Omar Little had it right: there’s a game out there, and you either play or get played. One of the most compelling characters from the television show The Wire probably wouldn’t have cut it as a mobile executive or a patent lawyer, but his words underscore just how self-defeating it can be to complain about the rules of the dysfunctional patent game.
That’s why Google’s attempt this week to warn the public of a vast right-wing conspiracy bent on its destruction didn’t really earn it any points, and Microsoft’s release of a private e-mail designed to make Google (NSDQ: GOOG) look hypocritical was childish in its inability to recognize Google’s broader points. Google is right about two things: the patent system is ludicrous and it has no choice but to participate. But you have to wonder what Google hoped to gain by launching a public assault on Microsoft (NSDQ: MSFT) for playing the same game Google is obviously desperate to play.
Regardless of your corporate loyalties, let’s not be confused about one thing: the U.S. patent system is a mess. The U.S. Patent and Trademark Office is so backlogged that somebody thought it would be a good idea to build a Web-based dashboard illustrating the gravity of the situation.
According to the U.S. Patent and Trademark Office, 6,775 people worked as patent examiners as of June 2011. There is a backlog of 695,086 patent applications waiting to be processed (actually the lowest number in two years), and applications are growing each month, with 372,980 added in June alone.
If patent applications stopped tomorrow, each patent examiner would have to process about 103 applications to erase the backlog, and in 2009 the average examiner disposed of (approved or denied) 73 patents. The PTO estimates that it would take 22 months just to issue first office actions (i.e., getting around to reading the patent, researching prior art, pondering the claims, and then asking the applicant for further details) for all the applications in that backlog, and the average application requires 2.9 separate office actions. In other words, those people are under an enormous amount of pressure simply to keep their heads above water, let alone consider an extremely complex technical concept with as much knowledge as the company that applied for the patent.
–Software and patents: Given the complexity of the tech industry and the fact that software is more art than machine, it’s simply too easy for patents to be issued that are exceedingly vague, obvious, or simply “bogus,” as Google’s David Drummond put it in his blog post. In an ideal world, patents reward inventors for breakthroughs. In the real world, they reward those who encourage engineers to patent anything they can think of and keep a legal department fully staffed to crank out as many applications as possible.
And so with patents easy to obtain but yet still subject to the same legal protections and privileges, tech companies wind up playing out the principles of “mutually-assured destruction,” the Cold War concept reinvented for the modern mobile computing industry. That’s why Google needs patents, even bogus ones, and is scrambling to find some after Microsoft, Apple (NSDQ: AAPL), and others bought a huge chunk of mobile patents from Nortel for $4.5 billion. Even if the concept of patenting software is abhorrent to many in the tech industry (a position that Oracle, currently suing Google for patent infringement of the Android software, once held) their existence is the best way to ensure that you can negotiate a reasonable settlement when sued by a competitor.
I had an off-the-record conversation with a senior legal executive at a major smartphone company earlier this year mostly for the purposes of providing some basic context around how patent negotiations play out. It was revealing: there’s no practical way for someone who builds a new product to obtain a patent license until they are approached by the patent holder for licensing discussions or sued, and there’s certainly no incentive.
Because patents are deliberately written to cover as broad a range of concepts as possible, there’s no definitive way for a person or company that has invented a product to know whether or not they are stepping into patented territory. There are some obvious infringers just trying to make a quick buck, to be sure, but some tech patents are so vague that they appear to cover anything with an on/off switch. Inventors and entrepreneurs are not people who are going to put their idea on a shelf if they come across a ridiculously broad patent, and if they’re unsuccessful, it would have been silly to pay a licensing fee up front. But patent holders have a way of finding companies they perceive to be infringing as soon as the business gets big enough to take a chunk.
The question of whether a product really infringes on a patent doesn’t get addressed until the parties reach the pretrial phase in what’s known as a Markman hearing, during which the judge presiding over the case decides how the key parts of the patent language will be interpreted. That decision can make or break the lawsuit, and it costs a lot of money to get to that point.
With patents, even ones that it doesn’t necessarily believe are legitimate, Google could promise to make life more difficult for those suing it by filing its own patent lawsuit, which would have to be considered on its own merits and would raise the possibility that these disputes end in settlement talks and royalty negotiations rather than court rooms and injunctions. So without patents to hurl back at accusers, Google is extremely vulnerable to getting sucked into expensive patent trials that may never amount to anything, or, in the worst case scenario, could ruin the company even if the patent at issue is a joke.
–Patent Madness: This is stupid. It’s a colossal waste of time and money, bolstered by patents that may or may not have actually been read and a trial system that assumes each patent is valid until the patent office decides otherwise. It’s a game of chicken (or a protection racket, if you prefer) in which companies accused of patent infringement have limited defenses.
But Google is going to play the game, because if it wants to continue life as one of the biggest companies in the tech industry it doesn’t really have a choice. Unlike in WarGames, the only way to lose this game is not to play.
Google’s continuing problem, however, the one that exposes it to such criticism, is that it continues to believe that it is somehow different from its competitors, who it suggests are not playing fair and are just jealous of its success.
“Google is not a conventional company. We do not intend to become one,” wrote Larry Page, Google’s current and founding CEO, in the 2004 letter that accompanied its initial public offering. Well, in 2011, conventional mobile companies are making sure they have a strong intellectual property portfolio to defend themselves against attacks from competitors searching for weak points. That is exactly what Google is doing.
Patents are now competitive weapons in the same way supply-chain agreements, employee poaching, and advanced data centers provide companies with competitive advantages. And Apple and Microsoft aren’t doing anything illegal or even necessarily immoral: if they believe Android was developed largely on the backs of their patented technologies, they have the right to do something about it armed with patents that were awarded according to the law.
Whether or not those patents should have ever been awarded is a separate question. But each time Google complains about the rules of the game, it underscores just how weak and vulnerable it is in a legally sanctioned game without serious patent reform (not this thing), which simply isn’t going to happen any time soon in the current political arena, arguably even more dysfunctional than the patent system.
And it also makes the other players at the table take notice. The only thing Drummond may have succeeded in doing is driving up the price of entry into the game.