1 Dec
2014

The rise of the Google gorilla

Whether you like or loathe Google’s stance on patent reform, there is no denying that under the leadership of Allen Lo, the company has developed a world-class patent operation. And it seems that this will only get stronger

What is Google? That might seem a strange question to ask about a company as ubiquitous as the Mountain View, California-headquartered tech giant; but in patent terms at least, the answer is not always clear.

Is it a tech company undergoing a typical IP evolution, from reluctantly accepting patents to placing them at the heart of its business? Is it a behemoth that cares little for patent rights and is attempting to steamroller all and sundry in a bid to drive more and more users to its search and associated ads business, and other expanding interests? Or is it an innovator fighting the good fight against all-pervasive ‘patent trolls’, intent on reforming the system to stamp out the worst litigation abuses?

Your own answer will most likely vary depending on who you are and what you do – be it in a non-practising entity (NPE), a fellow tech giant, in big pharma, on Capitol Hill or in the White House. But what is not in question is the remarkable patent journey that Google has gone through in little more than half a decade. In six years it has aggressively grown its internal portfolio to the point where, from not even making it onto the Intellectual Property Owners Association’s list of the top 300 filers of US patents, it now ranks tenth in the latest statistics. It has pursued the largest patent-led deals ever seen in its (unsuccessful) participation in the Nortel portfolio auction and (successful) acquisition of Motorola Mobility. It has put in place world-class internal management systems for its rapidly expanding portfolio. And it has become one of the key players in the post-America Invents Act US patent reform debate.

For a company like Google, ambition of this scope would seem totally natural. But for the patent market, it has been – in true tech tradition – more than a little disruptive. And the results of that disruption have largely fallen Google’s way. It might have seen its favoured reform package shelved by the Senate earlier this year, but for the most part the patent pendulum is swinging in the direction of the search giant and a number of its tech peers.

A string of Supreme Court decisions, a decline in damages awards, the collapse of injunctive relief and the rise of the new inter partes reviews at the US Patent and Trademark Office (USPTO) introduced by the America Invents Act have all served to erode the importance of the courtroom as a forum for deciding patent disputes. It seems inevitable that patent reform will be a part of the legislative agenda of the next Congress, driven by a coalition of tech companies with Google at its heart. Meanwhile, Android – the mobile communications platform that Google launched and Steve Jobs vowed to destroy through “thermonuclear” patent war – now dominates the global market.

For Google insiders, all of this means that products can now compete on their merits and that it is users who will decide whether a product should succeed. Co-founder Larry Page may have been astute enough to file a patent for PageRank, the original technology behind the search engine; but in Mountain View, they will tell you it was the quality of the algorithm, not the claim drafting, that proved instrumental to Google’s success.

“I think for us, a lot of the goal is how we can achieve patent peace and use our portfolio to obtain what the business is largely looking for, which is the freedom to operate, the freedom to develop products that our users want and how we can place users first,” claims Allen Lo, deputy general counsel and head of the patent group.

Allen%20Lo%20photo.jpg

Allen Lo, deputy general counsel and head of the Google patent group

“Google is not talking about abolishing the patent system”

To others, though, Google has actively helped to undermine constitutionally granted patent rights, weakening the cause of patent owners everywhere. “I’m not surprised there isn’t consensus in an area that’s changing,” Lo says of the sniping between both sides of the patent debate. And in the past few years, change is something which the Google patent group has become intimately familiar with.

SMichel%20photo%2014.jpg

Suzanne Michel, head of Google’s patent policy group

“What is it in the patent system that makes hedge funds want to invest in patent litigation?”

The man in charge

It is hard to discuss Google’s patent strategy without starting with Lo. The 47-year old legal executive with a considered, almost academic approach joined the company from Juniper Networks in early 2012 as deputy general counsel in charge of patents and patent strategy. He took over from Michelle Lee, who left Google in 2011 and is now the Obama administration’s nominee to head the USPTO.

When Lo joined, Google was already mired in the smartphone litigation wars, directly or indirectly helping to defend the Android operating system. The company had also seen a big jump in the number of infringement cases filed against it. The acquisition of Motorola Mobility, which would add around 17,000 assets to Google’s stockpile, had been announced, but was yet to close. And the company was in the process of rapidly growing its own organically developed portfolio. All of this was quite a turnaround for a business that, at the time it went public in 2004, had owned just eight patents (although around 600 were pending).

In other words, Google was already a major patent player before Lo arrived; but many point to his hiring as a major turning point in its evolution. Most notably, he undertook a wholesale restructuring of the patent group, which is now spread across five teams compared with three previously.

Kirk%20Dailey%20hi%20res%20color.jpg

Kirk Dailey, head of Google’s patent transactions operation

“People don’t even know you’ve got patents until you talk to them or you talk about your patents”

At the time of Lo’s arrival, Google’s patent specialists were spread between portfolio and litigation teams, as well as a new patent policy group in Washington DC headed by Suzanne Michel, a 2011 hire from the Federal Trade Commission (FTC). However, that structure did not reflect what had become a far more complex patent operation. So Lo added a patent transactions team, led by former Motorola executive Kirk Dailey; and another group focused on operations and analytics, headed by Jeremiah Chan, previously director of intellectual property at JDS Uniphase.

JChan%20Headshot.jpg

Jeremiah Chan, in charge of Google’s patent analytics function

“I hear chief IP officers say that when you get to 20,000 or 30,000 patents, then you don’t know what you have; we know exactly what we have”

“Bringing someone in from the outside was in some ways an opportunity to take a different look at the patent group and organise it in a way that wasn’t just simply organically growing the team,” Lo says of his joining Google. Since then, introducing a greater degree of specialisation to the group has been a hallmark of his restructuring. Under his leadership, the patent function has become, for want of a better word, more ‘Googley’. Arguably no other part of the team exemplifies this more than the analytics group.

Dealing in data

For a company in which data and analytics are so central to the DNA, it might seem strange that Chan’s department did not exist before 2012. But Lo quickly realised that Google was missing a trick in failing to utilise all of its own internal tools.

“Part of what we’ve been doing is not just leveraging commercially available tools and becoming knowledgeable and experts on everything that’s out there,” he explains, “but also leveraging resources internally – whether it’s from engineering, from our economists or other parts of the company – to say, ‘How do we get smarter about understanding patents?’ and – whether it be trends or greater insights – to understand our portfolio, understand the portfolios of others, understand how things are being transacted. We need to develop that expertise more organically and really develop and institutionalise it.”

Chan looks like the proverbial kid in the candy store as he describes the potential of big data to unlock myriad patent secrets. In prosecution, he and his team can now look more closely at the behaviour of USPTO examiners as they grant new patents. In litigation, they can more accurately predict likely judicial outcomes. As companies see their compound growth rate start to flag, Chan’s team can predict when they are likely to start selling off patents, potentially to Google’s rivals. And they can shine a light on the deals and privateering arrangements that are fuelling NPEs and potential litigants. “We’re Google – we should be a lot smarter with our data,” shrugs Chan. “I hear chief IP officers say that when you get to 20,000 or 30,000 patents, then you don’t know what you have; we know exactly what we have.”

Open season

Several parts of Google’s business, such as Android and web browser Chrome, are based around open source principles: they are given away for free, in part to help drive users to the search giant’s sites. Google’s patent group has come relatively late to the party, but earlier this year announced two initiatives – the License on Transfer Network (LoTN) and the Open Patent Non-Assertion (OPN) Pledge – which closely tally with the company’s underlying philosophy.

LoTN is Google’s version of a defensive patent pool. Companies sign up to the network and agree that if they are going to sell patents to non-network entities, then all other LoTN members will automatically get a licence. Although many operating companies are critical of NPEs, the fact is that many patents bought and sold in the market come from large technology or other practising businesses. The idea, therefore, is to provide a degree of protection from patents that may fall into the hands of possible NPE litigants. Since its launch in January the network has signed up 10 businesses other than Google. They include Canon, SAP and DropBox. Collectively LoTN members own over 300,000 patent assets.

EricSchulman740.jpg

Eric Schulman, driver of the License on Transfer Network

“This is an agreement that should appeal to companies that are optimistic about their business”

Although the network’s creation was driven by Google Legal Director Eric Schulman, former Apple Chief IP Officer Chip Lutton took the reins as executive director after Google’s January acquisition of Nest, which Lutton had joined as general counsel in 2012.

LoTN has been in operation for less than a year and hitherto its growth has been fairly modest. Some might speculate that this is because companies might be reluctant to sign up and potentially limit the value of any patents it might sell in the future. But as Schulman points out, that is hardly a unique issue for the network’s members. “IBM, for example, sells lots of assets that are heavily encumbered and it still sells them quite well, so it’s not like you lose all of the value in your portfolio just because you have some encumbrances on it,” he explains.

Schulman draws parallels with the Open Invention Network, the patent pool created to defend the Linux operating system, which started fairly modestly in 2005 but has since grown to over 1,000 licensees. But he admits that the LoTN concept will not be to everyone’s taste: “This is an agreement that should appeal to companies that are optimistic about their business; so if you’re a company that has large growing revenue or intend to have large growing revenue, it should work for you.”

Launched in 2013, the OPN Pledge has led to Google making several hundred patents available to anyone using them for open source purposes. The initial batch of assets that it pledged were based on its MapReduce algorithm, but the company has since followed up with rights relating to big data and cloud computing.

A few hundred patents is a relatively modest total to pledge, compared with the 30,000-plus rights that Google currently owns. But senior patent counsel Duane Valz – one of the masterminds of the OPN – stresses that the company has placed the focus on quality. “We wanted to make it clear that we weren’t just putting a handful of middling patents into the pledge and although we started small, we started strong,” he insists.

To Valz, one of the principal drivers behind the pledge is affirming Google’s commitment to an open source approach. That is a particularly powerful message at a time when a lot of people acquaint patents with smartphone litigation; and it is one which resonates with the software engineering community.

Although there is a link between both initiatives and Google’s commitment to an open approach, they also carry obvious external benefits, helping to support the tech giant’s evolving image as a good patent citizen. Valz maintains that any PR boost is welcome, but is not the main motive. “People have a lot of views of Google, many of them not so favourable, so it would be hard to say that we don’t welcome positive accounts in the media of what we’re doing and why; but that’s not the motivation for why we’re doing these kinds of programmes,” he says.

“I think if it were only for PR, people would have to say there’s no substance there. I don’t think we’ve heard that about either programme and that’s ultimately how you have to judge those critiques,” concludes Valz.

Getting the balance right

Despite this rapid transformation, Lo is acutely aware of the balance that needs to be struck internally between a standalone patent function and one that is closely connected to the rest of the business. “There’s always this balance between being distributive versus being centralising, and how much you want to create a structure where the organisation is built around functions versus being built around the business,” he says.

This notwithstanding, the driving force behind Google’s patent strategy is indisputably how it relates to the business, and this is a theme to which Lo returns time and again. “One of the things we’ve had to crystallise much more is our thinking about why we are developing a portfolio and what the benefit is to Google. What is the return to Google? How are we deriving value from our portfolio?” he explains. “I think when you’ve got a very small portfolio and you can invest a little into it, there maybe less rigour around how you derive value from that. When you’re talking about the scale we’re at now – a portfolio of over 50,000 assets issued and pending – the cost is much more significant to us.”

Building an arsenal that big has been crucial in terms of defending Google and its partners in the Android ecosystem, which has been at the heart of many of the highest-profile smartphone spats such as Apple v Samsung. But as those courtroom battles seem to be coming to an end, Google’s emphasis is shifting from defence and arming itself with patents for potential countersuits to being more proactive in seeking licences with companies – some of which might have otherwise become courtroom adversaries.

Deal focus

Earlier this year, for instance, Google announced large cross-licensing deals with Samsung and Cisco; more recently, another has been concluded with LG. All make natural bedfellows – Samsung and LG because of their adoption of Android, and Cisco as a fellow member of the Coalition for Patent Fairness and a company which clearly views patent strategy through a similar prism. The deals with the two Korean companies cover both existing patents and those that they produce over the next decade.

The three agreements reflect a change of tack at Google. It is not that the company was not open to licensing its intellectual property before; it just was not proactive about doing so. Publicising the three deals has been a way of getting Google’s name out there in the licensing market. That might seem odd for a company of its size and scope; but Dailey, the transactions head who is also in charge of licensing, admits that the company has not been seen as a licensor: “People don’t even know you’ve got patents until you talk to them or you talk about your patents.”

Based in Chicago, Dailey joined Google as part of the 2012 Motorola Mobility acquisition. More than 20 years at Motorola helping to license one of the leading patent portfolios in the mobile sector gave him the kind of deal-making experience that was largely lacking at his new employer. That meant there was a natural niche for him in Lo’s reimagined patent team.

Plus, Dailey already had some insight into the company. As Motorola was an early adopter of Android, he had spent several years selling patent assets to Google to support the mobile ecosystem. “They didn’t have anyone managing their patents through patent transactions and licensing,” he says. “They had people who were doing it, but it was mainly reactive where people knocked on their door saying, ‘I think you should take a licence’.”

CatherineLacavera310new%20(4).jpg

Catherine Lacavera, head of the Google patent litigation team

“Whether you’re suing Google or Motorola or HTC or Samsung, if you’re suing over a Google product, we’re involved in the case”

Instead, Google relied on buying the patents outright or turned to Catherine Lacavera’s litigation team when it opted to rebuff the licensing advances. Underpinning Lo’s restructuring, and the creation of the transactions function in particular, has been a determination to move beyond simply waiting for litigation to happen. “We’ve been much more proactive,” states Lo. “Especially, we have developed the transactions team to be much more active in putting in place cross-licences.”

As the patent deals market has developed, so Google’s need for a far more sophisticated approach to licensing has increased. “The marketplace has seen assets that are coming from companies which are still in business, but have decided to take the portfolios they have and sell pieces of them off,” Lo points out. “In that case, détente doesn’t really help me if patents will end up in the hands of those NPEs and other entities which might then use them against me.”

In no other sector, of course, did the traditional détente break down more dramatically than in the smartphone market.

Figure 1. The growth in Google’s patent filing

163277.jpg

Source: Intellectual Propery Owners Association

 

Hanging on the telephone

The Motorola deal not only brought Dailey and his team’s licensing savvy into the fold, but also gave a significant boost to Google’s patent portfolio in the hyper-competitive mobile market. Having missed out on the Nortel portfolio to the Rockstar consortium in June 2011, Google forked out $12.5 billion two months later for the fading, but once-powerful mobile brand and a portfolio of around 17,000 patent assets.

With rival operators Apple, Microsoft, Ericsson, Sony and BlackBerry all part of Rockstar, Google’s purchase looked like a panic buy at the height of the smartphone wars. To show just how highly it valued the patents, when it announced the sale of the Motorola business for $2.91 billion to Lenovo in January this year (the deal subsequently closed in October), the search giant held onto the vast majority of the portfolio.

Back in 2011, it was in many ways a heady time for the patent market, with the Nortel and Motorola deals representing multibillion-dollar high points that most people assume will not be reached again for some time. Google was an active participant in the Nortel auction, submitting a series of bids – including some based on mathematical constructs such as Brun’s constant, the Meissel-Mertens constant and π (pi) – for the Canadian telco’s 4,000 patents, before they eventually sold to Rockstar for $4.5 billion. “You have to question whether there was value at that price,” sniffs Tim Porter, legal director, patents, who leads Google’s patent procurement group. “I’m glad we didn’t pay it.”

But the almost $10 billion difference in the purchase and sale prices has left some wondering just how much value Google got from the Motorola deal. Porter – who has been at Google since 2007 and has led the remarkable growth in the company’s own patenting efforts – defends the value of these assets, pointing out that Motorola “invented the mobile phone”. The patents were also a crucial part of defending Google’s rapidly expanding mobile business. “Following the deal Android is thriving, and who knows what would have happened if we hadn’t done it,” he muses.

“There’s certainly a lot of value in the transaction beyond the patents themselves,” Dailey adds. He points out that Google sold off Motorola’s set-top box business, disposed of its chipset business, banked $3 billion in cash and recouped almost $3 billion when it sold the handset business to Lenovo. “If you add it all up, the actual cost of the patents is a couple of billion; it isn’t anywhere near the $12 billion,” he insists. Plus, he points out that there were other considerable benefits: “I think those patents allowed Google to find some level of peace with Apple; we were also able to fend off the Microsoft attack and now the patents concerned make up around half of the portfolio – although it’s declining as an overall percentage.”

While the courtroom tussles between Apple and Samsung may have made most of the headlines, the smartphone patent wars essentially came down to a face-off between Apple and Google for mobile supremacy. “The reality is that whether you’re suing Google or Motorola or HTC or Samsung, if you’re suing over a Google product, we’re involved in the case; we’re supporting it in some way; it’s our products that are at issue,” explains Head of Litigation Lacavera.

Although some actions are still rumbling on, such as the dispute between Microsoft and Samsung over licences following the former’s acquisition of the Nokia handset business, the smartphone litigation largely looks to be over. In May, Google and Apple announced that they had agreed a truce, dropping a caseload of around 20 suits in the United States and Germany and agreeing to cooperate on some areas of patent reform.

Apple’s Jobs may have threatened thermonuclear war on Android, but Google’s operating system is still very much intact. It is the world’s most popular system, with a share of more than 80% of the global smartphone market. No injunction has been issued on an Android product in the United States and the financial damages levied against Android handset makers have mostly constituted a blip on their financial radars.

While the courtroom tussles between Apple and Samsung may have made most of the headlines, the smartphone patent wars essentially came down to a face-off between Apple and Google for mobile supremacy

As has happened for so many of the tech giants, Google’s expansion into new markets triggered a dramatic increase in the number of patent infringement cases filed against it in the last seven or eight years. While the smartphone wars may have been the highest-profile example of this escalation, it is the rise in suits filed by NPEs that is primarily responsible for this trend.

Lacavera says that around 70% of the company’s docket is taken up with NPE cases, with the rest largely attributable to the smartphone disputes. It is this increase in NPE activity which most influences how Google views the patent reform debate.

See you in DC

Figure 2. Patent infringement cases filed in the United States involving Google

163579.jpg

Source: Lex Machina

The story of Lacavera’s nine-year stint at the company is instructive in illustrating just how the Google’s patent docket has grown. She joined in 2005, after a career at a New York law firm litigating pharmaceutical and biotech patent cases. Keen to branch out into technology, she moved west and joined Google as its first patent litigator. The only problem was that there was almost nothing for her to do. “When I joined, we had one patent litigation case,” she recalls.

So Lacavera filled the role of patent counsel, handling some deal-related issues and what she describes as “a bunch of random other IP work”. She then moved onto pure litigation, but handling more than just patent disputes; that was until 2007, when the company began to see an uptick in suits being brought against it. “We started to get sued pretty much every week, all in the Eastern District of Texas,” Lacavera states.

The growth was startling, she says: “Over time, we did the maths and saw that we were doubling our pending cases every five quarters up until 2012. And then right before the America Invents Act law change came in, we and everyone else in the industry got hit with a whole bunch of cases – I think there were 18 in the week before the America Invents Act was enacted.”

Although Lacavera is at something of a loss to explain just what fuelled this dramatic jump in lawsuits, she suspects that it was down to NPEs keen to capitalise on what she sees as flaws in the system: “I think, quite frankly, the NPEs recognised that it was an opportunity to exploit a system that has structural problems, and saw it as an arbitrage opportunity to sue big companies and ask for money that was less than the cost of litigation, because it’s so expensive to litigate.”

The need to correct what Google, a coalition of tech companies and other businesses regard as these ‘structural problems’ is the driver behind the call for a second round of patent reforms, just three years after the America Invents Act was signed into law.

For Google, patents are just one item on an agenda – including a range of other topics, such as privacy and immigration – which has prompted it to play a much more active inside game in Washington DC. At the time it went public in 2004, the company spent just $180,000 on lobbying, according to the Centre for Responsive Politics. By 2012 that figure had soared to more than $18.2 million; while in the first half of this year alone Google spent $9.3 million on lobbying, putting it eighth on the list of biggest spenders. In 2012, to help extend its reach in the corridors of Congress, the company hired former Republican Congresswoman Susan Molinari as its chief lobbyist.

It is natural that Google’s involvement in the political process has grown commensurately with its expansion of its business. But it has also made some specific patent plays – most notably in 2011, when it hired Michel to fill the new role of head of patent policy. While at the FTC, where she worked as deputy director of policy planning, Michel was one of the principal authors of a report entitled “The evolving IP marketplace: Aligning patent notice and remedies with competition”.

Although Michel was hired before Lo came on board, her recruitment fitted Lo’s drive towards greater specialisation. Sitting in the company’s new DC digs on Massachusetts Avenue, just a short walk from Congress, Michel explains that today her responsibilities include writing amicus briefs for relevant cases and liaising with other tech companies through advocacy groups such as the Coalition for Patent Fairness and the Internet Association to determine what position Google should take on patent policy issues.

Before she came on board, these tasks had largely fallen to Lo’s predecessor Lee and others in the group. “When I joined, Google was reaching a point where these activities were being handled by people on the patent team who were doing very well; but you really need a person who has more time and bandwidth to coordinate if you want to engage more fully,” Michel explains. And full engagement is undoubtedly a priority for Google: arguably no other company has been more closely involved in framing the debate around Patent Reform 2.0.

However, Michel – a self-confessed legal and policy nerd – plays down any suggestion that Google has been in the driving seat in pushing for further change. To her, the company is merely part of a coalition of interested parties who threw their support firstly behind the Innovation Act, which was masterminded by Bob Goodlatte, chairman of the House of Representatives Judiciary Committee, and then the Senate version of the bill, which was ultimately shelved in May.

Further reform

Notwithstanding this setback, many – Michel included – anticipate that some form of patent reform will return next year. Goodlatte has already indicated that this will be one of his main legislative priorities in 2015, ensuring that Google and some other big-name tech companies (though not all) will line up with retailers and many Main Street USA businesses to demand change.

To Michel and her colleagues, the problems with the patent system are twofold. First are what they call litigation abuses, which they feel Congress is best placed to address. Second are poor-quality patents; on these, they believe, the courts should pick up the mantle. While Goodlatte’s bill addressed fee-shifting, putting limits on discovery and increasing transparency around patent ownership and financial interests in patents, Michel declines to pick out the issue that Google feels most strongly about. What the company wants, she insists, is “a strong package of several provisions to make a difference.”

The extent to which Google is prepared to compromise remains to be seen. As happened with the passage of the America Invents Act, the courts have also stepped in to rule on several issues included in the proposed legislation. Most significantly, in Limelight v Akamai the Supreme Court lowered the bar for shifting legal fees to the losing side. Despite this, however, Google would still like to see fee-shifting included in any reform. “The reason for that is the Supreme Court decision was necessarily tied to the current statute,” Michel explains. “This says fee shifting can be allowed in an exceptional case and no court is ever going to change that. They can’t change that; it’s in the statute.”

“A lot of the proponents of patent reform feel that a more objective and slightly lower bar would give you a better functioning patent system and so the drive for fee-shifting legislation will still be there,” she continues.

The question that some are now asking, though, is whether Congress should still act when there are growing signs that litigation volumes are falling. While Google still has around 200 suits pending, Lacavera confirms that over the course of this year the number of cases filed against it began to drop off.

And this trend is borne out by the wider statistics. Data analytics provider Lex Machina recently revealed that the number of patent litigation suits filed in September had declined 40% on last year; while there was a 33% year-on-year decline in October. On the IAM blog, Professor Mark Lemley of Stanford Law School – a co-founder of Lex Machina and someone with close links to the tech sector – commented that the need for legislative action is a lot less pressing than it was a year ago and argued that it makes sense to shelve reform until the full impact of recent court decisions can be assessed.

But Lo disagrees. He remains convinced of the need for reform, suggesting that people should ask what might be behind the drop in litigation volumes before jumping to conclusions. To Lo, the America Invents Act made significant progress in addressing the issue of patent quality, giving companies an opportunity to challenge the validity of patents through inter partes review. However, it did not tackle the problem of what he believes is litigation abuse; hence the need for further changes. “When we know there are several sources of problems, why not try to fix them? Why fix it halfway?” he asks.

On the other side of the debate, Google’s involvement is seen by many as an assault on patent rights. To its detractors, this is tantamount to giving the company the ability to steamroller competitors without having to worry about infringement. When so much of Google’s business is based on an open approach of directing users to its sites and ad links, they ask, why would it want a strong patent system?

“We’re on both sides of this, just like I think a lot of companies are,” counters Lo, pointing to the large number of patents that Google now owns. He adds that he does not view the question as one of weak versus strong patent rights: “I don’t like those labels; I would prefer to look at it and ask whether the patent system is achieving its purpose. And I think what most people would not disagree with is that the patent system works in some places and it’s not working in other places.”

“Google is not talking about abolishing the patent system,” he continues. “It’s about how we eliminate the litigation abuse that I think most people would agree has happened and is happening today. How do we make sure the right patents are being issued and that the quality of the patents that are being issued by the patent office is higher than it is today? And we’ve heard from a lot of NPEs who are saying the same thing. So in many ways, we’re no different from what a lot of others are saying. And the question is: how do we get there?”

Michel stresses that the goal should be to address what she sees as the root causes of the problems in the patent system, which allow outsiders to exploit the expense and the uncertainty of litigation. “What is it in the patent system that makes hedge funds want to invest in patent litigation?” she asks. “I think that’s an important question for society to think about, because wouldn’t we rather have hedge funds invest in biotech start-ups? Wouldn’t that be better for the economy overall than investing in patent litigation?”

Figure 3. The growth of Google’s patent portfolio

The Google patent portfolio in the United States and elsewhere has grown at a rapid rate over the last four years. This is down to a mix of increasing patenting within the company, but mainly through acquisition, as can be seen in the 2011 spike in the graph below, which represents the company’s purchase of Motorola Mobility and the patent portfolio that was at the heart of the deal.

164048.jpg

Rage against the patent tax

And for Google, that is the key point: the pursuit of innovation should not be stifled by courtroom battles. But who is doing the innovating – large tech companies or start-ups such as the one which emerged from Stanford University 16 years ago with a great idea and a patent to protect it? Both sides of the patent debate insist that their position would be better for the innovation climate. But if the pace of innovation over the last 30 years has been slowed by shifting patent rights, it is difficult to see evidence of this.

Many would argue that the Goodlatte Act, which Google so strongly supported, would make it far more expensive and much riskier for small, cash-strapped entities – such as the start-ups that spring out of the university system – to protect their patented inventions. In turn, that would make their innovations much more vulnerable to appropriation by deep-pocketed companies, thus driving the small guys either out of business or into sub-optimal licensing deals to stay afloat. That is good news for the big companies; but perhaps less so for the wider innovation economy.

Lo does not see it like that, though. He insists that the climate for small companies is threatened not so much by big tech stealing ideas as by patent attacks. “What would the chances be of Google succeeding as a company if it were a start-up in the climate that we have today versus 1998, when it was founded?” he asks. “I might suggest that it is harder for any company today to try to succeed. Not because of competition, but because of additional taxation through patent assertions and having to spend lots of money defending them.” That sounds like the kind of message that plays well on Capitol Hill.

From Silicon Valley to Washington DC, Google’s patent evolution has been one of the most significant changes to the market in recent years. And with its nascent licensing efforts, its new approach to the use of data and analytics and its continued push for patent reform, it is clearly not done yet. So what is Google? It is the patent system’s 800-pound gorilla, and you had better get used to it.

Digital Plus

As an exclusive benefit, the full transcripts of the interviews conducted with Allen Lo and Suzanne Michel for the Google cover story are available for IAM’s digital subscribers to read.

Richard Lloyd is the North America editor of IAM. He is based in Washington DC