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Intellectual Property: Large Companies Increasingly Rely on Huge Troves of Patents and IP to Block Competition
In recent weeks, there have been numerous prominent news stories focused on Intellectual Property (IP) rights. Companies have been exchanging billions of dollars to obtain patents and there have been court room battles over licensing and intellectual property ownership.
Intellectual property is important to the US economy. A recent report from the white house contends that jobs centering around IP employ more than 27 million people in the US and is worth $5.6 trillion to the economy. The report found that “Innovation protected by IP rights is key to creating new jobs and growing exports. Intellectual property is not just the final product of workers and companies—every job in some way produces, supplies, consumes, or relies on innovation, creativity, and commercial distinctiveness.”
Many agree that IP protections are vital for the economy, but there are also many who question whether the current infrastructure and rules in place for enforcing IP is fair. There are increasing examples of large companies with troves of patents that are making the barrier of entry into certain marketplaces impossible for any other company.
Steve Wozniac said that “Companies like Apple, Facebook, Twitter and Yahoo! all started by new thinkers with new ideas. Now, with this big patent situation, there are certain categories that are heavily blocked off because the big companies make sure they own it all.”
The on-going case over Java licensing for the Android operating system between Oracle and Google is one example of an IP war. That dispute threatens the future of the Android as a mobile platform. Loss of the case may even prohibit Google from being able to distribute Android, and that would disrupt the operations of many hardware makers who use Android in their smartphones, tablets and other electronic devices. A decision against Android could even result in preventing companies from distributing Android-based devices to their employees, although once Android device manufacturing is shut down there wouldn’t be a replenished supply of devices around to distribute. Although such an outcome may be a longshot, it could have a devastating effect in the mobile marketplace where the Android operating system now has 50.1 percent of market share, compared to 30 percent for Apple products.
In another case, Microsoft recently bought over 800 patents from AOL and gained non-exclusive access to another 300 for a cool $1 billion. The patents involved cover areas such as advertising, search, content generation/management, social networking, mapping, multimedia/streaming, and security. This follows on a agreement made in June 2011 where Microsoft and Apple took control of over 6000 patents from Nortel Networks for $4.5 billion. At the time, George A. Riedel, chief strategy officer at Nortel, said that “The size and dollar value for this transaction is unprecedented, as was the significant interest in the portfolio among major companies around the world.”
But just two months after the Nortel deal, Google shelled out $12.5 billion for Motorola Mobility which included a cache of 24,000 patents. Google is looking to sell the Motorola Mobility business but will likely hold onto the trove of patents which it acquired in the deal.
It’s interesting to note that when viewed from the perspective of companies who are creating new patents in the area of mobile devices, Google doesn’t even rank in the top 10 companies. Nokia and Samsung rank as number 1 and 2.
Intellectual property is clearly an important and complex area. The central theme of most discussions around it center on ‘fairness’. Fairness to those with the creativity and inventiveness to build and design new things. But also fairness to others who want to further invent and compete in the marketplace — currently new competition can be effectively locked out of new markets, allowing others to hold monopolies. It’s likely that the struggle over IP, fairness and regulations will take some time to sort out.