Tuesday, August 23, 2011

Google, Motorola Mobility and the Patent Wars

Guest post by patent specialist Dale Halling

Google agreed to acquire Motorola Mobility for $12.5 billion.  Most people believe the main motivation for Google was to acquire Motorola’s patent portfolio of over 17,000 patents and patent applications.  The comments on this deal encompass all the insanity around the  Patent Wars.  Below I will discuss some of these issues

Business Deal
Is this a good deal for Google?  Does it make economic sense?  In buying Motorola, Google gets a company that has been in the forefront of mobile communications since its inception. 
    The biggest risk is that Motorola is a bit bureaucratic.  They were slow to develop CDMA phones in the 90s and never completely recovered.  Motorola has been hardware focused, when the industry is clearly being driven by software advances now. 
    The main reason for acquiring Motorola is to get their patents and leverage them into freedom of action in the Android market space.

Innovation and Paying for Patents
There are numerous people complaining that Google’s $12.5 billion is being spent on patents instead of being spent on engineers and products.  Actually, spending money on patents IS spending money on engineers.  Engineers created the inventions and the patents just provide legal title to the inventions.  When companies spend money acquiring patents they are spending money for the development of inventions and therefore engineers. 
    If inventions are not protectable, companies do not spend more on engineers they spend less.  They just take other people’s inventions, rather than paying for internal or external development. 
   In fact, you can trace engineering salaries and employment to strong patent laws.  Countries with weak patent laws either have very few engineers or their salaries are fairly low or both.
    New products are the result of inventions.  Increases in our level of technology are what make us wealthy.  When people pay for patents (inventions) it does not discourage innovation, instead it encourages other people to innovate.

Too Many Overly Broad Patents being Issued?
There has been a lot of wailing about too many over broad patents being issued.  This whining is coming from the same people who complained about Amazon’s one click patent, which was upheld after numerous challenges.  Why did Barnes and Noble get a 10x increase in online sales (after copying Amazon’s one-click technology) if the one click patent was not innovative?
    All objective measures of patent quality have been increasing for years.  For instance, the metrics of GDP-per-patent, R&D-dollars-per-patent, and number-of-citations-per-patent have all been on the increase.  For more information see my post Patent Quality Nonsense.
    Do some bad patents get issued?  Absolutely and some of my clients have been affected by this.  However, most people making the claim that there are too many bad or overly broad patents do not even know that the scope of a patent is determined by its claims.  They do not know that claims cannot be read like prose, they have to be read like an equation where every word has to be given meaning.

Litigation Explosion
   
Many people see this acquisition as just another outgrowth of the numerous frivolous patent cases being filed.  However, the facts do not support this point of view.  Judge Michel, former head of the CAFC, the court which hears all patent appeals, points out that the number of patent suits filed each year has remained constant at less than three thousand.  Only about 100 of these suits ever go to trial.  In a technology based, $14.5 trillion economy with over 300 million people and 1 million active patents- THIS IS A TRIVIAL NUMBER.

Solutions
Are there any problems with our patent system?  Absolutely.  The underfunding of the patent office causes inventors to wait years and even up to a decade to receive their patent
    But, more specifically to the Google/Motorola case, the wireless smart phone space needs a more efficient method of clearing patent rights.  I suggest a non-profit entity similar to ASCAP, which clears copyrights for musicians and composers.  For more information see my post Patent Wars a Market Solution.
    Finally, for those worried about the poor, small company who had a great idea for an app and are now scared they may find themselves embroiled in a patent lawsuit- GET A PATENT CLEARANCE OPINION before you develop.

Dale Halling is an American patent attorney and entrepreneur, and the author of the book The Decline and Fall of the American Entrepreneur: How Little Known Laws are Killing Innovation.
Read his regular thoughts at his
State of Innovation blog, and his other Guest Posts here.

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12 Comments:

Anonymous Anonymous said...

So Dale is a patent lawyer. Well he wouldn't think the system is broken, would he. Folks like him are creaming it.

He doesn't mention one of the biggest problem of the patent system, which is non-practising entities, buying up patents that are broad and/or obvious and then holding innocent developers to ransom. These small developers are literally unable to respond in a legal manner, with a patent suit costing millions to action. So they are basically screwed.

8/23/2011 11:37:00 am  
Blogger PC said...

"So Dale is a patent lawyer." And you are ... ? Oh yes, you're anonymous. It figures.

You said, "He doesn't mention one of the biggest problem of the patent system, which is [so called patent trolls]." Well, yes he does. Please try harder.

As he says, "Patents are not a tax on innovation but a 'tax' on copiers."

8/23/2011 11:44:00 am  
Anonymous Falafulu Fisi said...

Anon said...
So Dale is a patent lawyer.

From what I read about Dale is that he is a trained physicist/engineer turned patent lawyer.

So, I think that the man knows very well about technology innovations and the need to protect inventions via patents.

8/23/2011 08:44:00 pm  
Anonymous Bizarro #1 said...

Finally, for those worried about the poor, small company who had a great idea for an app and are now scared they may find themselves embroiled in a patent lawsuit- GET A PATENT CLEARANCE OPINION before you develop.

So you're saying that having the productive seek the permission of the unproductive before they produce is the key to innovation. Gotcha :)

8/23/2011 09:55:00 pm  
Blogger Mark said...

Dale says engineers' salaries are high in jurisdictions where patent law is strong. Isn't that a description of rent seeking?

Also, I'm not sure how a patent holder loses - and I mean actually loses - by others using their invention or idea. Sure, they might not gain, but do they lose? (The investment made to develop the invention is a sunk cost).

It's perhaps obvious that I am not an economist, an engineer, or a patent attorney, and I freely admit that I don't really know what I'm talking about, but if there is no loss in an exchange, then is the exchanged good an economic good?

-Mark H

8/24/2011 12:36:00 am  
Blogger Mark said...

Dale also says this:

'If inventions are not protectable, companies do not spend more on engineers they spend less. They just take other people’s inventions, rather than paying for internal or external development."

But if inventions are protectable, then companies like Google allocate 12.5 billion towards them instead of towards something else.

Seen and unseen.

8/24/2011 12:39:00 am  
Blogger Greig said...

@Mark you said "The investment made to develop the invention is a sunk cost".

Well, yes, sure. But it's an investment which may not have been made if one was unable to protect the fruits of their effort. The argument doesn't hold.

8/24/2011 11:00:00 am  
Anonymous PaulB said...

here is a good read I found last week:

http://thisismynext.com/2011/08/11/broken-patent-system/

8/24/2011 11:29:00 am  
Blogger Mark said...

@Greig - you said "it's an investment which may not have been made..." [my emphasis].

I think that's my point, in that the investment may or may not have been made, regardless of patent protection.

Also, inventions come about by accident quite often.

Happy to agree to disagree.

8/25/2011 04:24:00 am  
Blogger Greig said...

Yeah, fair point. I'm really struggling to form a solid opinion on this. I've seen many arguments from "the other side" which are just as well reasoned. It's just no a black and white issue to me.

Oh dear... the CAPTCHA is "taxedne".

8/25/2011 12:16:00 pm  
Anonymous Dale B Halling said...

"So you're saying that having the productive seek the permission of the unproductive before they produce is the key to innovation."

Inventors aren't productive?! Just those who copy someone else's invention? Please remember that Thomas Edison was "a non-practicing entity"

"Also, I'm not sure how a patent holder loses - and I mean actually loses - by others using their invention or idea. Sure, they might not gain, but do they lose? (The investment made to develop the invention is a sunk cost)."

once you produce-say an auto- it is a "sunk cost" and if you're in the business of making autos, you're not driving each one of these-so you're not out anything-(see where this is headed?)
so clearly, the inventor is in the exact same position as any producer, if someone copies the invention without paying for it(stealing)-the inventor loses and the copier is unjustly enriched.

8/28/2011 03:59:00 am  
Anonymous Dale B Halling said...

But if inventions are protectable, then companies like Google allocate 12.5 billion towards them instead of towards something else.

which is fine, that's how inventors get paid. Just like when people buy products from a manufacturer, that money goes for the product not something else.
inventions are like any other product or service.

History teaches us that countries with strong patent protections, create more inventions(which is the source of all real economic growth. for instance, England had one of the first strong patent systems and that is where the Industrial Revolution began and this was an explosion of new inventions. then the US created an even better patent systema and in 70 short years became one of the leading economic and technological powers in the world. Conversely, North Korea doesn't have strong patent protection, nor does the Middle East or Africa. These locations produce almost no inventions, they are economically backwards.

8/28/2011 04:09:00 am  

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