the carve-out for the U.S. litigation, to confirm that the U.S. is still champion in the Premier League of patent disputes). While the Apple-Samsung patent dispute is only one part of the so-called smartphone patent wars, which have involved other companies such as Sony, Google, Microsoft, Nokia, Motorola, and HTC, the visibility of this litigation has probably eclipsed all other patent disputes in recent years.

And what a curious patent battle it has been. The strategic end-game for this litigation has never been quite clear for this Kat. As Bloomberg Businessweek reminded us that it argued back in 2012, what rested behind it was not Apple’s hostility towards Samsung per se, but “was primarily a legacy of Steve Job’s over-the-top hostility toward the Google Android operating system, which Samsung and other Apple rivals use in their devices”, here. Neither side has been able to deliver a knock-out blow on the other. The two parties are business partners, even in the mobile space. More than one judge has suggested that the parties would be well advised to settle. Perhaps most importantly, while the two companies continue to fight in court, the smartphone mark continues to emerge in ways that are not necessarily favourable for them. Samsung recently announced its lowest quarterly profit in two years and its global market share reportedly declined 7.4% from the same quarter a year earlier. While Samsung enjoyed an overall global market share of around 31% for 2013 (compared to 15% for Apple, although Apple is dominant in the so-called high-end of the market), both need to contend with rapidly emerging Chinese and Indian competitors. And yet, until this week, the multi-national litigation continued at nearly full throttle. This Kat asks again—how can we explain it?

It is more than curious that this exuberance in the patent world overlaps in part with the dramatic ups and downs in the financial world during the same period. A compelling (at least for this Kat) explanation for these financial excesses is found in what has been called a “Minsky moment”, here,named after the late economist Hyman Minsky, here. A “Minsky moment” has been described “as a sudden major collapse of asset values which is part of the credit cycle or business cycle. Such moments occur because long periods of prosperity and increasing value of investments lead to increasing speculation using borrowed money. The spiralling debt incurred in financing speculative investments leads to cash flow problems for investors.” This Kat thinks that it is plausible to ask whether there has been a “Minsky-like moment” with respect to patents in the sense that huge swathes of money and resources are being devoted to patents, diverting such money and resources from other productive (maybe even more productive) usages. Indeed, it can be asked whether some of the factors that have contributed to the "Minsky moment" in the financial world have also impacted on patents during this period. Moreover, will we see the downside of such a dynamic in the form of a decline in the perceived value of patent assets? Ultimately, whether we choose to call what has occurred in the patent world over the past 15 years as a “Minsky-like moment", or something else, it seems to this Kat that the time has come to try and identify the macro-factors that have led to the current state of patent affairs and guide us on what we can reasonably expect.