As I mentioned in a prior post, Google’s Eric Schmitt seemed to have a level-headed reaction to the price paid by Apple, Microsoft, Ericsson, EMC and others for Nortel’s patent portfolio. He said, in effect, there’s no cause for alarm. It appears to be a numbers game. With higher prices, there will be more people willing to sell patents to us.
That’s why the post, Official Google Blog: When patents attack Android, by David Drummond, Google’s Chief Legal, is perplexing. He lashes out against Apple and Microsoft, accusing them of using patents as part of an attempt to “strangle” Android without a clear explanation of why or how. Frankly, he comes across as paranoid. However, I think that the post indirectly reveals how Google sees on the patent landscape relating to its Android operating system.
If you are a company like Google, Apple or Microsoft, there are two basic reasons to buy a patent portfolio. The first is to take the patents off the market, making sure that they don’t end up in the hands of someone else who could use them to harm you. The second is to be able to assert, if you so chose, the patents against others.
Being in a position to assert patents against others serves three purposes. The first is deterrence. The mere possession of the patents will tend discourage competitors from suing the patent owner. The second is their use as bargaining chips in cross-licensing situations. Although cross-licensing is not common in industries like pharmaceuticals, it is very common in industries such as semiconductor and telecommunications, in which products are very complex, with tens if not thousands of patents relevant to any given product. The third is for revenue generation. Companies with dominant portfolios can use them to collect royalties in cross-licensing deals from competitors. In the case of Google, I don’t think revenue generation is what drove its interest in Nortel’s patents, or the portfolio of patents it bought from IBM last month.
Members of the Apple consortium appear have an agreement that effectively precludes enforcement of the patents. This is hinted at in an update added yesterday to Mr. Drummond’s post. In the update, Mr. Drummond replies to Microsoft making public that Google declined an invitation to be part of the consortium:
It’s not surprising that Microsoft would want to divert attention by pushing a false “gotcha!” while failing to address the substance of the issues we raised. If you think about it, it’s obvious why we turned down Microsoft’s offer. Microsoft’s objective has been to keep from Google and Android device-makers any patents that might be used to defend against their attacks.
Frank Shaw, corporate communications lead for Microsoft, basically confirms in a Twitter post that Google declined because it wanted to be able to assert the patents.
The substance of Mr. Drummond’s complaint, thus, appears to be that Apple and Microsoft colluded to acquire the patents for the purpose of depriving Google of the opportunity to use the use the patents as leverage for negotiating favorable license deals on behalf of those who sell Android devices, and that the invitation to join the consortium was just a charade.
The other piece of background needed to make sense of this is that Microsoft is aggressively licensing manufacturers of Android devices under its patents, purportedly asking for a royalty or license fee that amounts to between $5 to $15 per Android device. This means, in effect, that the Android system is not free to use, as Google wants it to be.
If you think about it, David Drummond seems to be admitting that Google is currently being harmed, or is likely to be harmed, by not having the Nortel patents, and that Google sees patents as a serious threat to Android, or at least to its “free” price.
Given that Google appears to have been contemplating the possibility of using the patents against companies like Microsoft, my initial impression is that Apple’s and Microsoft’s actions appear legitimate, even if they may have driven by a desire to keep the patents out of Google’s. As long as there is no enforcement or discriminatory licensing of the patents, I wonder what anticompetitive effects there could be. Depriving Google of the advantage of using the Nortel patents to help it promote its own operating system, and thereby achieve greater dominate, certainly harms Google. But why would be considered anticompetitive or the type of competitive injury that the law would protect against?
If in fact the consortium will not be enforcing the patents, or reassigning the patents to members so that they can enforce them, the purchase arguably has a pro-competitive effect, which is ensuring a freedom to operate for the industry. If the rule of reason analysis applies, I do not see why the Justice Department or FTC would take action or insist in modification of the deal.
In the Novell purchase, the Justice Department sought to protect open source software by requiring that certain of the patents acquired by the Microsoft, Apple, EMC and Oracle consortium not be reassigned to Microsoft and EMC. Does the Android operating system need that kinds of protection?
Nevertheless, we don’t know all of the facts. So we will have to wait and see what the Justice Department thinks about it. However, I think that all of this maneuvering explains the purchase price for the Nortel patent portfolio. Are these patents worth what was paid for them? Sounds to me like they are.
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