4 Nov
2020

Supreme Court could signal time’s up for Google’s anti-competitive IP infringement

After oral arguments for Oracle v Google close, it is time to reassess the pattern of alleged major IP infringements that has strengthened Google’s position in key markets at the expense of competitors that got there first

Google’s most effective revenue and profit growth engines – online advertising, mobile advertising, the Android operating system and Android smartphones – have all depended, to an extent, on the anti-competitive infringement of intellectual property owned by leading competitors. By seizing their hard-earned, first-mover advantages, it has claimed, Google has been able to gain, maintain and extend its online platform’s market power.

Google denies this, claiming that it has earned its success legitimately as “a law abiding company”.

Let me be clear, the invention of the PageRank search algorithm and Googlebot Web crawler by Google co-founders Larry Page and Sergey Brin are two of the best innovations in modern world history. However, the evidence indicates a business pattern of infringement that has enabled Google to secure the essential capabilities necessary for it to dominate in key areas:

  • targeted online advertising – Overture’s ad auction engine trade secrets and patent;
  • open source smartphones – Apple’s iPhone touchscreen command trade secrets and patents;
  • mobile advertising – Skyhook Wireless’ location engine trade secrets and patents; and
  • mobile operating systems – Oracle’s Java API copyright.

Without the advantages of these strategic IP infringements, there is little chance that Google could have achieved even half the financial and business success that it has today.

This is particularly pertinent now as the US Department of Justice is expected to file an antitrust monopolisation complaint in federal court soon, while in October the Supreme Court heard arguments in the Oracle v Google copyright infringement case.

A critical 1962 Supreme Court antitrust precedent, Continental Ore v Union Carbide, is particularly relevant here because it requires the courts to look at an accused company’s conduct “as a whole”. It spotlights the importance of recognising patterns of anti-competitive and illegal practices that lessen competition, maintain or extend market power, and cause consumer harms, such as reduced innovation.

Overture

Overture is the first and oldest example in the pattern because it is the original IP infringement success that appears to have encouraged Google’s co-founders to build their overall ongoing business model around the advantages of eliminating competition by taking their intellectual property and implementing proven market-leading innovations as Google’s own.

Google’s infringement of Overture’s trade secrets and patent are crucial here because they were essential and necessary for Google’s original advertising business model to launch, succeed and enable its 2004 initial public offering (IPO) and since then generate over half a trillion dollars of advertising revenues.

Evidently, Google took and used without permission the trade secrets and patented concept of the search advertising business model in 2001 from Bill Gross, founder of a company called Goto.com (since renamed Overture).

Gross invented, pioneered and proved all the essential elements of a search advertising business model that Google’s founders knew little about until they came across him – that is, targeted search advertising, the keyword ad auction model, performance price-per-click ads and the search syndication business model of paying websites for the right to handle their search requests.

Gross’ inventions remain core to Google’s dominant AdSense advertising business model and its success today.

In 2002 Google started operating a search advertising model based on all of Gross’ trade secrets and patented inventions. As Google’s search ad revenue quickly skyrocketed, Overture sued Google for patent infringement.

In 2003 Gross sold Overture to Yahoo for $1.63 billion. In 2004, to clear the way for its IPO, Google settled the patent lawsuit with Overture-Yahoo for around $250 million, avoiding a trial based on the allegation that Google stole the idea and auction method for keyword advertising, the fount of Google’s future search advertising success and eventual monopoly power.

Many argue that Google settled because it did not want investors to focus on the fact that its phenomenal revenue growth and business model was not driven by its in-house innovation.

At the time, Scott Kessler, an analyst for Standard & Poor's, said: “It was difficult for Google to acknowledge that they need[ed] another company's technology to enable their primary business to operate.”

Apple

What made Apple’s Steve Jobs so angry with Google and Android?

The simple answer is that he felt that Google’s leadership profoundly betrayed the long-time personal trust and friendship of Apple’s leadership in taking what Jobs believed were Apple’s most prized possessions. The fuller answer tells of the once close Apple-Google relationship. Some are familiar with Jobs’ strong views about Google-Android’s infringement of Apple.

Steve Jobs by Walter Isaacson, includes this famous quote: “I will spend every penny of Apple’s $40 billion in the bank, to right this wrong. I’m going to destroy Android because it’s a stolen product. I’m willing to go thermonuclear war on this.”

However, few are familiar with the story of what sparked this feud. Moreover, even fewer are aware of the length and closeness of the Apple-Google relationship, which explains the depth of betrayal that Jobs felt.

Concerning the closeness between Apple’s and Google’s leadership team, Steven Levy wrote: “There was so much overlap that it was almost as if Apple and Google were a single company.”

Operating under conditions of strict secrecy, Apple started developing the iPhone in 2004. In August 2005 Google quietly bought the Android start-up, when no one outside of Apple was supposed to know that Apple was working on the iPhone. Google Chair Eric Schmidt joined Apple’s board in August 2006.

In May 2009 the Federal Trade Commission (FTC) indicated that it viewed Google and Apple sharing board members as anti-competitive, but Schmidt defiantly and publicly represented that Google was not a primary competitor to Apple’s iPhone.

Under pressure from the FTC, Schmidt resigned from Apple’s board in August 2009.

In November 2009 Google outbid Apple to acquire mobile advertising leader AdMob. Google then launched its first smartphone, the Nexus One, in January 2010, just seven months after Schmidt publicly stated that Google did not compete with Apple’s iPhone.

In March 2010 Apple sued Google-Android partner HTC for patent infringement of the iPhone. At that time, Jobs explained: “We can sit by and watch competitors steal our patented inventions, or we can do something about it. We've decided to do something about it. We think competition is healthy, but competitors should create their own original technology, not steal ours.”

Skyhook Wireless

This little-known company is highly significant to the pattern because Google’s evident IP infringement of Skyhook’s trade secrets and patents was critical to its strategy of maintaining and extending its PC search and search advertising market power into the emerging mobile search and search advertising markets.

As a prime example of how strategically critical Google viewed Skyhook to be as a competitive threat in mobile, when Google contractually tied Google search as the default search app on handset manufacturers’ and carriers’ smartphone home screens, the only other Google app that it contractually required to be installed by default was Google’s location engine, also known as its ‘network location provider’.

In 2010, when the market for smartphones and mobile advertising was still nascent, Google’s number one location engine competitor, Skyhook Wireless – which was the original inventor and leader in wi-fi location targeting efficiency – charged that Google had stolen its trade secrets in an unfair business practices lawsuit and its patented technology in another lawsuit.

Skyhook sued Google, claiming that Google was acting in a predatory, anti-competitive way in preventing it from doing business by forcing its distributor customers – Motorola and Samsung – to stop using Skyhook software in their Android phones.

Skyhook Wireless’s business was so damaged by Google’s predatory behaviour that it was effectively forced to settle with Google for a reported $61 million in 2015.

Oracle

On 12 August 2010 Oracle sued Google-Android for billions of dollars on the grounds that it “knowingly, directly and repeatedly infringed Oracle’s Java-related property”.

The presiding federal judge in the case agreed to include an incriminating Google email that showed that Android officials at Google knew they needed to license the Java intellectual property in dispute.

That most damning evidence showed that Google’s founders wanted Google “to investigate what technical alternatives exist to Java for Android”, but Google employee Tim Lindholm said in an email: “We have been over a bunch of these and they all suck. We conclude we need to negotiate a license for Java.”

The court record has accumulated substantial evidence that Google knew that it needed to license Java but decided against doing so.

The anti-competitive effect of Google’s infringement of Oracle’s copyrighted Java application programming interfaces (APIs) has been severe.

Google decided to build Android on the foundation of Java’s source code because it was necessary to successfully jump-start Google’s 2008 launch of both Android as a smartphone operating system and Android Market as the app store predecessor of Google Play. Apple, Microsoft, Blackberry and others had a head start in the mobile space. Google needed to leapfrog them quickly or risk lock-out.

Java provided both a technical and a business solution. Google infringed Oracle’s Java code without a Java licence or payment in order to:

  • speed up Android’s time to market by avoiding time-consuming internal development;
  • attract device makers and mobile operators that already used and trusted Java technology;
  • credibly call Android ‘open source’ according to the Open Handset Alliance;
  • give it away for free to device manufacturers and mobile operators, and drive faster unit growth; and
  • tap into Java’s existing community of millions of app developers to create an Android app ecosystem that would need an Android app sales channel such as Android Market and later Google Play.

 

Google’s infringement of Java’s intellectual property is the linchpin anti-competitive catalyst that ignited the viral growth that would lead Google from having no mobile operating system (OS) and no app store to commanding the dominant Android OS and dominant Google Play app store that exist in the world today.

To keep that first-mover advantage and momentum going, Google then anti-competitively leveraged its Google search dominance network effects into mobile search, OS and app distribution, by contractually requiring device manufacturers and mobile network operators that used Android to effectively pre-install Google search as the default search engine, Chrome as the default browser and Play as the default app store.

Oracle is in year 10 of its IP infringement lawsuit against Google. This has already included a Supreme Court win and currently involves Google’s latest appeal to the Supreme Court. However, it remains to be seen whether the latest twist in the saga will succeed in halting the searching giant’s controversial behaviour.

Scott Cleland served as deputy US coordinator for international communications and information policy in the George HW Bush Administration; he is president of Precursor, a responsible internet consultancy, author of Search & Destroy, Why You Can’t Trust Google Inc and has testified before the Senate and House antitrust sub-committees on Google, and before Congress, 16 times