It turns out that the more patents you have, the more likely it is that you can extort exorbitant royalties from people who might have easily come up with the same idea or the same feature that you did but never thought to patent it. And the more patents you have, the more your competitor wants so he can retaliate with a patent suit of his own, claiming that it was you who stole the ideas from him.
In other words, it’s an arms race to buy as many patents as possible, bidding up the price of patents without anyone gaining a permanent competitive advantage. Like all such races, this one involves a huge waste of time, talent and capital, not only in the race to buy patents but in trying to win a patent on every half-baked notion that anyone thinks up.
Instead of spurring innovation and entrepreneurship, patents are being used by companies, venture capitalists and their cynical lawyers to stifle and discourage them.
The latest escalation in this arms race came last week when Google announced it would pay $12.5 billion to acquire Motorola’s division that produces wireless telephones and smartphones. Analysts figure that less than half the purchase price is for the struggling handset operation. The rest is for Motorola’s 17,000 software and telecom patents so it can defend its Android operating system — along with all the other companies that are using it or writing applications for it — all of whom are under legal attack from the likes of Microsoft, Apple and Oracle.
For years, these companies have complained bitterly about the economic damage caused by patent “trolls” — companies that exist solely for the purpose of buying up patents and using them to sue companies that might or might not be violating them. But having failed to reform the patent system, those same companies say they have no choice but to adopt their methods and tactics.
Google moved quickly on Motorola after it was outbid by the same Android rivals for a package of 6,000 patents put up for sale by what is left of Nortel Networks. The original asking price was $1 billion. It went for $4.5 billion.
As with all arms races, everyone admits this is crazy but nobody has the means to stop it short of mutually agreed-upon disarmament.
The best reporting I have found on the subject was by National Public Radio, which ran the results of an investigation last month as part of its “This American Life” series, in cooperation with its Planet Money staff.
The segment focused on a company called Intellectual Ventures, which was started by Nathan Myhrvold, the former chief technology officer of Microsoft. Myhrvold began collecting a war chest of patents while at Microsoft, at the suggestion of Bill Gates, as a defensive maneuver. But when he left, he took the patents with him and began buying more, using $5 billion from the likes of Stanford, Brown, the University of Texas and the Rockefeller Foundation and leading venture capitalists.