Sunday, November 19, 2017

Patent Acquisitions – What’s Behind Them

US Supreme Court - Patent Acquisitions

Photo by Dave Newman / Shutterstock.com

 

If recent news is any indicator, patents are extremely valuable assets!

During 2011, Nortel Networks Corporation sold 6,000 patents for $4.5 billion to a technology consortium that included Apple, Microsoft and RIM. Shortly thereafter, Google bought, in one of the largest patent deals in history, more than 24,000 patents and patent applications from Motorola Mobility for $12.5 billion. Since 2011, IBM has sold more than 2,000 patents to Google for an undisclosed price. And now, Kodak, under the mandate of its Chapter 11 bankruptcy filing, is trying to sell 1,100 of its patents for $3 billion.

What’s Behind These Patent Acquisitions?

What’s behind these patent acquisitions?

The answer is twofold. First and foremost, they are driven by sophisticated business strategy as it pertains to monetizing intellectual property and, secondarily, companies are seeking to build a war chest of patents to defend against patent infringement lawsuits.

The Complexity of Today’s Technology

It is virtually impossible to build complex technology without infringing someone’s patent. The average smartphone includes thousands of elements of patented technology. So many, in fact, that even large companies cannot afford to contact each patent owner and obtain a license to use that respective technology. Instead, they wait until a plaintiff demands royalties for the use of the patented technology, and threatens a patent infringement lawsuit. Typically then, the defendant finds something the plaintiff is doing that infringes one of the patents it owns, and the two parties agree to settle the matter by cross-licensing their respective rights to one another.

After years of eschewing intellectual property, Google has finally entered the patent-portfolio marketplace in a major way, attempting to quickly gain the bargaining chips needed to defend against the numerous patent infringement lawsuits that have been filed against its Android operating system. Starting from nearly no patents whatsoever, Google has become the major buyer in today’s patent markets.

It is a wise, and perhaps desperate, move.

If Apple and/or Microsoft can assert that Google’s Android platform is infringing one or more of their patents, they may be able to obtain an injunction preventing Google from using that technology, possibly obtaining monetary damages, and/or receiving substantial licensing fees for continued use of the technology. Any of these outcomes would score a strategic victory for the enforcing company.

Open Source: Ideal vs. Reality

Google’s case is ironic because the Android platform is “open source” software, which means that anyone can copy, use, modify or redistribute its  source code. Google sought no patent protection for the technology. Rather, the executives always intended to give away the operating system to all comers in return for carrying their advertisements.

Google’s business model upended the mobile smartphone market, making it difficult for the other players to effectively compete. To date, Google’s platform commands more than 50 percent of the smartphone market in the U.S. However, that success may not last because a number of competitors – most notably Apple, Microsoft and Oracle – have filed multiple patent infringement lawsuits against the company.

What were Google’s founders thinking? That competitors would allow patent infringement without a fight? Was it blind faith in the politically correct myth of the early Internet that “it is all free for the taking?”

From the beginning, Google’s overarching strategy was to “democratize knowledge” by making it freely available to everyone. In return, advertising would monetize the medium for the company. Because the Android operating system was free, the company reasoned, it would bring down the price of smartphones such that everyone could have one, and that this would be seen as a greater benefit than any delivered by intellectual property law. But the founders didn’t realize that intellectual property law is “constitutional law,” and mistakenly thought it was the kind of law that is driven by public policy.

To date, Google may have miscalculated. The company stepped right into the already highly developed world of “cross-licensing” and “patent trolls,” in which legal action happens quickly, intellectual property rights are no less enforceable than are tangible property rights, injunctions are issued, and damages are awarded in the many hundreds of millions of dollars.

How Serious Is Google’s Patent Infringement Problem?

Microsoft has been willing to accept substantial “royalties” to settle its patent infringement lawsuits against Google and others. Apple, however, has struck a harder line: The company doesn’t want royalties. It wants to stop Google and Android manufacturers from using its technology at all. Under the constitution, patents can be used to exclude others from practicing a technology or an invention, giving the holder an absolute monopoly.

Consequently, Google took a considerable risk in developing Android as open-source technology, but it fits Google’s “democratization” ethic. The company executives had a grand vision of being the first to use open-source technology to create an advertising platform, and make a lot of money in the process. But if Google and the many Android smartphone manufacturers can’t practice a technology, they could end up dead in the water.

Then the market would belong to Apple Computer.

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