It’s over (even though it isn’t). Eolas lost. Three more back-to-back trials over liability and damages will not take place. Unfortunately, the defense lawyers did too good of a job during the validity phase, costing themselves hundreds of thousands (if not millions) of dollars worth of billable time for the three additional back-to-back trials that, now, will not take place.
With nothing left to write about, writers turn to the what if meme. The EFF takes a predictable policy-based approach, claiming that software needs no patent protection to spur innovation. Meanwhile, a Forbes contributor jumps at the lowest of the low-hanging yet high-brow sounding anti-IP arguments by improperly characterizing patents as a regulation, instead of correctly treating them as property rights. The best of the what if articles, however, is undoubtedly Joe Mullin’s Wired column, in which he asks “so what?”. Mullin reminds us that Eolas’ inventors did not create companies like Netscape, Amazon and Google. In other words, they did not develop their technology in the respective fields of endeavor in which they now assert property rights. (Their day job, bioinformatics research, may have kept them somewhat distracted.) Yet, they are asking, from the less than a dozen companies going to trial, a windfall of $600 M! Mullin cites this as evidence of “the huge imbalance in the U.S. patent system.”
So, continuing on the what if meme, what if the complainers were right? What if Eolas actually owns property rights to Internet technology frequented by all web-comers? What is the appropriate amount, and under what circumstances do these impertinent property owners dare demand $600 M? One place to start is by asking ‘How much money are these participants making by utilizing this property?’
Of the seven companies left standing throughout the trial, six are publicly traded: Adobe, Amazon, Google, JC Penney, Staples, and Yahoo!. A cursory review of financial information for 2011 shows that these companies took in a combined $125Billion. As of their most recently published financial statements, these companies combined for a total of $53 B in cash on their balance sheets, and are currently valued at a combined $333 B (dominated by Google’s nearly $200 B market capitalization). Over the last four years, these six companies took in just shy of $430 B in total revenue.
These figures provide a little perspective on Eolas’ apparent request of $600 M, which amounts to 0.14% of the companies’ combined revenue–that’s $0.0014 for every dollar in revenue. The $600 M ask amounts to about 0.18% of the combined market cap, and 1.13% of the cash these companies currently have on hand.
But wait! Don’t some of these companies (particularly Staples and JC Penney) still make a lot of their money doing things having nothing to do with the Internet? Of course they do. In fact, assume they all do. Assume that all of these companies make a substantial majority of their money from things having no relation to the Internet at all. Reduce that total revenue earned by as much as awhopping 85%, and Eolas’s $600 M payment would still be less than 1%.
I am not suggesting that Eolas should have won its trial (I wasn’t there), and I am not suggesting that their damages calculations are appropriate or accurate. I am merely providing a few basic facts (these financial numbers are all public, and you can check my math for yourself) to put everything in perspective. Some readers are still inclined to believe that Eolas’s request (fractions of a penny on the dollar) represents an “imbalance” associated with the patent system, but consider the following analogy.
Imagine that you buy some land in a relatively unpopulated area, planning to one day use it for something–retirement, investment, mining–the purpose doesn’t really matter. Meanwhile, you go about your normal routine: get a job, start a family etc. For the most part, you’re too busy living your life to worry about this piece of property you bought. But one day, deciding the time may be right, you decide to check it out. When you arrive, you find that your “unpopulated area” is now a thriving metroplex, complete with roads, homes, apartments, offices and stores. In fact, one of the largest and most profitable business in the entire area has set up shop squarely on the land you thought you owned! Fair enough, you think, you haven’t put the land to use, and you’re glad that someone has (validating your original belief that the property did hold some future value). Even still, it is your land and you would have, theoretically, been willing to sell or rent it out. You decide to approach the business owner about some compensation. How much are you going to accept? If he offers you 0.14%, will you take it? Would you call that balanced?
- Eolas – Beaten But Not Defeated (gametimeip.com)