State of Innovation

Patents and Innovation Economics

Google, Motorola Mobility and the Patent Wars

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 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 Andriod 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 encourages other people to innovate, it does not discourage innovation.

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 GDP per patent, R&D dollars per patent, and number of citations per patent have all been on the increase.  For more information see 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 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.

 

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August 17, 2011 - Posted by | -How to, Patents | , , , ,

22 Comments »

  1. Although its entry into the patent-war big leagues didn’t start out very smoothly, perhaps Google is better off now with the IBM and Motorola portfolios than with the Nortel patents. It will certainly have more patents at its disposal now than if it had bid higher than Pi at the Nortel auction.

    Comment by patent litigation | August 23, 2011 | Reply

  2. “Actually, spending money on patents IS spending money on engineers. Engineers created the inventions and the patents just provide legal title to the inventions.”
    I disagree. When you buy a patent from a company it’s rare that the actual inventor gets any money for it. I’ve never heard about bonuses on patent sales.
    If the company would not have payed for a patent application, they’d still have the inventions, and whoever that bought the company would be paying for a company with the same inventions and that then would not have to had pay for patents.
    And yes, I already know you disagree and think everybody would have gone bankrupt if they didn’t patent everything. I’m just telling you my view on things.

    “If inventions are not protectable, companies do not spend more on engineers they spend less.”
    Maybe. Or maybe they realize that with patents they have no incentive to develop old ideas and only have an incentive to do new stuff that never will get polished and patent them, followed by yet more new things getting patented, yet again none of which ever gets the attention it deserves after the patent have been approved.
    And maybe if you couldn’t sue over imitating ideas, everybody would have to innovate at a higher pace to win.

    “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?”
    LOL! This has to be the most ridicolous claim ever.
    Okay, so imagine this: Company A patents the wheel, company B starts using wheels, makes more money. Company A sues.
    What in there implies that company A did anything innovative?

    “GDP per patent, R&D dollars per patent, and number of citations per patent have all been on the increase.”
    Numbers != quality.

    And yet again, Lodsys, the video streaming patent, etc… I’ve read both. If there were an easy way around them, why are we seeing so many law suits over those patents against people who never knew about them?

    Ligitation explosion – the number might seem trivial, but you’re ignoring the real life impact aspect of it. You’re comparing Apple vs Samsung and Apple vs HTC with law suits between neighbours, for example.

    I’m afraid that patent clearance aren’t as easy as you think. Although there are some people trying to challenge the trolls.
    https://www.facebook.com/OpenAndFree?sk=info

    Also, an ASCAP like solution would probably be hard to get right. Just consider the good old and often cited case of the small inventor wanting a fair reward, how would that affect him?

    Comment by Natanael L | August 23, 2011 | Reply

  3. Nathan, You clearly do not understand what innovation is. If you copy someone’s invention and your sales increase, or your cost of production goes down, or your production increases or any other objective you are trying to meet does better then it was an innovation. If the invention was patented then you clearly are just a free loader, like every other common thief.

    Comment by dbhalling | August 23, 2011 | Reply

  4. I understand it very well.

    If you do things the obvious way, then you’re doing things the obvious way. If you get sued over that, your costs will increase. Isn’t that obvious enough?

    Not everything that reduces costs are innovations, and your argument was ONLY that because costs were cut, it was an innovation that B&N copied from Amazon. In fact, your whole definition is absurd. Let’s assume I have been using squares instead of wheels on a car for years, and everybody else too, would it REALLY be an innovation to switch to wheels? Seriously?

    “Innovation differs from invention or renovation in that innovation generally signifies a substantial positive change compared to incremental changes.” – Wikipedia.
    I’d say that switching to the obvious solution aren’t.

    And also; “If the invention was patented then you clearly are just a free loader,”
    Now that’s just crazy. What if you didn’t know about the patent? That’s actually possible. Still a freeloader?

    Comment by Natanael L | August 23, 2011 | Reply

  5. Nat,

    Of course it would be a huge innovation to go from square wheels to round wheels. You suffer from the fallacy of hindsight. It is obvious to us that the Earth is not flat, but to understand that took a great deal of human ingenuity. It is clear to us that electromagnetic waves can be used to transmit information, but that took incredible genius to figure out. You use of the word “obvious” is subjective based on hindsight. A patent has to describe an invention so that it is clear (apparent, obvious) to those skilled in the art after reading the patent. If you can use hindsight, nothing is inventive – because it is apparent after it has been invented.

    Nothing that does not exist is obvious until it is invented. The obviousness requirement is logical mistake made by the Supreme Court. They created this requirement out of thin air and it is not part of the logical definition of invention, its just an excuse for people who did not invent something to complain that they might have invented it.

    Comment by dbhalling | August 23, 2011 | Reply

  6. Leap in development, yes. But if using wheels already were obvious but making them was hard, then *that new method of making them* and not wheels themselves is what should be protected.
    I’m not saying that Maxwell’s equations was obvious or that data transmission with radio was obvious. But do you think neither would have been done without patents?

    “The obviousness requirement is logical mistake”
    What should replace it? Because if the only definition is that it haven’t been done, then I could just go and hunt for others’ to-do lists, do a bunch of the stuff and patent it. So what if the idea were there already since I did it first? Crappy argument.

    Comment by Natanael L | August 23, 2011 | Reply

  7. Nat, An invention is anything that is created by man that did not exist independent of man. Yes, it is easy to invent something that has little or no value. Many opponent point to silly patents as an example of the absurdity of the patent system. However the patent system does not evaluate whether it makes sense to patent something or create the invention, it only examines whether it is an invention.

    If you think it is easy to hunt for other’s to do lists and create an invention that is useful, you are mistaken. If I give two engineers the same problem, they will often come up with different solutions. One or both of the solutions may not be practical for a variety of reasons. If you can come up with useful solutions to other people’s problems, then you should be paid for that effort. That effort is much more important than run of the mill coding or marketing efforts or finance efforts. It is only by creating new inventions that humans increase their real capita income.

    Comment by dbhalling | August 23, 2011 | Reply

  8. So the patent system should just accept everything that’s not already been done? Should that ne the only requirement?

    I never said useful. I went by your definition, that it hasn’t been done before.

    If the solutions by two different engineers are highly similar or not can vary. There’s many areas where solutions that does the same thing won’t even remind you of each other. Then there’s areas where all solutions will be similiar.
    I’ve heard of several algorithms that are like that. Take a fresh programmer in the field who haven’t heard of it and tell him to do something that requires the algorithm. He’ll recreate it without knowing it. I have myself solved a few math problems myself by working out a bunch of equations, only to hear they already had been thought out decades ago and already are named. And there I thought my solution was novel.
    So you’re saying the first person to do it should get exclusivity?

    Comment by Natanael L | August 23, 2011 | Reply

  9. Actually, a requirement of patent law is that it be useful, but not that it make economic sense. It may have been my short hand. Something is not an invention if it is just a random collection of stuff that does nothing useful.

    Yes, the first person is the only one who contributes new knowledge. I am not the discoverer of Calculus if I recreate it without any knowledge of it today – I am just clever at math. Also many people who “rediscover” or “reinvent” something most likely had more knowledge about the solution than they thought because of their surroundings. When Newton (Liebnitz) discovered Calculus they had to overcome the idea that they were dividing by zero. Many mathematicians rejected Calculus for this reason. A person rediscovering Calculus would not have to overcome this issues.

    Comment by dbhalling | August 23, 2011 | Reply

  10. “Yes, the first person is the only one who contributes new knowledge.”
    So let’s say they do the same kind of work indepently and publish their results an hour apart. Does the first to publish just get a right to patent it, simply just because he was first?

    “Also many people who “rediscover” or “reinvent” something most likely had more knowledge about the solution than they thought because of their surroundings.”
    Yeah. It’s not uncommon that the person who “reinvents” something *does in on the same foundation the first person did it on*, which essentially means he solved the same problem the same way in the same circumstances – he just did it LATER!

    I am sure you won’t be convinced by this example alone, but here’s one example:
    http://arstechnica.com/civis/viewtopic.php?p=21952584#p21952584

    It is NOT rare that two people that have no knowledge of each other nor have been influenced by each others works gets the same results. It’s more a matter of what it is that influence them and what methods they prefer to use to solve the problems.

    Relevant and interesting: https://secure.wikimedia.org/wikipedia/en/wiki/Great_Man_theory

    Comment by Natanael L | September 24, 2011 | Reply

  11. Nat, the United States Patent Office has a procedure for determining who is the first inventor when it is very close like your example. These cases occur less than 0.01% of the time. The second person is not the inventor. He does not add tot he store of knowledge.

    Despite the evidence to the contrary, there are all these people claiming independent invention.

    Comment by dbhalling | September 24, 2011 | Reply

  12. Why would it matter that the other person who worked equally hard *at the same time* as the other one just happened to be a bit later at publishing his results?

    Also, I seriously doubt that most of the ~7 000 000 patents that’s been granted in USA adds knowledge.

    Despite what evidence? Do you deny that it’s common that people work on the same type of problem simultaneusly and arrive at a similiar solution once it becomes technically possible to make the solution a reality?

    Just think of tablets and all this stuff. The ideas has already been had, now it has become possible to make them real. And some companies (no names given since that’s not needed) are suing pretty much everything that moves because they were first.
    Over things like a swipe over a screen to unlock a device…

    Sure, the first person to think of it was the first person to think of it. Yes, he added a unique thought, But how large was his contribution to the world? Did his contribution merit 20 years of exclusivity? Did he REALLY make such an huge innovation that we would have been worse of if we did not give him exclusivity? Would it REALLY not have been done anyway as soon as it started to make sense to implement it?

    Comment by Natanael L | September 24, 2011 | Reply

  13. Nat,

    Working hard is not the criteria for invention. There are other area’s of the economy that reward hard work, but not inventions/patents. Manufacturing rewards hard work for instance and not being first. Perhaps, I should complain that manufacturing fails because it does not take into account who was first. To be the inventor you have to be the first that is definition of invention, working hard is not the definition of invention.

    Nat, you clearly have not studied patents. Almost every patent I have ever read adds to the knowledge of some subject. It may not be of interest to you, but it still adds knowledge. For instance, you may not care about the best way to keep a stock pond free of ice, but that does not mean it does not add to the store of knowledge.

    The EVIDENCE is the Patent Office interference proceedings that shows that near simultaneous invention is very rare. This is the most objective evidence on this issue and it is less than 0.01% of all patent applications.

    Patents/inventions are not about the quantum of new knowledge. When someone adds a very small amount of new knowledge patents account for this by only providing very limited coverage.

    Nat you seem to have a problem with definitions (GIGO problem). For instance, a patent never was meant to tell you how big a leap an invention is. That is the province of historians, but not the patent system. When you ask a system to achieve something it was designed to do, if will always appear to fail.

    Comment by dbhalling | September 24, 2011 | Reply

  14. So Just Being First is enough to deserve a patent? Is that what you mean? No other restrictions as long as it’s somehow useful? Should that REALLY be enough for a patent? Or what other restrictions should there be?
    Doesn’t it mean anything that it often would have been done anyway within a year by somebody else if the first person wouldn’t have solved it first?

    Now I don’t know if you’re referring to a real patent there, but I think you know very well that there’s plenty of patents that are total crap that literally teach you nothing you couldn’t have thought up in 5 minutes if you’ve been presented with the given problem. Software patents are generally among the worst ones, they hardly ever contain any code and are often nothing more then very high-level, somewhat descriptive explanations of the basics. I think I’ve given you a link to that video streaming patent earlier, that’s one example. And several (all?) of Lodsys’ patents are more examples.

    Just because there’s only a few cases where it’s proven that patented inventions were thought up independently by two or more people, it does not mean that it’s extremly rare. Even with patents, I’m sure most people won’t bother spending money on lawyers when they find somebody else has patented what they’ve done for years (I assume most people will ask nicely for some kind of deal (“we won’t go get it invalidated if you don’t sue”)), and when no patents are involved I guess nobody really cares that much.

    “When someone adds a very small amount of new knowledge patents account for this by only providing very limited coverage.”
    Most patents I’ve seen are not very narrow at all.

    “Nat you seem to have a problem with definitions (GIGO problem).”
    I’d say the patent office have the GIGO problem. Or rather, the creators/managers of the patent office has, so there’s no surprise there for why it really doesn’t work as it’s supposed to.

    “For instance, a patent never was meant to tell you how big a leap an invention is.”
    Didn’t say that. But not everything should be patentable, no matter how new and novel. If it’s trivial, it should not get a patent.

    “When you ask a system to achieve something it was designed to do, if will always appear to fail.”
    Well, my calculator here next to me is a calculation system. If I ask it to calculate 5×5, it seems to succed. So what exactly do you mean? That I’m looking at the wrong things or have too high demands?

    Comment by Natanael L | September 26, 2011 | Reply

  15. Nat,

    As I said you have a problem with definitions. Yes a patent just tells you that an idea solves an objective problem and is a new invention. The patent system is not there to determine the business merit or technical merit of the invention – Again you don’t understand the definition of a patent or an invention. Note that trivial patents do not harm anyone, because the scope of a patent is adjusted based on what is novel about the invention. Thus a small improvement on a trivial invention will get a very narrow claim and have no effect on the market.

    You are like the people that complain a football team hurts the kids self esteem if they do not make the team. The purpose of football is not improve people’s self esteem, it is to put the best football team forward.

    Comment by dbhalling | September 26, 2011 | Reply

  16. What defintions do I have problems with according to you?

    I have yet to see a trivial patent that are so narrow that nobody will infringe it by accident. I have told you about the video streaming patent, right? And Lodsys’ patents. I’ve read one of Lodsys’ patents and I have read the video streaming patent.

    They are so generic that just that fact alone that they were once granted means that you either are disconnected from reality or are speaking theoretically about how patents *should* work when you say “the scope of a patent is adjusted based on what is novel about the invention”.

    There are so many patents granted that there are either nothing novel about or that would have been done anyway 20 times over in the following 5 years if nobody had known it’s been done and patented. What good can these patents ever do? It’s like if the wheel would have been patented “because it’s novel”. Sure, once upon a time it WAS novel. But worthy a patent?

    Does something deserve a patent automatically just because it’s novel, even if it’s obvious that a patent would not add any incentive to innovate? Because *that’s* what patents are for, to give an incentive to innovate by helping the inventor to finance his inventions.

    You are distorting my arguments. If you have to compare with football, it would be like giving some teams the exclusive right to use certain tactics and player positions just because they were the first to use them.

    “The purpose of football is not improve people’s self esteem, it is to put the best football team forward.”
    I’m not sure how this translates to patents.

    “The Congress shall have Power … To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;”
    The purpose would then be more like putting the *game* forward with the intention to benefit *everybody*.

    As far as I can tell, you’re quite “focused” on patents being an objective natural right (I disagree for many reasons), and that seems to be the position you’re coming from for pretty much all of your arguments.

    Comment by Natanael L | September 27, 2011 | Reply

  17. Nat,

    You clearly do not know how read claims or you would have found numerous patents with claims so narrow as to be meaningless.

    You have a problem with the definition of invention and the purpose of the patent system. As a result, you opinions on both are really nonsense.

    The preamble “to promote the progress of science and the useful” arts is not limiting, which you would know if you understood how to read patent claims. In addition, this line is always used by people who are being intellectually dishonest – they never complain a trashy novel does not promote the preamble and does not deserve copyright protection.

    Patents are a property right. You get a patent because you create something, this is the basis for all property rights.

    Comment by dbhalling | September 27, 2011 | Reply

  18. Then why do we keep hearing about these stupid lawsuits like over unlocking a phone by a swipe gesture?

    Where’s my problem with those definitions? Invention = something new. The purpose of the patent system, according to every serious source I can find, is to give an incentive to innovation and progress.
    If you disagree, please explain why and how, otherwise YOUR opinion is nonsense.

    “The preamble […] arts is not limiting, which you would know if you understood how to read patent claims.”
    Sure, sure, the patent system can have additional uses. But where can I find a reliable source that explicitly states that one of the primary purposes is to “protect property rights”, etc?

    “this line is always used by people who are being intellectually dishonest”
    Which I read as “people I disagree with”, but I’ll be a bit nice to you and assume you mean “people who are claiming something without logical proof”. If you don’t think my arguments hold up, please explain why.

    “they never complain a trashy novel does not promote the preamble and does not deserve copyright protection. ”
    I don’t understand how this is relevant to my argument. This looks quite a lot like a strawman argument.

    “Patents are a property right. You get a patent because you create something, this is the basis for all property rights.”

    So then why is it time limited? Why is it not automatic? Why is it limited in scope? Why are they not (yet, AFAIK) internationally respected (you generally need one per country)? Why are the rules so arbitary?
    If they are objective rights, why are the laws around them not as clear and generally well understood as those about physical theft and murder? What are the reasons that patents should be respected on the same level as somebody’s right to not have his tools and food stolen (as in taken away) from him?
    I am asking for objective, logical arguments.
    The only plausible arguments I’ve seen so far is those pleading to some kind of moral (it’s his right – but why?) and those about incentives for innovation (but I have still not seen any convincing proof that they help innovation).
    If you only can say that it’s a right just because it’s a right and can’t explain it in such an obvious way as why the right to live is a right, then I can say that it’s a right to have yellow pants. Why? Because everybody should be able to choose! Yup, that’s how strong I think your It’s-a-right argument are.
    (And AFAIK the basis for all property rights is that people should not have to fear that their work is taken away from them, that they have not made an effort in vain. Stealing physical items have an obvious negative effect – but a patent infringer in the Andromeda galaxy would never be noticed.)

    Comment by Natanael L | September 28, 2011 | Reply

  19. Regarding the sentence “But where can I find a reliable source that explicitly states that one of the primary purposes is to “protect property rights””, I mean a source that states that patents are a right on the same level as the right to live, AND that protecting property rights are AT LEAST an as important reason for patents as stimulating innovation.

    Comment by Natanael L | September 28, 2011 | Reply

  20. Nat,

    Stupid lawsuits: Most of the people commenting on these lawsuits have not read the patents, do not know that the claims define the invention, and are not interested in the true merits of the case. It is too hard of work. It takes a hundred hours by skilled professionals to create the patent. It takes hundreds or thousands of hours to correctly interpret these claims and the infringed product by skilled professionals. But pundits spend 30 minutes and think they can determine the complete merits of the case. You cannot even read the patent in that time.

    Our founding fathers stated that patents are right, the only right mentioned in the Constitution. When the Founding Fathers used the word right they meant natural right. For more information on this read Adam Mossoff’s paper Who Cares What Thomas Jefferson Thought. He is a Law Professor and has written on this. But, the argument does not rely on just the past – it logically follows. Patents are property rights – Again you seem to have a problem with definitions.

    Strawman: NO the logic applies to both situations. The question points out the opponents of patents are not logically consistent.

    All property rights are limited in time and limited in scope. My land only extends so far. My property rights in land only last during my lifetime. Some countries do award patents to all people who register their patents and we did so for awhile in the US. However, it was found that the courts were not well suited to determining what the scope of a patent should be. It was believed that the inventor would be better off with a well examined patent that had been reviewed by technical people with understand of the patent law. So we have selected a review system.

    Yes, it is wrong that patents are not recognized across countries. This was true of copyrights until late in the 19th century. In fact, the US proposed such a system around 1850 but it was shot down by the Europeans. It is time that this issue be brought up again.

    Sources, see Adam Mossoff, see Ayn Rand Capitalism the Unknown Ideal, and John Stuart Mill, “Principles of Political Economy,” 1848, Louis Wolowski, Chair of Industrial Economics, Conservatoire des Arts et Métiers, 1864, George H. Knight, 1891, among others. But don’t rely on sources, this is straight forward logic.

    Comment by dbhalling | September 28, 2011 | Reply


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