Google Should Treat Innovations Like Prized Assets

Editor’s Note: This guest post is a reaction to a blog post from Google, which we covered here. Google’s Chief Legal Officer really has two complaints. The main complaint might be justifie...
Google Should Treat Innovations Like Prized Assets
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  • Editor’s Note: This guest post is a reaction to a blog post from Google, which we covered here.

    Google’s Chief Legal Officer really has two complaints. The main complaint might be justified, but the other is essentially an attempt to excuse Google’s business strategy with respect to its innovation assets.

    Google’s primary complaint is that Microsoft, Apple and others have purchased patents in an effort to attack the Android platform and stifle competition. If this is true, and nobody knows yet whether it is true, it’s as illegal as it is abhorrent and dangerous. If Nortel’s patents don’t cover the Android platform, then they’re not capable of shutting down Google’s or anyone else’s products. In fact, if nonsense patents are asserted against Google, the malicious patent owner will end up paying Google legal bills.

    It’s also not very new – businesses have tried to form cartels and exert anti-competitive pressure for centuries. Whether these companies use patents, monopolies, exclusive arrangements or simple price collusion, competitors and more importantly the public inevitably suffer from these illegal activities. That’s why the Justice Department and the Federal Trade Commission are charged with assuring that competition is not impeded. I’m sure they’ll keep the Android platform from being wiped out.

    However, it’s a bit strange for Google to claim that it has been blindsided and its situation is wholly the fault of bad actors and a bad patent system. In fact, Google has for years virtually ignored intellectual property as a serious business asset. As a result it now faces the wholly predictable consequences.

    Most technology companies know that their innovation assets can be protected by patents or other means. They also know that a smart innovation strategy involves taking account of other patents that might be valuable to license. This is not as simple as just filing and acquiring patents; it involves an insightful management of the entire process from idea to product, and predicting the future of industries. But it’s not an unattainable goal. Many companies have mastered it in industries such as pharmaceuticals, semiconductors, electronics, chemical engineering and industrial processing.

    Companies with proactive strategies for managing their innovation assets reap the benefits expected of any good business strategy: in the long run they obviate problems before they arise, pay lower costs, deliver better products to their customers, and increase profit margins. The reason top executives earn millions of dollars is they execute business strategies which protect hundreds of millions of dollars in shareholder value.

    On the other hand, many companies which depend on innovation, lack a proactive business strategy for protecting innovation assets. They instead wait for competitive attacks on their products, and then are forced to react hastily, under pressure and with fewer options.

    Google has, in my opinion, produced some of the most impressive innovations in business history. The company is so clearly devoted to innovation and has taken it to unprecedented heights. Google Labs and ’20 percent time’ are testaments to its culture of innovation. Why they didn’t also treat their innovations like business assets is quite baffling.

    If Google had executed a proactive strategy of protecting its innovation assets, it would have simply acquired a license to the Nortel patents, say, three years ago. Microsoft had already acquired a license to Nortel’s patents by then and Google could easily have done so as well, probably for a minuscule fraction of the impressive sale price this year. These patents weren’t secret – patents are all public documents. If the patents were valuable to the smart phone market in 2011, they were certainly valuable in 2008. By that year, Google had already formed the Open Handset Alliance, filed several of its own patents on mobile telephony, and made Android available under an open source license. Also, in 2008, Nortel was well known to be in financial straits. They would have been incapable of holding out for a high price.

    Instead, Google waited until 2011, only after the patents were trumpeted in a very public auction. By that time, the stakes were much higher and Google ultimately failed to match the $4.5 billion bid by a consortium including Apple, Microsoft, RIM and others. Microsoft’s general counsel recently revealed that they even invited Google to bid jointly on previous portfolios, but Google declined. If so, Google might complain about the price of the patent pool, but not the consequences of being excluded from it.

    I’m not privy to Google’s current strategy for protecting its innovation assets, but from reading their statements about the need to file patents for a ‘numbers game’ and for ‘defensive purposes,’ it seems like they still haven’t upgraded it. Typically, this type of defensive rhetoric doesn’t end up being insightful, proactive or profitable.

    If Google doesn’t begin treating innovations like prized business assets, it will simply cede control over emerging markets to competitors that do. If they continue down this path, I expect Google will run into the same problem when it tries to branch into new areas like social networking and social gaming.

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