Motorola Deal Showing Massive Loss To Innovation Caused By Patents

from the dead-weight-loss dept

In response to Google's deal to buy Motorola mostly for its patents (most people are now saying that the patents represented at least half the value of the deal), we're seeing two responses. The first is that companies with lots of patents are suddenly being re-evaluated for their patent value. Because of the demand, otherwise practicing firms are suddenly being told their patents may be worth more than they are. Such is life in a market where the value of patents is massively inflated due to dangerous thickets, where patents are necessary to play.

But at the same time, more people are finally realizing what a massive economic and innovation loss this represents, entirely contrary to the intentions and purpose of the patent system. That last link is to the NY Times, which quotes Harvard economist Josh Lerner (who warned of this problem years ago) highlighting what a ridiculous economic loss it is when patent values are so ridiculously inflated:
“You’d much rather see Apple spend some of that $4 billion on new inventions, and Google invest that $12 billion to generate new knowledge,” said Josh Lerner, an economist at the Harvard Business School. “It’s a transfer of wealth from innovators to bondholders and stockholders who have no motivation to innovate. It’s disturbing.”
It's beyond disturbing. It's harmful. It hurts these companies' ability to innovate. It hurts our economy's ability to grow. It costs consumers a massive amount in economic rents, and it acts as a massive shift in wealth from consumers and companies that actually innovate... to those who aren't innovating. It's really dangerous, and will open up more opportunities for foreign competitors to focus on real innovation, while we move money away from innovation to lawyers.

So, we can now add the NY Times to the list of mainstream publications highlighting the problem. Why is Congress still focused on a patent reform bill that does nothing to address this problem?


Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    B's Opinion Only (profile), Aug 17th, 2011 @ 7:12pm

    The Googorola deal is about Google building smartphones to compete with Apple, set-top boxes to bring YouTube into everyone's living rooms, and owning the chip foundry and manufacturing to make it happen. The patent portfolio is nice, but it is NOT the biggest part of the deal.

    Anyone who thinks Google bought Motorola to help out their Android partners just doesn't get it.

     

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  2.  
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    fogbugzd (profile), Aug 17th, 2011 @ 7:16pm

    Kodak may be the next example. They are setting on an estimated 3 billion dollars of patents.

    What these buyouts really do is transfer funds out of innovative companies and into the bank accounts of shareholders of the selling company. I doubt if we could have designed a system to better cripple innovative companies.

     

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  3.  
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    Anonymous Coward, Aug 17th, 2011 @ 7:30pm

    Google needs to release those patents into public domain. End that bullshit circlejerk.

     

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  4.  
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    fogbugzd (profile), Aug 17th, 2011 @ 7:50pm

    Re:

    >>Google needs to release those patents into public domain. End that bullshit circlejerk.

    The problem is that Google doesn't need the patents to build its system. It needs the patents so that if one of the other cell phone vendors sues Google, they can sue back. That is what is going on between Apple and HTC. Apple sues HTC and tries to block HTC imports. HTC retaliates and sues Apple and tries to block Apple imports. If Google simply makes the patents public they loose the "Mutually Assured Destruction" defense.

    It might be possible to craft some type of release mechanism that says that anyone may use the patents, but if you sue anyone using other patents they would loose the the right to use the Google patents.

    The point of all this is that absolutely none of it has anything to do with innovating in anything except legal maneuvering.

     

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  5.  
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    Max, Aug 17th, 2011 @ 7:51pm

    Individuals and companies should get rewarded for new ideas. When companies start hoarding patents to prevent others from using them, and they have no intention of ever bringing them to fruition, there is a problem.

     

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  6.  
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    MrWilson, Aug 17th, 2011 @ 8:11pm

    It's sad that a company's value might be measured based on it's potential ability to extort payments and/or retard the productivity of other companies.

     

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  7.  
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    Anonymous Coward, Aug 17th, 2011 @ 8:11pm

    Yet, by your own logic Mike, money that doesn't go one direction goes other, and the economy doesn't lose. Money that doesn't go for paint color innovation instead goes to bond holders, who turn around and invest in the next company needing funds to "innovate".

    The money doesn't get burned in a furnace somewhere. It doesn't disappear. You have repeated this over and over again, yet you choose to ignore it when it doesn't support your views?

     

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  8.  
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    out_of_the_blue, Aug 17th, 2011 @ 8:23pm

    Newsflash: grasp of capitalism beginning at Harvard.

    "It’s a transfer of wealth from innovators to bondholders and stockholders who have no motivation to innovate. It’s disturbing.” -- But apparently the prior transfer from whoever to Google to pile it up wasn't disturbing.

    This is inherent in the system as the sole goal is to pursue money and power. Capitalism is not at all oriented toward consumers, or producing goods: those are remnants of the brief period when capitalists were kept chained down after their excesses caused the Great Depression. -- When capitalists are restrained, the people prosper; when the people are restrained, capitalists prosper.

     

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  9.  
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    Anonymous Coward, Aug 17th, 2011 @ 9:06pm

    Re:

    Max,

    Why should anyone get rewarded for "new ideas?" Individuals and companies should get rewarded for successful implementations of new ideas. Patent law should be radically overhauled. For example, maybe a "new idea" combined with a successful commercialization should get protection.

    I know, the counter-argument is that what do you do about the poor genius without any way to fund commercializing, and the big bad corporations rip him off. Still working on that.

     

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  10.  
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    Anonymous Coward, Aug 17th, 2011 @ 9:08pm

    Re:

    Money that doesn't go for paint color innovation instead goes to bond holders, who turn around and invest in the next company needing funds to "innovate" and pay transfer that money to the companies other stockholders LoL

     

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  11.  
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    Jay (profile), Aug 17th, 2011 @ 9:10pm

    Re:

    " You have repeated this over and over again, yet you choose to ignore it when it "

    Small suggestion: Look up ripple effects in economics. Then look at what the patent MAD system is doing. Come back when you have a better grasp on your argument.

     

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  12.  
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    Anonymous Coward, Aug 17th, 2011 @ 9:19pm

    Re: Re:

    As cruel as this will sound, I don't think they should get any protections whatsoever, just as I believe firmly that people should not dilute risk of financial assets ever into other financial assets.

    Build a product and try to sell it, if it is any good others will buy from you, if you are a decent guy people will look for your products not the other guy, if you get copied that functions as a natural barrier to unlimited growth that could not allow any one company to create a monopoly on anything or become to big to fail.

    If you can't master all steps necessary to make it to the market then you should not be the one to do it and let others that can do, make it.

     

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  13.  
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    The Incoherent One (profile), Aug 17th, 2011 @ 9:27pm

    "So, we can now add the NY Times to the list of mainstream publications highlighting the problem. Why is Congress still focused on a patent reform bill that does nothing to address this problem?"

    Cause the members of congress have a reelection to win. Elections cost money, and lobbyists have small fortune of it to give away for just these reasons.

     

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  14.  
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    Donnicton, Aug 17th, 2011 @ 9:31pm

     

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  15.  
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    hank, Aug 17th, 2011 @ 9:36pm

    the system

    mike, in light of all the focus recently of how "software patents" are the real evil, but normal patents are great and should be respected, you might consider a long form post on how patents in general stifle innovation, reminding readers how patents are an economic fix to an emotional problem, and that the entire concept of monopolizing progress is misguided

     

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  16.  
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    Anonymous Coward, Aug 17th, 2011 @ 10:08pm

    Re:

    Anyone who thinks Google bought Motorola to help out their Android partners just doesn't get it.

    Did you actually read the article?

     

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  17.  
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    freak (profile), Aug 17th, 2011 @ 10:19pm

    Re:

    Let me boil down the problem for you:

    We like innovation. It makes cool new things we all want, and it makes stuff more efficient. Efficient stuff makes everyone win! If I'm more efficient, my goods are cheaper, so I sell more on the same profit margin, my customers get cheaper goods, and everyone else experiences nice ripple effects that mean that we all can exchange more wealth using less money.

    The money may not be disappearing, but who is it disappearing to? Companies who innovate need patents to protect themselves from other patent owners. Companies who don't innovate can sell patents for a great amount, (Otherwise, they wouldn't, or don't).
    In other words, patent sales, such as the one above, move money from companies who innovate, to companies who do not, (In the case of nortel, for example, because it's been bankrupt for a while).


    So the money doesn't disappear, but some innovation sure did.

     

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  18.  
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    Anonymous Coward, Aug 17th, 2011 @ 10:38pm

    Re:

    Mike basically say the money should be used "directly" on innovation and you said the money can be used "indirectly" on innovation.

    See the difference? There's loss in "indirect" (as the bond holders need to withdraw profits, and they don't only invest on innovative companies).

    I cannot remember since when did companies need to buy a few "patents" from related fields as "entry ticket" to enter a market. If they really want to protect innovative startups, laws need to be made to make startups (or companies entering new fields of market) immune to patent attacks to give time for them to innovate. (Meaningful innovations don't fall from sky and generally needs time to grow from solid grounds)

     

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  19.  
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    Terry W, Aug 18th, 2011 @ 1:27am

    Re: B's Opinion Only

    Very true indeed.

    I feel the whole "patent" side of it is just Google spreading FUD to try and weasel out of the world of pain they brought on themselves with the Oracle/Java case that is ongoing, whilst somehow trying to justify to themselves that "business conduct" wise it was not evil.

     

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  20.  
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    Anonymous Coward, Aug 18th, 2011 @ 1:27am

    Because congress has 14% approval...

    They're all bailing out, and putting money in their own pockets as fast as they can because they KNOW FOR CERTAIN that whatever else is happening? They're ALL out of a job next year. Why do they give a shit what the public wants if they're already fired, and just dead-weight talking? No, they'll do what people pay them to do, and nothing else, because they're getting out of the game.

     

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  21.  
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    Richard (profile), Aug 18th, 2011 @ 1:39am

    Re: Re:

    t might be possible to craft some type of release mechanism that says that anyone may use the patent

    Can't find the link right now but I believe Google has already done something like this.

    btw it seems that Motorola held some patents that were causing hassle for WebM

    From http://fosspatents.blogspot.com/2011/07/googles-webm-vp8-allegedly-infringes.html

    Motorola is a top three Android device maker and should be an obvious partner for Google but apparently reserves the right to sue WebM adopters. A Motorola subsidiary named General Instrument Corporation is suing other companies, such as Microsoft and TiVo, over various codec-related patents, including (but not necessarily limited to) U.S. Patent No. 5,949,948, 6,356,708, 7,310,374, 7,310,375, 7,310,376, and 7,529,465.

    So there seems to be a strong and specific motivation to take over Motorola.

     

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  22.  
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    Richard (profile), Aug 18th, 2011 @ 1:42am

    Re: Re:

    I know, the counter-argument is that what do you do about the poor genius without any way to fund commercializing, and the big bad corporations rip him off. Still working on that.

    The solution is to set up a contract before talking to the big company (usually called a non-disclosure agreement).

    It's an awful lot cheaper than a patent!

     

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  23.  
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    Richard (profile), Aug 18th, 2011 @ 1:49am

    Re:

    The money doesn't get burned in a furnace somewhere. It doesn't disappear. You have repeated this over and over again, yet you choose to ignore it when it doesn't support your views?

    If you read carefully you will see that he never claimed it did. What he did say was that the money is (ultimately) diverted to lawyers rather that people who do actual useful work, In the end the result is more human effort spent on legal activity and less on actual technological development - and that is a real loss.

     

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  24.  
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    Richard (profile), Aug 18th, 2011 @ 1:58am

    Re: Newsflash: grasp of capitalism beginning at Harvard.

    The problem is not so much capitalism as capitalists. Strangely most capitalists dislike capitalism - and try to undermine it at every opportunity.

     

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  25.  
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    abc gum, Aug 18th, 2011 @ 5:10am

    So - when will the patent bubble burst?
    Based upon past bubbles, this may take a few more years but it will burst. If I could copyright excuses I could be rich.

     

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  26.  
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    CommonSense (profile), Aug 18th, 2011 @ 5:13am

    Re:

    You can't be serious...

    Google IS building smartphones to compete with apple, smartphones by a number of different companies so there's something for everyone...just like the way Microsoft beat out Apple in the PC market. They are already building set-top boxes, or at least putting their software on them, and some Blu-ray players even, without owning Motorola, and since they have already been doing all of that, why the hell would they need a chip foundry?? Please, tell me why a software company would really want a chip foundry??? Even apple outsources the hardware stuff to a third party.

    Mike's post points out that some people say the value of the patents was over half the deal, and the purchase price was 63% higher than their stock price would have dictated, so logically that puts the value of the patents at 63-ish% more valuable than the rest of the company, products and chip fabrication included.

    Care to rethink who here doesn't get it?? Or you want me to make it easy, and just let you know that it's those who don't think this was about the patents?

     

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  27.  
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    Anonymous Coward, Aug 18th, 2011 @ 5:37am

    As an inventor i need a certain level of protection for my work. I have more innovation then capitol. Without some protection my ideas could be easily produced by someone trolling for good ideas to quickly profit. Please see N. Tessla vs. RC radio. Yes patents stifle innovation. they also allow the creator the time to bring ideas to market. The correct amount of regulation is absolutely needed for a well function market.

     

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  28.  
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    Anonymous Coward, Aug 18th, 2011 @ 5:43am

    If I ran an ongoing and otherwise healthy business concern you can darn well bet I would be attempting to "value" any patents it may hold, but not for defensive purposes and not for possible liquidation. The first place I would go is to tax counsel and dtermine the impact on tax liability since patents are depreciable assets because they have a limited useful life, just like any other depreciable asset.

    As for the diversion of funds that could otherwise be spent on other worthwhile endeavors, the same can be said of a host of significant expenses incurred annually by a business. Merely by way of one example, does Google really need that commercial jet it maintains on the tarmac at Moffett?

    BTW, in the case of an industry with a large number of incumbents maneuvering for market share, the general role of patents is not to shut down competitors for that is an impossible task. Almost invariably they are used to enhance one's bargaining position when it comes times to sit down at the negotiating table and work out business deals serving the business interests of the respective competitors.

     

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  29.  
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    steve davidson (profile), Aug 18th, 2011 @ 6:59am

    Patents Rule

    In this day and age when a company gets ready to sell, their most valuable asset is often the patents. Since lawyers are buying the companys and calling the shots, they know the value of the patents in the selling process. However, must be careful, because a products features are generally out lived by the patent...

     

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  30.  
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    Anonymous Coward, Aug 18th, 2011 @ 7:37am

    Re: Re:

    Richard, you almost got it, but you missed a step. Do they lawyers burn the money once they get it? Do they shred it? Nope, they *gasp* invest it!

    Mike has always said that the idea of lost sales in the music industry hurting the economy is crap because they money is just spent elsewhere. Extending that, money not spent on "innovation" and instead returned to people who invested in innovation likely leads to, *gasp* more investments made, and some of it certainly for "innovation".

    Mike can't have it both ways (but apparently he wants to). Either money goes away or it does not.

     

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  31.  
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    MattP, Aug 18th, 2011 @ 7:50am

    Re:

    Yeah, well, you know, that's just like your opinion man.

     

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  32.  
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    Iori Branford, Aug 18th, 2011 @ 8:24am

    Re: Re: Re:

    more investments made, and some of it certainly for "innovation".

    But mostly in investors' luxury items.

     

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  33.  
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    Anonymous Anonymous Coward, Aug 18th, 2011 @ 8:26am

    Re: Re:

    Agreed
    Not only should there be a requirement to produce what you have patented, but there should be a requirement that the original inovator(s) should not be able to transfer thier patent unless they sell the production capability with it (not seperable). Companies would have to license any creation of thier employees (no more work for hire garbage). The company gets the license, the creator gets a royalty, and retains patent ownership.

    I think also there should be some time limitations. One year to get commercial, and 7 years to patent expiration (changes to public domain), unless they stop production, then the patent also becomes public domain.

    This may seem extreme, but is serves a number of important purposes. First, time to market is greatly reduced. If you aren't within a year of Alpha product release, don't file the patent.

    Second, with patents expiring after 7 years, you must continue to inovate in order to participate in ongoing 'temporary monopolies'.

    Third, by leaving the patent with the inovator(s), companies will have to formulate a different perspective to patents. Rather than using them for leverage, they can use them to give incentives to creative folks in thier organization by, A) funding the creative process in exchange for the license, and B) rewarding creativity with royalties for the inovation. The company still wins as thier new product lines should increase, and they have 7 years to profit and recoup investment. Nothing says they have to stop producing the product at 7 years, if it is a good one there may still be demand, though at this point competition will for products to get even better.

    Fourth, by limiting patents to 7 years, it will open up a whole landslide of inovation that has be heretofore blocked. Would these things become available if nothing is changed? Yes. But, in today's world the rate of change is a lot different than even a decade ago, and this would be enhanced by opening up the rate of change by eliminating long 'temporary monolopolies'.

    Want to kickstart the economy?

     

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  34.  
    identicon
    Anonymous Coward, Aug 18th, 2011 @ 8:54am

    That's why innovation happens elsewhere, and the U.S. simply racks up the patents.

    Did you know that Canon and other printer companies sell printers that can print labels onto CD's in other countries, but because a competitor (I think it's Lexmark, not that I blame them for having the patent for defensive purposes, though they've never sued for it to the best of my knowledge) has a patent on it, they don't sell it in the U.S.. They sell the printer but, in the U.S., you must buy a separate attachment from elsewhere to enable it to print labels on CD's. What kinda bogus patent is that? It's not like a patent is needed for this and it's not like this technology was even developed in the U.S. to begin with. It was likely developed elsewhere and someone simply got a defensive patent on it in the U.S., scaring big competitors into not selling printers that can print on CD's.

    Patents are hindering innovation in the U.S. like there is no tomorrow, and innovation is happening everywhere else, but the U.S. is being denied so much competition and innovation thanks to patents. People in other countries innovate, and U.S. companies simply obtain patents on the innovation that happens elsewhere. The U.S. is not innovative thanks to patents.

     

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  35.  
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    RobShaver, Aug 18th, 2011 @ 9:42am

    Re:

    I don't think Motorola owns any chip foundries any more.

     

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  36.  
    identicon
    Anonymous Coward, Aug 18th, 2011 @ 10:56am

    Re: Newsflash: grasp of capitalism beginning at Harvard.

    That is an incredibly odd subject line given that the post goes on to demonstrate very little understanding of what the word actually means.

     

    reply to this | link to this | view in thread ]

  37.  
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    Kate Shore, Aug 18th, 2011 @ 11:25am

    Patents aren't free you know

    These recent IP deals also represent a return on investment for the original patent holder. Paying employees, supplying space / equipment / materials, providing legal resources, and maintaining patent filings all cost money. Global filing of a single patent can cost $200K+ over its lifetime in fees alone.

    Unfortunately many companies do not invent strategically and they end up with portfolios that don't map to their products. Leveraging the IP is the only way to get an ROI. That's part of the story for Nortel, Motorola, Kodak.

     

    reply to this | link to this | view in thread ]

  38.  
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    The Devil's Coachman (profile), Aug 18th, 2011 @ 1:29pm

    Re: Re: Re:

    Yeah, they "invest" it in cocaine, Cristal bubbly, hookers, bling-mobiles and McMansions.

     

    reply to this | link to this | view in thread ]

  39.  
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    The Devil's Coachman (profile), Aug 18th, 2011 @ 1:37pm

    When the hell was the last time Motorola innovated anything?

    Maybe the Razr cell phone. Yeah, I think that may have been it. So whatever patents they have have accumulated since then are probably the bogus bullshit that the USPTO rubber stamps every day. None of which have any real value, but serve solely to obstruct competition, by threatening expensive litigation. The whole patent system has become a steaming pile of horse shit that the rest of the world mocks and holds in complete and utter disdain, while they go about running circles around the increasingly technologically moribund USA.

     

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  40.  
    identicon
    staff, Aug 18th, 2011 @ 2:42pm

    bias

    In Federalist No. 43, James Madison wrote regarding constitutional rights of inventors, "The utility of the clause will scarcely be questioned. The copyright of authors has been solemnly adjudged, in Great Britain, to be a right of common law. The right to useful inventions seems with equal reason to belong to the inventors. The public good fully coincides in both cases with the claims of the individuals."

    "patent reform"

    Just because they call it “reform” doesn’t mean it is.

    The patent bill is nothing less than another monumental federal giveaway for banks, huge multinationals, and China and an off shoring job killing nightmare for America. Even the leading patent expert in China has stated the bill will help them steal our inventions. Who are the supporters of this bill working for??

    Patent reform is a fraud on America. This bill will not do what they claim it will. What it will do is help large multinational corporations maintain their monopolies by robbing and killing their small entity and startup competitors (so it will do exactly what the large multinationals paid for) and with them the jobs they would have created. The bill will make it harder and more expensive for small firms to get and enforce their patents. Without patents we cant get funded. Yet small entities create the lion's share of new jobs. According to recent studies by the Kauffman Foundation and economists at the U.S. Census Bureau, “startups aren’t everything when it comes to job growth. They’re the only thing.” This bill is a wholesale slaughter of US jobs. Those wishing to help in the fight to defeat this bill should contact us as below.

    Small entities and inventors have been given far too little voice on this bill when one considers that they rely far more heavily on the patent system than do large firms who can control their markets by their size alone. The smaller the firm, the more they rely on patents -especially startups and individual inventors.

    Please see http://truereform.piausa.org/ for a different/opposing view on patent reform.
    http://docs.piausa.org/

     

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  41.  
    identicon
    patent litigation, Aug 23rd, 2011 @ 5:26am

    patent reform

    The problems with the patent system that President Obama and others have recently mentioned stem basically from problems of inefficiency at the USPTO -- due in large part to lack of funds. I still fail to see how most provisions of the current so-called patent reform bill address the patent office's organizational challenges (especially with the potential for fee diversion still being part of the picture).

     

    reply to this | link to this | view in thread ]


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