Jack Ellis

Last week’s report from The New York Times entitled ‘The Patent, Used as a Sword’ has generated a fair amount of discussion among both pro- and anti-IP camps. According to the piece, 2011 was the first year in which Apple and Google spent more money on patent litigation and transactions than on research and development. But the article doesn’t tell the whole story.

Last year, of course, saw both the $4.5 billion auction of bankrupt Nortel’s patents – Apple was one of the winning bidders, reportedly spending $2.6 billion – and Google’s purchase of Motorola Mobility for around $12.4 billion, an acquisition that was widely seen as having been driven by the latter’s 17,000-strong portfolio of patents (though Google “only” allocated a value of $5.5 billion to this). Those two events will account for a significant proportion of the spending that The New York Times is talking about. Global powerhouses Apple and Google may be, but it is doubtful that they will get involved in such massive transactions on a regular basis.

However, let’s think about what Apple and Google acquired with their respective purchases. In buying patents, they have gained assets that grant them freedom to operate, with future monetisation potential to boot. Each of them has excluded the other from ownership of those strategic assets; and in both situations, the patents have been accompanied by people with the ability to get the best out of them (for Google, that intellectual capital came by way of acquiring an entire company; for Apple, it was the former Nortel IP team that now staffs Rockstar, the NPE that it and its bidding consortium partners formed to hold and license the majority of the attained patents).

Thus, in buying those patents and the knowhow which came with them, the two spent substantial amounts on R&D; it's just that it was R&D which was done by someone else. Apple and Google both get the benefit of it though. And the same principle applies when companies license-in too. Transactions are, in short, a very efficient way of allowing companies to get their hands on R&D and technology they need to enhance their competitive positions. When the system works like that and IP really is – as USPTO Director David Kappos and others have described it – the currency of innovation, then whoever originally invested the time and money in conducting the R&D will be rewarded for doing so. Here, Nortel's creditors got a pile of cash to mitigate their losses, while Motorola's shareholders walked away with a very pleasing pay-off. What is not to like? 

On a related note, The Guardian reported over the weekend that Apple, Google and Microsoft will be spending a combined $5 billion on advertising in the run up to the festive season. According to Forbes, Microsoft alone is thought to have reserved up to $1.8 billion for marketing its upcoming Windows 8 operating system, which is due to launch at the end of this month.

Some observers may be incredulous at the astronomical sums being spent on advertising by consumer tech companies – as well as their apparent prioritisation of patent purchases and lawsuits over investment in home-grown technology. But investing money in marketing is part and parcel of having a viable intangible asset strategy. Marketing is crucial to building what is perhaps the most vital intangible of all: the brand. It is the brand that encapsulates a business’s reputation, its position in its market, how it is perceived by the public and its relationship with consumers.

All the money spent on R&D – whether it is conducted internally or is bought in from elsewhere – will be money poorly spent if there is no brand to promote its fruits and raise the funds needed to invest in future rounds of research. R&D, patent creation, patent acquisition, brand building and marketing are all parts of the same process in the consumer tech sector. It is a process that builds companies, creates employment, drives economies and enhances lives. There is nothing at all wrong with any of that. In fact, we need a whole lot more of it.