Bloomberg News

Google Lawyer Says Patents Are ‘Gumming Up’ Innovation

July 26, 2011

(Adds adviser’s comments in eight, ninth paragraph, Google’s challenge of mapping patents in 28th and 29th.)

July 26 (Bloomberg) -- Google Inc. General Counsel Kent Walker said the smartphone industry is in an arms race for patents that is hurting consumers and leaving the company to “sort through the mess” of litigation.

“It’s hard to find what’s the best path -- there’s so much litigation,” Walker said in an interview late yesterday. “We’re exploring a variety of different things.”

Google, whose Android mobile operating system has been targeted in at least six legal complaints, is seeking to buy intellectual property that could be used as a defense against litigation. Google, the world’s largest Internet search company, is also seeking to curb abuses of the system, calling on Congress and the Federal Trade Commission to rein in lawsuits, and asking the U.S. Patent and Trademark Office to take closer looks at patents being used in litigation, Walker said.

“The tech industry has a significant problem,” he said. “Software patents are kind of gumming up the works of innovation.”

Google’s competitors have said the Mountain View, California-based company is critical of the patent system because it has few patents of its own and entered a smartphone market where companies had been researching and selling products for years before Android phones went on sale in 2008.

Innovation, Competition

Google has been assigned 728 patents through today, according to the U.S. Patent and Trademark Office database, mostly for search engine technology. Apple has more than 4,000 U.S. patents, and Microsoft Corp. more than 18,000, according to the database. Patents give their owners a right to exclude others from using the invention for a set period of time.

“It is about innovation and competition,” said Will Stofega, a program manager at researcher IDC Corp. “Doing basic research to bring new products to market is something quite distinct from their core capabilities.”

Google’s position is part of a larger debate over whether certain software should be eligible for patent protection, said Ron Laurie, managing director of Inflexion Point Strategy LLC, which counsels companies on purchasing intellectual property. Microsoft and Oracle Corp. had the same “cultural bias” more than a decade ago, he said.

“Every software company would be happy if patents went away,” Laurie said. “Patents are irrelevant to YouTube, face it. Software is developed incrementally and patents get in the way of incremental innovation.”

Google’s Weakness

The Android system is a free, open-source program that relies on some nonproprietary features Google didn’t create and allows outside developers to modify the code. That has left the company vulnerable to claims that it built Android on the backs of research done by other technology companies.

“A patent is a patent and you may not agree with it, but it’s the law,” Stofega said. “It’s a weakness for Google and everyone’s acknowledged it. The competition is so fierce and so brutal, any perceived weakness is going to be found out and you’re going to pay for it, in court or wherever.”

Google, which had $39.1 billion in cash and short-term investments as of June, put in an initial $900 million offer in April to buy the patents of bankrupt phone-equipment maker Nortel Networks Corp. It was outbid by a group that includes Apple, Microsoft, and Research In Motion Ltd., which all make devices that compete with Android phones.

More Discipline

Walker wouldn’t say whether Google will bid on InterDigital Inc. -- an owner of more than 1,300 patents that is exploring a potential sale -- the digital-imaging patents of Eastman Kodak Co. or any other portfolio of intellectual property. He said it’s unclear if the $4.5 billion winning bid for the Nortel patents is a sign future sales will command a similar premium.

“We want to be disciplined about how we approach all this stuff,” Walker said. “We’re looking for a reasonable alternative, but we want to make sure Google and the companies Google partners with aren’t shut out of the opportunity to bring great new products and features to consumers.”

Google rose $3.54 to $622.52 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have climbed 4.8 percent this year.

Android is the most widely used mobile operating system for smartphones, with 38.9 percent of the worldwide market, compared with 18.2 percent for Apple’s iPhone, according to IDC.

Oracle, the world’s largest supplier of database software, contends Android uses its Java programming language, in violation of patents and copyrights, according to court filings. Redwood City, California-based Oracle sued, seeking as much as $6.1 billion in damages, after Google balked at paying $100 million for a license to use the technology.

Roll the Dice

In ruling last week on what type of damages should be considered, U.S. District Judge William Alsup said “Google may have simply been brazen, preferring to roll the dice on possible litigation rather than to pay a fair price.”

Alsup said $6.1 billion in damages was too high a price for consideration based on facts of the case and set $100 million as the starting point for discussion of damages. Walker said Google maintains that the patents are invalid and not infringed.

Apple, based in Cupertino, California, has patent cases before the U.S. International Trade Commission that target Android phones made by Samsung Electronics Co., HTC Corp. and Motorola Mobility Holdings Inc. Each of those companies has filed cases against Apple.

Microsoft and Motorola Mobility also have patent suits against each other, and Microsoft has a pending ITC complaint against Barnes & Noble Inc. over the Android-based Nook reader.

Google has few of its own patents, while Samsung and Motorola Mobility have been able to use their patents to lodge infringement claims against Apple and Redmond, Washington-based Microsoft.

‘Mutually Assured Destruction’

Winston Yung, chief financial officer of Taoyuan, Taiwan- based HTC, said in an interview today that the company is willing to negotiate a settlement with Apple.

Walker said it’s “crazy” that both HTC and Apple phones could be barred from the U.S. market if a deal isn’t reached.

“Each side can blow the other up on some level --everybody can block the other’s products from coming to market,” Walker said. “You create this mutually assured destruction scenario, but it’s very expensive to get all those munitions.”

Google has been hesitant to use patents to file suits against other companies, he said.

“Buying patents so you can hit the other guy, it’s not good form,” Walker said. “You hate to unilaterally disarm here, but we haven’t in our history.”

‘We’ll be Fine’

Google has sued to challenge the validity of other companies’ patents. The company filed a lawsuit today against closely held SourceProse Inc., which claimed that phones made by companies including HTC and Apple infringe its patent through the Google Maps Mobile product.

Google is seeking a court order that would clear Google Maps Mobile of infringement, or a finding that the SourceProse patents are invalid. Google in March joined with Microsoft to challenge the validity of mapping patents owned by GeoTag Inc., which had sued their customers.

Google is also providing support and technical help to companies that make products for Android and are being sued, either by rival companies such as Apple and Microsoft, or by small patent owners that don’t make products.

“We’ll be fine,” Walker said. “We have the resources to balance the scales here.”

--With assistance from Tim Culpan in Taipei. Editors: Romaine Bostick, Niamh Ring

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editors responsible for this story: Allan Holmes at aholmes25@bloomberg.net; Tom Giles at tgiles5@bloomberg.net


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