Google is now the proud owner of 1,030 IBM software patents. The search giant did not disclose the purchase price, but based on a separate bidding war earlier this month, we're guessing it was high. In that episode, Nortel sold over 6,000 patents to Microsoft, Apple and a few other giants for a cool $4.5 billion in cash, while Google lost the war after an attention-getting bid of pi billion dollars ($3.14159 billion).
We wondered then, and we're wondering again: What the heck are those patents for? And why did they cost as much as a small island nation? Google's a big, rich company, but their bid for the Nortel patents is almost equal to their entire research and development budget in 2010. This seems even more remarkable because based on the comments from their top lawyer, Google doesn't want patents to build new products. They want them to be a sort of litigation shield.
Kent Walker, Google's senior vice president and general counsel, wrote on the company blog in April that they were engaging in the bidding war to "create a disincentive for others to sue Google." Walker explained:
The tech world has recently seen an explosion in patent litigation, often involving low-quality software patents, which threatens to stifle innovation. …
But as things stand today, one of a company’s best defenses against this kind of litigation is (ironically) to have a formidable patent portfolio, as this helps maintain your freedom to develop new products and services. Google is a relatively young company, and although we have a growing number of patents, many of our competitors have larger portfolios given their longer histories.
With Friday's IBM purchase, they're a little bit safer against future lawsuits, but as many have said since then, the patent laws that have enabled the explosion in litigation threaten to stifle technological innovation.
One for the major threats comes from "patent trolls." On Sunday, This American Life devoted their entire show to the state of U.S. patent law and explained that a number of companies they call patent trolls exist solely to buy up patents and sue anyone who infringes on them. NPR reporter Laura Sydel and This American Life producer Alex Blumberg focus on a particular town in Texas that's full of companies without employees that operate as patent trolls and compare the broader effect of that culture to the Nortel patent purchase. "That $4.5 billion won’t build anything new, won’t bring new products to the shelves, won’t open up new factories that can hire people who need jobs," they say of that purchase (via Felix Salmon). "That’s $4.5 billion dollars that adds to the price of every product these companies sell you. That’s $4.5 billion dollars buying arms for an ongoing patent war."
With their purchase of the IBM patents, Google is now on that battlefield. Like the Nortel buy, this latest high-profile patent purchase included a number of patents relevant to mobile phones, and Timothy B. Lee at Forbes illustrates the backwards patent process with an example of Google paying licensing fees to Microsoft for patents related to its Android operating system. Lee acknowledges the irony of a new innovative company like Google paying an old, stale company like Microsoft for patents related to smart phones, but it inevitably amounts to a gamble that Google doesn't want to lose. Lee explains:
You might think Google could deal with this by just not infringing Microsoft’s patents, but that’s not how software patents work. Android has roughly 10 million lines of code. Auditing 10 million lines of code for compliance with 18,000 patents is an impossible task--especially because the meaning of a patent’s claims are often not clear until after they have been litigated. Most Silicon Valley companies don’t even try to avoid infringing patents. They just ignore them and hope they’ll be able to afford good lawyers when the inevitable lawsuits arrive.
To answer our original questions about why Google wants patents and what the patent war means for the company, we'll use an analogy. Google's position is sort of like joining the Cold War in 1980 with only a couple of warheads and chest of cash. Like their lawyer said, the best thing that Google can do in the absence of patent law reform is to shell out more money for more warheads and hope they don't get hit before they've built up their defense.