Have Patent, Will Sue

No one expects reforms to happen overnight. Particularly when the U.S. government and the entire tech industry deal with the tangled nuances of patent law, positive changes in the system will naturally be slow in coming.

But in the meantime, companies continue to use and abuse patent rights to go after competitors -- or after any entity with deep enough pockets. While many of the industry's larger players, such as Qualcomm (Nasdaq: QCOM) and Broadcom (Nasdaq: BRCM), are tangled in more legitimate beefs over patent infringement related to their products, some companies employing only a few lawyers and developing no products continue to sue indiscriminately.

And the cost of damages seems to know no limits. The industry marveled at the $612 million Research In Motion (Nasdaq: RIMM) ended up paying to scrappy patent prosecutor NTP, but that's nothing compared with what some are asking for. Nokia (NYSE: NOK) recently got slapped with a lawsuit demanding -- get this -- at least $17.7 billion. The complainant in this case is a German company called IP-Com, bankrolled by Fortress Investment Group (NYSE: FIG).

Then there's small holding company Minerva Industries, which sued dozens of companies, including Apple (Nasdaq: AAPL), Motorola (NYSE: MOT), and Samsung, over a just-issued broad patent with 125 claims covering many basic features of a smartphone. And just in case you figured NTP's windfall payment from RIM was enough to make it go away, guess again.

All of this suing makes a few things obvious to me. First, patent shakedowns will continue as long as there are patents, because the financial incentive exists. Second, any aspiring college graduate who can withstand the tough curriculum of law should strongly consider it as a career choice, because patent lawyers and attorneys probably have more long-term job security than do folks in any other profession.

Seriously, though, litigation surrounding patents has become an increasingly large cost of doing business, particularly in the wireless world. High-stakes litigation results can also significantly skew the competitive environment and success -- or doom -- of companies. Investors need to consider carefully the legal risks of companies they own, particularly if any are smaller fish navigating a pool of sharks.

For more Foolishness:

• Stop Playing the Loser's Game
• An Outstanding Call on Apple
• A Universe of Great Stocks